The Financial Frontier: Defining the Characteristics of ‘Competitive’ Salary Cap Management

This article is being co-posted on Hockey Prospectus as well as on my own site, Find me @michael_zsolt on twitter.

I recently wrote an article where I conducted a review of salary cap efficiency by team, across the NHL. In it, I argued that how efficiently a team manages its salary cap it just as important as how much they are able to spend on it. Having had some time to reflect after writing that piece, I wanted to dig a bit deeper into the subject and expand on my previous analysis.

In this article I will borrow from my prior work to try to determine the common salary cap management characteristics found in the leagues’ strongest teams. By the end I will introduce the ‘Financial Frontier’ – a concept that represents the threshold that only the ‘contenders’ in NHL are able to cross. Ultimately, my goal is to illustrate the components of financial management (within hockey operations) that are required for a team to be successful in this league.

Before getting to the frontier, let’s do a quick review of the components that make it up: (i) total cap dollars spent and (ii) salary cap efficiency.

Total Cap Dollars Spent

Prior to my initial piece on this subject, Dimitri Filipovic over at Sportsnet wrote an excellent article where he dug into the impact of total cap dollars spent on playoff success. In it, he successfully showed that the vast majority of cup or conference finals-winning teams spent at or above the league average against their salary cap.

To do so, he first showed a matrix that compares the playoff success of teams (y-axis) to total cap dollars spent (x-axis), from 2010-2011 to 2014-2015:



Source: Sportsnet

He also provided the following table, highlighting the seeming lack of success for teams that spend below the league average.


Source: Sportsnet

As you can see from the two graphics above, there are very few teams in the league that have won a conference final/the Stanley Cup while spending at or around the league average. Of the sample shown, the only teams to do so while being within +/- $5M of average were the 2010-11 & 2014-2015 Tampa Bay Lightning, the 2011-12 LA Kings, the 2011-12 New Jersey Devils, and the 2014-15 Anaheim Ducks (all found in the top-middle section of the first chart).

In the end, Dimitri’s analysis demonstrates that spending more (or at least having that option) is going to provide an advantage – which I think we all intuitively agree with. Now, let’s look at the cap-efficiency side of the equation.

Salary Cap Efficiency

 Following this analysis by Dimitri, I wrote an article of my own where I reviewed the salary cap ‘efficiency’ of all teams in the league in 2014-2015. To do, I used a methodology that I originally outlined here, where I compared the salary caps of the 2014-2015 Chicago Blackhawks and the 2014-2015 Toronto Maple Leafs.

In short, my prior methodology was based on a bottom-up analysis of all individual players on each team, their scores on the Goals Above Replacement (GAR) metric, and converting that metric to each player’s estimated ‘win value’ based on the free-agent market price of GAR in a given season. If you want to see the full detail behind the approach, I encourage you to check out the additional detail in those articles.

After applying that methodology, here was the final chart/conclusion I reached:

Chart 6 - Team Level Cap Eff - B

From the chart above, I drew a couple conclusions:

  • Cap efficiency won’t necessarily win a team a Stanley cup, demonstrated by:
    • The cup-winning Chicago Blackhawks sitting close to 0% (neutral efficiency)
    • Highly efficient teams like SJS and BOS still missing the playoffs altogether
  • However, having a poorly managed salary cap can definitely prevent a team from being successful, demonstrated by the poor performance of all teams in the red, shaded area

Although we can conclude from this work that both of spending power and spending efficiency are important factors to succeeding – we can’t necessarily make the conclusion that either one of these elements is more important. As a result, let’s get into the main point of this article, where will look at how these two figures interact with each other, and how we can use that to define the characteristics of ‘competitive’ salary cap management.

