Numbers Game – Statistical Analysis & Management

Working with a company that has been family-owned and operated for several decades has provided me with a sort of second-hand history lesson in business-practice and management. Through the lunch-room and water cooler stories of the family's octogenarian patriarch and his son (the company’s current President), all with a heavy coating of my father’s 35 years of overlapping experience on both sides of the retail game and his tendency to comment on and contextualize everything I am exposed to, I’ve been privy to a mini crash-course in the experiences, culture and evolution of a rapidly changing and increasingly challenging business landscape.

A micro sample even within our respective market, the lessons I have learned are nonetheless universally applicable to competitive business models, which must perennially react, evolve and strive to be ahead of the curve in their given sector. Among the leading trends of the past couple decades, in direct correlation with the advancement and proliferation of computer capabilities of course, is the increased emphasis on and sophistication of market research and statistical analysis. Gone are the days in which sales was a game of throwing mud at the wall to see what would stick; today, every item must be carefully studied and micro-managed in order to exploit every shred of opportunity available in a crowded and inherently limited marketplace.

Similarly, NHL hockey has become increasingly professionalized at all levels (from management to coaching, scouting, even player personnel) in response to a progressively more competitive market for all involved. Magnifying and intensifying these pressures, the CBA and its Salary Cap structure place even greater onus on roster decisions, as shortcomings and mistakes can no longer be corrected by throwing money at the best available free agents. Where assets remain limited and funds are suddenly capped, a system that was once dominated by deep wallets suddenly and necessarily converts to an obsessive search for value.

Evinced by the emergence of a burgeoning field of study devoted to the statistical analysis of hockey (see Hockey Analytics, Puck Prospectus, Behind the Net, Hockey on Paper, Objective NHL, Hockey Numbers, etc.), the trend towards more sophisticated means of talent evaluation has also spawned the solicitation of NHL organizations by consulting groups such as Coleman Analytics. The pioneering endeavour of statistician, Richard Coleman, and former Winnipeg Jets and Chicago Blackhawks GM, Mike Smith, Coleman Analytics is breaking ground in what could prove to be a viable long-term resource for all NHL organizations.

The key to analytics, which Smith himself is careful to distinguish, is that they are not simply statistics. Stats are available in near infinite variations, limited only by the ability to objectively measure some facet of the game, but raw data can only tell you so much: the significance of analytics, on the other hand, lies in the ability to shape, contextualize, and draw relevance from the numbers. Analytics look to dig beyond the surface to discern the objectivity behind the numbers and to engineer complex new criteria by which a player’s relative impact or value can be assessed. A terrific complement to the work of an NHL GM (already tasked with formulating such guesses), analytical studies effectively present mathematically supported conjectures.

Numbers on a spreadsheet can never replace the eyes and instincts of managers and evaluators though, nor should they; according to Smith himself, his services are not to be relied upon independently of traditional forms of evaluation, but as an added layer of intelligence and confirmation (or refutation) of what you already think you know. The bottom line is that NHL organizations, like other businesses, have a responsibility to seek out every possible edge they can in order to best position themselves within their marketplace, and this new breed of analytical consultant may offer just that (Smith claims that, in 3 seasons in the NHL, 17 of 20 teams using his services have reached the playoffs).

Most infamously instituted by Okland A’s manager, Billy Beane, in the form of Sabermetrics, the analytical movement has been slower to take hold in hockey than in other major team sports. This, Smith suggests, is at least in part the result of a ‘conservative’ hockey world that is often slow to change, but one whose general acceptance of analytics as a practical tool is bound to increase as the field of study reaches new levels of depth and refinement and, more importantly, as it becomes associated with success.

At the heart of it all, however, the Salary Cap is the catalyst that made analytics a viable and desirable resource for NHL teams in the first place: putting the onus on GM’s to assemble a winning roster with capped funds, the new structure of the NHL turns GM’s from simple spenders (particularly in the larger markets) to high-risk investors who must very selectively divvy up their resources in order to obtain the highest possible returns. Players thus effectively become stocks, thoroughly studied in terms of their relative market value, expected yield and cost-effectiveness.

Pivotal in determining a solid investment? Structured analytics, of course.

Creative Capology – No Cap on Management

The post-lockout NHL has seen a rebirth of the league in many senses; among those, and taking centre stage this off-season more than any before it, is a near-obsessive focus on the Salary Cap and its constraints. While the Cap rose substantially in each successive year of its current existence (from its initial number of $39M in 2005-06 to $44.8M in 2006-07, to $50.3M in 2007-08, to $56.7M this past season), this season will see just a minute increase of $100,000 to $56.8M. The result, predictably, is increased attention to and anxiety concerning the Salary Cap and its potentially crippling effects, exacerbated by the belief that the Cap is set to actually decrease going into the 2010-11 season.

Greg Wyshynski, of Yahoo’s Puck Daddy, aptly describes this as "a symptom of cap culture," by which, he writes, “every conversation about the Game is anchored by its financial implications.” The summer’s biggest moves (including Marian Hossa’s 12-year contract with the Blackhawks, and the addition of Chris Pronger to the Flyers’ blueline) are therefore mired in debates over their long-term Cap implications rather than the impact these players may have on Stanley Cup contention. This is the sullen truth of today’s NHL, in which fans must debate not only the levels of talent involved, but also the financial ramifications of any and every move.

This fixation with the workings of the Salary Cap is evident on the executive and operational side of the NHL as well, except where fans and media generally focus on its constraints, NHL owners, GM’s and agents are caught in an obsessive search for creative loopholes by which to circumvent its obvious pressures. Like the ‘have-nots’ of the pre-lockout NHL, everybody must now make the most of a limited supply of spendable resources and so most (if not all) NHL teams now employ a full-time ‘Capologist’ to assist in understanding and managing the Cap as well as analyzing and identifying its many opportunities.

With the creative management of the Cap has come the proliferation of extremely long-term contracts with averaged down annual salaries (the pros and cons of which have been hotly contested), bonus-incentive structures and Cap-motivated player movement. One aspect of the Cap that has not received as much attention, however, and one which leaves significant opportunity for teams to improve their chances at success without negatively affecting their payroll structure against the Cap, is that there are no limitations whatsoever placed on the salaries of coaching, management and other operational personnel.

While teams in greater financial standing may no longer spend as much as they like in securing the top players available, they may still exploit their fiscal advantage by spending virtually limitless amounts of money in securing the finest scouts, GM’s, coaches, trainers and other organizational assets that money can buy. Similar scenarios can be found in other free market settings, where the pursuit of a given sector’s finest executives goes so far as to incite poaching among competing organizations. The realities of the NHL cannot be isolated from those of the business world as a whole, where competition is intense and companies will do anything and everything to manufacture whatever advantage possible within their respective marketplace.

For NHL teams, like other corporations, an advantageous structure begins at the top with the hiring and placement of the most capable and talented individuals available. With a strictly limited ability to pour resources directly into player personnel, the importance of drafting, development and decision-making become intensely magnified within a Salary Cap structure; ensuring success on the ice therefore requires an extremely competent structure at the executive and managerial level. Presenting thus a tremendous opportunity, teams would be well-served to recognize that there is no Salary Cap on management and executive-level personnel. Following one of the primary rules of business, it is the responsibility of each and every NHL organization to structure and surround itself with the most valuable assets available to it. Filtering down from the decisions of GM’s, scouts and coaches, strength at the top directly influences the bottom line—in this case, wins and losses. The first, simplest and, perhaps, most impactful place to seek solutions in creative capology is therefore to spare no expense in securing the best available people at all positions (mirroring the on-ice ideal). Anything less would be contradictory to the pursuit of success.