Download Incentive Structure in the NHL Under the New CBA Greg Thomarat

Incentive Structure in the NHL Under the New CBA
Greg Thomarat
Compensation in professional sports leagues is tied directly to the offensive output of the players in the
league. When outside economic factors force team owners to decrease the compensation being offered to
their players they are faced with the concern that lower potential earnings for players will hurt the
entertainment value of their product. This project evaluates a scenario where owners were forced to decrease
the compensation of their players and enacted several rule changes, some would suggest, in an effort to
counter the disincentive to perform that pay decreases created. The NHL lockout that caused the loss of the
2005-2006 season is a distinct moment in the league’s history because it not only marked the beginning of
the salary cap era but also spawned the introduction of many rules designed to increase offensive output.
These rule changes have changed the way the game is played to this day. This work will investigate which
of those two factors impacted player performance more. We find that player performance increased as
potential earnings decreased, a result that contradicts much of the existing economic literature.