Introducing the ‘Financial Frontier’

 In order to demonstrate this point, I have mapped the same sample of teams as my prior analysis along these two dimensions (salary cap efficiency on the x-axis, total dollars spent on the y-axis). You can see the result in the chart below:

Financial Frontier

Personally, I think the insight within this chart is pretty neat. Examining it, some clear patterns emerge:

  • Naturally, teams want to be in the far top-right corner of this chart – where they are able to spend to the salary cap, and while doing so as efficiently as possible
  • As you can see – the further to the top right that teams get, the more likely they are to have made the playoffs, or be successful in them
    • Although anywhere in the top right quadrant is a good place to be, there is a clear cluster of (almost exclusively) playoff teams even further towards the corner
    • This cluster is concentrated around (a) spending roughly at the max salary cap, or (b) spending above/close to the league average on the cap, while having an efficiency at a positive 20% or greater
  • Based on this cluster, I have overlaid a line I labeled the ‘Financial Frontier’, representing the combination of total spend and cap efficiency that teams need in order to be competitive in the NHL

Overall – this analysis illustrates a trade-off that I think intuitively makes sense: spending more can make up for spending less efficiently; conversely, if you can’t spend to the limit, then you are forced to make up for it by being extremely efficient with your dollars. All that said, teams that don’t care about contending (say maybe, the pre-Shanahan Leafs?) should feel more than welcome to do whatever they like…

Final Thoughts

Looking at a few specific examples on this chart and comparing them to ‘commonly’ held views of each team can also help support the conclusions of this analysis. For example, the only teams who made the playoffs but were not at or past the Frontier were VAN, CGY and MTL. As most hockey fans are aware of – Vancouver and Calgary were largely considered fortunate to have made it into the playoffs at all, with many seeing Calgary as only making the second round by virtue of having played the Canucks in the first. Likewise for Montreal – as this past season’s results demonstrate – they were somewhat of an anomaly in 2014-2015, given the unbelievable value contributed by Carey Price being the major reason they were contending like they did.

Similarly, San Jose*, Dallas and LA’s strong positions at or past the Frontier make them look like outliers for having not made the playoffs. Lo and behold, all three were major contenders this year, all of whom had legitimate chances at making the Conference finals this year, if not the cup – and all doing so with relatively minor changes to their rosters.

*(Note: My salary cap data source may not properly account for all of San Jose’s total cap spend in 2014-2015, as it may be missing (at least) some cap-buyout dollars, at ~$5M for SJS. San Jose’s total spend was likely closer to high 60s. However, this error should not change the outcome of this analysis).


 In the end – I don’t think anyone will be too surprised by the fact that it is important both to have the flexibility to be able to spend to the cap, as well as to use those dollars as wisely as possible. Overall, it should be becoming clear there are a wide range of new financial dimensions that (I expect) teams have been placing increasing weight on when making decisions. For fans whose teams are performing poorly in the Frontier chart above, the silver lining is that many of those teams (Florida, Toronto, Buffalo) are well on their way to improving both their salary cap and roster situations towards becoming contenders once again. On the other hand, for fans of teams that look OK in the chart above, but who haven’t been aggressively managing their cap commitments (NY Rangers, Detroit) – you may want to brace yourselves for some less than pleasant years to come.

Does Stamkos Fit in the Shanaplan? A Long Term Analysis of the Leafs’ Salary Cap

This article is being co-posted on Maple Leafs Hot Stove as well as on my own site, Find me @michael_zsolt on twitter.

“We have a five year plan that changes every day” – Lou Lamoriello

I recently wrote an article focused on estimating the value of Steven Stamkos’ production over the next seven years. In it, I concluded a ‘fair’ price for a player of his caliber would be $9M-$10M for the maximum term (7 years). Further, I suggested that – given Steven’s negotiation position resembles an auction – we should expect Stamkos to find a team willing to give him the high end of that range.

So, the next logical question posed by fellow Leafs fans:

“OK – Stamkos is worth a lot. But does it make sense for the Leafs to pay him that much?”

In this article I will walk through a detailed review of the Leafs’ cap over the next 7 years, and the strategic questions facing them. Looking at this analysis, my own conclusion is that Toronto should definitely attempt to sign Steven Stamkos – however, like in any negotiation, they should do so own their own terms, and only in a manner that fits within their broader salary cap strategy.

