Draft Reform: Boo Lottery, Yay Auction!

Updated: April 9, 2015 at 11:28 am by Cam Lewis

What follows is an article from Nation Network senior collective bargaining agreement correspondent and corporate lawyer @BeantownCanuck. You may remember him from his stellar work on rule 13.23, or his piece on the penalties for cap floor violations

Today Beantown discusses a way in which the NHL can move away from the classic draft format into an auction style system that maintains the fairness and continuity of the current system, but also works out some of its kinks. 

The Status Quo is Ugly

TSN’s Travis Yost, one of our best hockey nerds, wants to kill the NHL Draft. You might want to give his piece a read, because everything that follows is a continuation of the conversation that Travis begins.  

Travis has a variety of arguments that most convincingly boil down to the big two: 

  • As this year’s McEichel derby highlights more than ever, the draft lottery system rewards failure.  Tank tank tank.  It’s entirely ugly and entirely rational.
  • The corollary of rewarding failure is of course punishing success.  Generational talents pretty much always go first overall, and you are far more likely to land an elite player, at least of the offensive variety, in the top five picks.  Put together a deep team that can compete year after year and after a short while you are apt to be rewarded with a rather skimpy cupboard.  While it’s good for the league to not have the same clique of elite teams every season, it just seems not right that a well-managed top team’s fortunes should drop largely because the league turns off the tap on the most promising young players.

Travis also posits a libertarian argument.  Forcing the best young players to play for the worst teams, and tying them down for below-market rates during what are likely to be their best years, is unfair and exploitative.  That’s certainly true, but it doesn’t entirely sway me.  If you get paid millions of dollars to entertain people by playing a game, while I wouldn’t support a system that exploits you simply to make owners rich, I won’t get too broken up if you are somewhat marginalized for the sake of a more compelling league.  

The Yost Plan: Free Market 

Travis has a simple solution: get rid of the draft.  If you don’t have a draft, you avoid altogether the dilemma of how to construct a draft order in a manner that is fair and doesn’t create perverse incentives.  Why argue over the bath water when you don’t even need a baby.  Instead, let’s have a free market on 18 year olds, subject to the same salary cap system that exists for veterans.  In this vein, teenagers are transmogrified from draft-eligible future assets into full blown UFAs who have a lot of say over where they play.  Sort of like high school basketball stars declaring for NCAA teams, with the slight difference of getting to earn millions of dollars rather than getting to experience the joys of indentured servitude.  This way, how much money newbies make and which teams they play for comes down to the cap management savvy of the teams.  Travis sees this as removing all the bad incentives for teams and being fairer to the young players. 

By and large I agree with Travis about the disease.  But in my mind, he goes too far with the cure.  In part, as I mentioned, because I am less sympathetic to his libertarian argument.  And in part because I don’t think the salary cap system treats each team neutrally.  Fundamentally, there are reasons other than gross contract value for a player to choose one team over another, and you occasionally see these reasons mentioned in discussions about why certain free agents choose or do not choose certain teams.  For example:

  • Different jurisdictions have different income taxes.  Play for the Rangers, Islanders, Habs or any California team?  Fork up half your salary to the tax man.  Play for any Alberta or Florida team, or the Preds or the Stars? Your tax bill will be under 40%. (Wait, taxes can be lower in Canada?)
  • Different teams present different sponsorship opportunities for players.  You think Mats Sundin cashes them Campbell’s Chunky soup cheques as a Phoenix Coyote?
  • Some teams are known to have a media spotlight and a lot more scrutiny on players.  Some players hate that and avoid it.  Some players love that and avoid not having it.
  • Some cities suck and players don’t want to go there.  Not mentioning any names but come on you know which ones. 

Under the current CBA, full UFA rights to choose where to sign is a reward granted to veterans for their years of service.  Granting full UFA rights to anyone on their first contract could make some teams less competitive, for no fault of management.  The draft and player trades are two tools currently available to balance this out, and I don’t find Travis’s plan compelling enough to convince me it would be good to take one of those tools away.

The Beantown Canuck Plan: Draft Auction

Don’t get me wrong, I think Travis’s proposal is better than the current system.  But I would rather rebuild the machine than tear it down altogether.  So I propose a hybrid of the current system and Yost’s system.  

First off, I would keep the draft as is for round two and onwards. My plan would only shakeup round one.  The reason is simple–the problems I seek to cure are the bad incentives created by the draft order regime.  After round one, there is little difference in draftee success rates between any draft position and many spots above or below such that the rationale for tanking fades away.  Absent the key problem I’m attempting to solve, no need to do away with a system that otherwise runs smoothly.  Plus, these draft picks are seen as valuable currency for making trades.  Trades are fun.  It’s hard to make trades in a hard cap universe, so I don’t want to make it harder by taking away tradable assets that don’t have cap implications.

Round one, however, will be fundamentally different.  I propose a “blind auction”.  It could work something like this:

  1. At some point prior to the draft, each team puts forward a list of who they feel are the top 30 draft eligible players.  From these lists, a master list is compiled of the 30 players who receive the most mentions.  These players will be the only players available to be selected in round 1.
  2. Each team can then make a “bid” on each of the players on the first round list.  As per current entry level contract rules, each bid would be for a three year contract, but the ELC salary ceiling enforced under current CBA rules would be removed.  So teams can bid as high as they want as if under UFA rules.  The minimum bid amount for any player should be set at whatever is currently the typical ELC value for a 30th overall pick.
  3. The resulting contracts would also be two-way contacts with the salary for AHL play being a fixed portion of the NHL contract value (say, 30%), with the goal that there be a risk of a sizeable cap hit for sending prospects to the minors if you offer a big contract to someone not ready for the big show, but nothing too excessive that could make assignment prohibitive in all cases.
  4. You cannot bid the same amount for two different players. This effectively means that each team ranks the listed players by order of how much salary they are willing to pay for their services.  If a team bids $6 million per year for the player they want most, they should bid something lower, say $5.95 million, for their next preferred player.  
  5. Each team submits its full list of bids to the NHL without knowledge of other teams’ bids.  The player who gets the highest bid from any team is declared the first overall pick and the team with the winning bid then signs that player to the bid contract.  The winning team’s bids for the remaining players on the first round list are then voided, such that there are 29 teams left and 29 first round eligible players still to be selected.  The whole process then repeats–the player with the next highest bid from a team is then declared the second overall picked and thereby signed to that team.  And so on all the way through the first round.
  6. If there are any players on the first round list that a team does not want to sign for whatever reason, they can make no bid.  Those teams then run the risk of not selecting any player at all in the first round should they not win on any bids for any other player.  And any players on the first round list not signed to a contract as a result of this would simply return to draft eligibility in round 2 or later.
  7. In the unlikely event that two or more teams make the exact same winning bid for any player, I suppose there could be a random draw to see who wins, but I’d be interested in hearing other options for how to resolve such a scenario.  The possibility of this happening is remote in my estimation.

This is just a bare bones proposal, and there are surely ways to improve it.  But, fundamentally, this system achieves everything I want.  No more bad incentives.  Retain the fun of having a draft.  Don’t create market advantages/disadvantages for desirable/undesirable teams.  And it does a much better job than the status quo of compensating top draftees fairly.  So I like it.  What do y’all think? 

Beantown Canuck is a lawyer in real life specializing in corporate transactions and commercial contracting. Because he’s a lawyer, he wants to be clear that nothing in this piece should be construed as legal advice, although he’d like to see how you would attempt to construe it as such because, well, it’s not very legal advice-y in any way. You can follow him on Twitter at @BeantownCanuck