So – let’s get into it.

Approaching Long Term Salary Cap Analysis

Teams must consider a wide range of factors when planning their long term salary cap management. Besides ‘team-level’ factors, like on-ice strategy and their ‘competitive window’, there are a range of factors that must be evaluated for each individual player signed (on both a near term and long term basis):

Naturally, writing an article that goes in depth on all of these topics would take thousands of words – so I will have to narrow my focus somewhat. Today I will be focusing strictly on the financial side: how to analyze a team’s salary cap strategy and contract commitments over the long term, and what that tells us about the Leafs’ decision to pursue Steven Stamkos.

Before getting into the Leafs’ cap situation, I want to first talk about (i) the principles behind this type of analysis, and (ii) an example of a team who has managed their cap along these principles in the past.

‘Asset-Liability Matching’

A major principle used by financial services companies is the concept of ‘matching’ assets to liabilities. In the case of banks, insurance carriers, and pensions – this means forecasting the future payments to their clients, and then building portfolios of assets (investments) to match when those liabilities will become due over time.

This line of thinking is extremely applicable for the strategic management of a salary cap. In the NHL the ‘assets’ are players – represented by a bottom-up forecast of each player’s individual production – and the ‘liabilities’ would be the length and term of each player’s contract. Production could be considered as either basic goals/points or as advanced stats like Goals Versus Threshold (GVT)/Goals Above Replacement (GAR).

The objective of this exercise is to closely match the value of your players (assets) to the cost you incur to secure them (liabilities) over time – while maximizing total value. In the interest of time, I will not be building a Stamkos-like production forecast for the entire Leafs’ roster. Instead, I will focus strictly on the liability side of the equation, and try to build up the estimated contract dollars and term for all of TML’s future ‘core’ players.

Before getting into the Leafs, let’s look at an example of an organization that has applied this approach beautifully in the past.

Salary Cap Management: Best Practices

Despite their recent 1st round exit, Stan Bowman’s Chicago Blackhawks represent one of the model franchises in today’s NHL (as I have previously written about). Borrowing a chart from that article, you can see that Bowman has been able to closely match each player’s proportional contract dollars and total production, when compared to the team as a whole.

Hawks - roster construction

As you can see, most of Chicago’s top 8-10 players in AAV (average annual value) closely match their top 8-10 players in terms of Goals Above Replacement – with many ‘outperforming’ their cost to some degree (e.g. Saad).

Looking at Chicago and others around the league, the best practice appears to be assembling a ‘core’ of players that can be secured for the long term. These core contributors typically represent ~60-80% of the team’s cap, while the remaining 20-40% can be dedicated to short term contracts, strong prospects on ELC deals, and cheap, role-playing replacement-level players for depth and filling specific needs.

Now – enough pre-amble – let’s talk about the Leafs:

TMLs’ Long Term Cap Strategy

 To analyze the Leafs’ salary cap, I will to look at:

  1. Current contract commitments
  2. Estimating future cap constraints
  3. Estimating future commitments to ‘core’ players

Ideally this analysis will both help us understand Shanahan, Lou, (and namely, Brandon Pridham’s) plan for the organization, as well as whether or not Stamkos fits within it.

To be clear: the upcoming analysis uses almost entirely estimates and will require many placeholders to complete it. As a result, this analysis as a whole should be considered ‘illustrative’.

TML’s Total Contract Commitments

 Given the NHL has a 50 contract limit per team, let’s start by looking at how many players the Leafs have committed to over the next seven seasons (all data here is courtesy of

Leafs Contracts

(Note: Although the league limit is 50 contracts per team, General Fanager caveats that six of the Leafs’ contracts in 2015-2016 are exempt: Zaitsev, Marner, Dermott, Kaskisuo, Nielsen, and Timashov)

Beyond the 2015-2016 season, Toronto has a solid amount of flexibility in terms of total contracts. However, the number of contracts is likely the smallest piece of the puzzle, and salary cap dollars will be the more important factor.

Historical/Future Salary Cap Growth

In order to have a meaningful projection of the Leafs cap, we first need an estimate of their future cap constraints. To gauge that, let’s first look at the growth of the salary cap over the last 10 years:

Historical Salary Cap

This chart shows the NHL salary cap can change dramatically over time – it rose from $39.0M in 2005-2006 to $71.4M this year – a CAGR (compound annual growth rate) of 7%.

However, we shouldn’t assume this rapid growth will continue – especially given the recent weakening of the Canadian dollar. Instead, I have projected the future annual salary cap growth rate to be roughly ~3% on average, shown in the chart below.

Projected Salary Cap

Given the NHLPA’s tendency to use its ‘inflator’ clause, along with the general currency inflation rates in Canada and the US being in the 2-3% range, I consider this 3% estimate to be a conservative assumption. Although the chart above will likely be wildly incorrect on a year-to-year basis, over the long term it will serve our purposes of providing a conservative estimate to be used going forward.

Leafs’ Existing Contract Commitments

 Now, let’s look at the contract dollars the Leafs have already committed against their salary cap:

Leafs Contracts - Projected

Much like the last chart, you can see the Leafs have some flexibility for the upcoming season, with roughly ~$16M of cap space available (assuming the 3% growth materializes). After 2016-2017, the Leafs have a huge amount of cap space available – in large part thanks to their trades of Phil Kessel and Dion Phaneuf over the last two seasons.

Although the upcoming sections will be focused on the 3+ year future for the Leafs, for anyone interested in a detailed review of the 2016-2017 and 2017-2018 Leafs rosters on a player-by-player basis – check out this great post by @yakovmironov from Bloggers’ Tribune.

TML’s Future ‘Core’ Players

When looking to the Leafs’ future, I will focus my efforts on the Leafs’ ‘core’ players and rough estimates of these players’ future contracts. As the Blackhawks’ strategy shows, the other ~40 contracts will likely change on a year-to-year basis, so it makes sense to focus strictly on the major assets. Although some other players may warrant inclusion, I think most fans would agree on the following guys:

  • Nazem Kadri
  • William Nylander
  • Mitch Marner
  • Auston Matthews (assuming they take him)
  • Jake Gardiner
  • Morgan Rielly
  • Nikita Zaitsev (assuming Zaitsev plays out as hyped; otherwise, consider him a top-3 D placeholder)

Of these seven guys, the Leafs recently locked up Rielly and Kadri until 2021-22 – six years each – and have three years left on Jake Gardiner’s contract. Of the players omitted, the strongest argument for inclusion would be JVR. Given Van Riemsdyk’s UFA deal will likely be significantly more expensive than his current one (at $4.25M AAV until 2017-2018), I have not included him in the ‘core’ group; however, I will re-visit JVR later on.

Let’s look as this group as a whole in terms of dollars that have been committed to them to date:

Core - Commitments

Notably, the Leafs’ don’t currently have an answer for their long term option in net. Maybe Reimer returns or maybe Kasimir Kaskisuo becomes the long term option – it is too soon to say. Regardless, having a #1 goalie is essential to any teams’ success, so I have included a placeholder for the Leaf’s future goalie in my analysis.

Forecasting the Leafs’ Next Seven Years of Salary Cap

Although the Leafs’ core players don’t have huge contracts yet – those deals will eventually come. The issue Stamkos presents is 3-5 years down the road, when many of these young stars need new, big-dollar deals. In order to understand how much space the Leafs could offer to Stamkos while not sacrificing their top young talent, I have estimated the AAV of each core player’s next contract. To do so, I simply picked a relatively comparable player for each and used the comp’s AAV as a proxy (see footnotes for specifics).

The next two charts summarize a high-level view of the Leafs’ future cap situation, both in absolute dollars and as a percentage. I have included Steven Stamkos for the sake of illustration.

Leafs core projected - aav

Leafs core projected - cap percentage

Looking at the charts above, I think there are reasonable grounds to argue the Leafs should pursue Steven Stamkos, given:

  • The Leafs project to have ~$25M in cap space remaining in their tightest future year (2019-2020), representing 30.4% for non-core players, almost exactly the amount of the 2014-2015 Blackhawks
  • Assuming long term salary cap inflation, this number continues to slowly decline thereafter

Based on the above, I think it is safe to conclude that there is space for Stamkos within the Leafs’ future salary cap space. Naturally, we could debate the appropriate number to project for each player, but treating the ‘core’ as a whole, I think the outcome will be largely the same. Some fans may argue they would rather have 3 or 4 more of the current Marlies for 4-7 years than have Stamkos; however, I personally subscribe to the view that NHL teams require ‘elite’ talent (15-20+ GAR) to win a Stanley Cup – and not just a lot of ‘good’ talent.

One last note: including JVR at $6M per year starting in 2018-2019 would put the Leafs at 77% of the cap allocated to a core of 10 players (in 2019-2020). I think this is the absolute high-end of the range to give to a core group. That said, it would be hard to argue with the strength of that set of top 6 forwards and top 3 defensemen, all ideally supplemented by a goalie that deserves the $6M per year being allocated to his position.

Before wrapping up, I want to touch on two final areas: mitigating ‘over-payment’ risk, and TML’s negotiation strategy.

Minimizing Over-payment Risk

Many fans are concerned that signing Stamkos’ could create a cap drag in the last 3-4 years of his deal. Generally, I agree that this is a reasonable concern – but as I mentioned earlier, I believe the Leafs should attempt to sign Stamkos, but only do so on terms that fit their own strategy and needs.

The Leafs can limit their over-payment risk by refusing to give Stamkos a full No Move Clause (NMC) or No Trade Clause (NTC) – instead, they should only offer deals with a modified NTC (allowing Steven to list ‘X’ teams he will accept a trade to). A modified NTC is a strong hedge against the potential downside of the Leafs overpaying Stamkos, as even if he declines, they likely will be able to offload him for some combination of picks, prospects and retained salary. There happens to be a clear precedent for this clause in Stamkos’ UFA comparables  with 50% of them (Ovechkin, Nash and Kessel) having agreed to modified NTCs. Last, the Leafs would also be wise to front-load Steven’s cash compensation (salary), to increase his outer-year appeal to ‘budget’ teams that are cash-poor but have ample cap space.

Side note – @yakovmironov also included a great table in his article that summarizes the production of many 33-year old NHL players (Stamkos’ age in the final year of his contract) –it isn’t as bad as you might think.

Approaching the Stamkos Negotiation

Based on all of the information above, I think the Leafs should give Stamkos an ‘opening offer’ of $9.5M for 7 years, including a modified NTC for the duration of the contract. Depending how the negotiations proceed, I would recommend Toronto be willing to increase this offer up to $10M per year, and to reduce their NTC to only the final 3-4 years of his term. I personally suspect that if Stamkos has interest in coming to Toronto in general, that he would be willing to accept somewhere in this range. However – as in any negotiation – it is essential Toronto knows their maximum offer, and that they are willing to walk away from the deal if Stamkos pushes for anything beyond it.


Overall, I think the Leafs would do very well to try to sign Steven Stamkos this July. Stamkos is an elite shooter, a former first-overall pick, and a potential captain who could lead Toronto through a key stage of their rebuild. Projecting forward the Leafs’ core talent shows there should be a reasonable amount of room in the Leafs’ cap space for him, while keeping roughly ~30% of their salary cap to be allocated outside the top ~10 players on the team. Finally, by only offering Stamkos a contract that includes some version of a modified NTC – and otherwise walking away – the Leafs can carefully mitigate their biggest risk in this contract while also signing a hugely valuable asset at the same time.

In the end – I suspect the Leafs’ front office has a very clear view of their current long term roster construction plans, approach to salary cap management and their strategy for negotiating with Stamkos and his agent. As a result, all that is left for us fans to do is to sit back and count down the days until July 1st.


Valuing Stamkos: Estimating What Steven’s Next 7 Seasons are Worth

 This article is being co-posted on Maple Leafs Hotstove as well as on my own site, Find me @michael_zsolt on twitter.

 All season long, Toronto fans have been talking about Steven Stamkos. It is well known that Stamkos will be an unrestricted free agent (UFA) this July. This means that – you guessed it – Steven Stamkos could become a Leaf. Naturally, if it happens, many fans have presumed Stammer would be named captain, immediately become the face of the franchise, and lead the Leafs through its centennial season and beyond.

As a result, many have also asked – what is Steven Stamkos worth? Assuming he reaches UFA status, what will it cost the Leafs to sign him? Does he deserve the same type of money as Kopitar, Kane, and Toews? Back in January, Ryan Kennedy over at made some reasonable comparisons and suggested that he sees Stamkos as being worth roughly ~$9M in AAV. Full credit to Ryan – as that was earlier in the season and somewhat different situation – however, in this article I will argue that it is extremely unlikely that any team, Toronto included, will be able to sign Stamkos for an AAV of less than $10M, or for much less than the maximum term of 7/8 years.

Before getting into the approaches to valuation, let’s look at some of Stamkos’ key statistics to understand exactly how he adds value.

Stamkos’ Goals Above Replacement (GAR)

Stamkos GAR BARs

 (If this data doesn’t mean much to you – I recommend you check out my summary of the practical applications of Goals Above Replacement).

For individual player analysis, GAR (Goals Above Replacement) can be a useful starting point to illustrate the big picture. Looking at Stamkos’ GAR shows us:

  • He performs at an elite level, hitting 15-20+ GAR all but his rookie season, something done in fewer than ~6% of all player-seasons
  • Stamkos contributes value to his team almost entirely through his offensive play:
    • 95% of Stamkos’ career GAR comes from his offensive ability, approximately 2/3rd of which coming from his shooting percentage (15.2% at 5v5) and 1/3rd from his impact on shot-rates (Corsi For)
    • At times over his career he has been a slight defensive drag to his team – but ultimately he is a relatively neutral contributor in non-offensive areas
  • As noted in the chart, Stamkos’ 2012-2014 results may not be indicative of his capability as the seasons were impacted by the lockout and his broken leg, respectively

We likely didn’t need GAR to tell us any of the above, as many would know most of this from simply watching Steven. However, GAR will be important to keep in mind for when we estimate Stamkos’ value later on.


Next, I have copied Domenic Galamini’s WARRIOR chart of Stamkos, showing Steven’s relative performance within the league on a number of metrics. For those not familiar with WARRIOR charts, Dominic provides a great summary here.Stammer solo

Looking at this chart confirms the following:

  • Stammer is an elite scorer and a solid playmaker, scoring very high on Goals/60, Primary Points/60, RelCF60 and RelxGF60
  • Stamkos should not be considered a two-way forward: his defensive contribution is sub-par, as shown by his shot/goal suppression (CA60Rel/xGA60 Rel)
  • As a result, when valuing Stamkos, we should be comparing him to similar elite shooters (e.g. Ovechkin, Kane, Perry), as opposed to the leagues’ finest two-way forwards (e.g. Toews, Kopitar, Bergeron)

Given that elite shooters don’t always excel at driving 5v5 CF%, it will be important to keep in mind shooting percentage and power play results when comparing Stamkos to other players.

Before we get into valuing Stamkos, let’s quickly look at the qualitative side of the equation.

A Note on Intangible Factors

Although the hockey analytics community tends to discount ‘intangible’ factors, I personally consider them very meaningful. Consider: if you have two players with similar stats – would you pay more for the driven, hard-working, high-character guy, or the player who demonstrates none of these traits?

We all know Steven Stamkos is a strong leader. Last season he captained his team to game six of the Stanley Cup final. He also has an incredible work ethic; he is well known for his rigorous offseason training with Gary Roberts. While these strong intangibles are difficult to quantify, they still should play a meaningful role in justifying a premium valuation for Stamkos. But first – what aspects can we quantify?

Approaches to Financial Valuation

In the world of corporate finance – buying and selling companies – great effort is spent attempting to value the businesses being acquired. Generally speaking, there are two approaches:

  1. Relative (market based) valuation methods
  2. Intrinsic valuation methods

Let’s start with relative valuation methods.

Market Based Valuation: Comparable Company Player Analysis

For investors, ‘comparable company’ analysis is a key aspect any deal. The valuation multiples of companies across an industry (e.g. ‘Enterprise Value / Earnings’) set the baseline for determining what the price should be for a similar one. As many readers will know, the exact same approach is often applied to players: we can look at a set of comparable elite shooters to help derive a benchmark for Stamkos’ market value. Keep in mind – relative valuation methods like comparables tell us what others are willing to pay for an asset (the market), not necessarily the inherent or ‘true’ value of it.

Using Corsica’s Similarity score feature, focused specifically on Stamkos’ most important stats (e.g. G/60, P/60, Sh%), I have arrived at the following set of comparables. All players listed below had a similarity score of at least 85% with Steven. I have also tried to present this similarly to how it is done in finance:

Comp Table

(Note – All data shown is all situations, except where specifically noted).

As you can see, few players in the league score goals and contribute primary points at the same rate as Stamkos. Compared to this set as a whole, Stamkos outperforms the group average for all metrics listed, except for the Corsi stats and FirstA/60.

However, for this analysis to truly be relevant, we can only really compare Steven to players in the same free agency situation when signing, i.e. UFAs. As such, I have highlighted the four UFA players that I consider as having the most comparable performance statistics to Stamkos: Patrick Kane, Alexander Ovechkin, Evgeni Malkin, and Corey Perry. I have also shown their four-player average at the bottom of the table. As you can see, Stamkos is neck and neck with these players on every metric.

In terms of dollars, these four players averaged an AAV of $9.7M, and had an average term of the maximum 8 years. Considering that these players are also not historically known for their exceptional leadership qualities – which Stamkos has in spades – you can begin to see the case for Steven to be earning $10.0M-$10.5M+ per season.

Intrinsic Valuation Methods

In financial markets, the other approach to valuation is using ‘intrinsic’ methodologies – e.g., trying to derive what is a company is worth in an absolute sense. When valuing a company, this is based on the discounted ‘present value’ of a company’s future cash flows – how much money a company will generate cash for its new owner in the future.

My view is that the best ‘intrinsic’ player valuation method available based on public stats is using GAR, which I introduced at the beginning. The first approach I will use is valuing a player based on his historical GAR score, which I have shown previously. The second is a new approach, where I will show a high level attempt to forecast a player’s future GAR – and use that to derive what he should be paid. When we have confidence in a forecast for a player – (which I won’t necessarily say about my own Stamkos GAR forecast today) – forward-looking analysis will be the most ‘pure’ measure we can use in valuation.

Historical GAR

First I will plot Stamkos on the Fair Market Value curve, in order to see what he is worth based on what he has done historically. Typically I would encourage using a 3-year average GAR – however, due to the issues of the lock-out season and Stamkos’ injury, I will instead use his career average (ex-rookie season) GAR of 22.

Historical GARLooking at this chart shows:

  • Stamkos’ career Avg GAR/season of 22 values him at $10.8M in AAV
  • However, historical GAR will tend to over-estimate a player’s value, as it is backward-looking, and does not adjust for how players decline with age
  • As such, though this is a useful data point, we should take it with a grain of salt

Forward-Looking GAR: A High Level Estimate

To truly estimate a company’s, or players’, intrinsic value we need a forecast of how it/he is going to do in the future. Of course, like any prediction, this type of estimate is inherently flawed and almost never is how reality actually plays out. However, creating a forecast can help us to see some reasonable scenarios of how Steven might perform in the future. To do this, I will combine his past performance with the aging curve of a typical NHL forward.

Fortunately for us, part 2 of Moneypuck’s Building a Contender Series has an excellent chart that summarizes the league-average GAR aging curve for forwards (is anyone tired of me referring to this series, yet?):

Moneypuck GAR Aging curve

(Source: Moneypuck)

In order to connect this to Stamkos’ expected performance, I will use a rather blunt methodology of simply applying the same absolute value of decline in GAR score showed here to ‘extend’ forward Stevens’ historical performance. The most accurate way to do this would likely be to base Stamkos’ long term decline on how his comparables declined at the same age. However, for the purpose of brevity, I will use this simplified approach to help illustrate the methodology.

Stamkos GAR Forecast

In the chart above I did the following:

  • Extended the ‘historical’ performance by one year in 2015-2016, assuming his current season is comparable to 2014-2015
  • Starting at Stamkos’ current age of 26, I applied the absolute decline from Moneypuck’s chart to Stamkos in five and three year chunks
    • (As you can see, the projection begins to decline more quickly after 2020-2021F)
  • Last, I adjusted this ‘base’ case by +20% and -20% to create illustrative upside and downside cases

Although this is a very high level estimate, I think this gives an interesting, basic idea of what we could expect from Stamkos over the next eight seasons. What does this equate to in terms of dollars? The base case results in an average GAR per season of 18.3, equating to $9.1M per year in AAV. The downside and upside cases each average GARs of 14.7 and 22.0, respectively, coming out at AAV values of $7.4M and $10.8M.

Sizing it all Up

So – lets stack these all up next to each other:


Naturally, looking at a wide range of methods gives a wide range of potential values. However, all three of these approaches can be used to justify a valuation for Stamkos at $10.0M+ of AAV. There is also every precedent for him to get the full 8-year maximum term, or 7 years with the Leafs (in the case of a UFA signing with a new team). We can all be sure Stamkos’ agent is well aware of all of these approaches and will be pushing for the high end, trying to secure as much as possible for his client.

Practicalities of TML’s Negotiation Position

Much like in valuing and buying/selling companies – you can do as many fancy calculations as you want – but something is ultimately worth what someone is willing to pay for it. Given that Stamkos is a UFA, he is essentially able to auction his contract to the highest bidder – putting all of the power in his hands. This power dynamic, combined with the prior valuation approaches, gives me strong reason to believe Stamkos deserves $10M+ – and teams should be willing to pay it, if they have the cap space available.

I’m sure some readers will point out that Stamkos’ basic counting stats (goals/assists/points per game) have declined in the past two seasons, which may be a red flag for the future. Travis Yost and Stephen Burtch both addressed this somewhat, arguing that his quality of teammate and usage are both factors that may be impacting his performance. However, in terms of the value he commands, the strength of his negotiation position will ultimately rule the day. If teams want him, it will take big dollars to get him – either they will be willing to pay for an elite player, or they will not – and I suspect there will be at least one team left standing at a double-digit AAV.


In the end, I know Leafs fans will continue to argue that Stamkos wants to come home, and that maybe he will take a hometown discount to join the Leafs. Although this is possible, in reality the Leafs should not be expecting to walk into a bargain contract with Stamkos. He is an elite scorer, a strong leader, he deserves a top dollar contract, and I strongly believe there will be a team willing to step up and give him the $10M+ per season he commands. Stamkos is entirely worth that amount, and he is an excellent candidate to lead this young Leafs’ team through their centennial season, and six more after that. All us fans can do now is sit and wait.

Your move, Lou.


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The Importance of Financial Analysis: A League-wide Review of Salary Cap Efficiency

Dimitri Filipovic recently wrote a great article summarizing that – despite the NHL’s rhetoric of ‘parity’ – it is a still a league where the teams’ with the greatest financial resources tend to be the most successful. After reading his piece, I wanted to write a short article building on this concept, where I will show that although having more resources is an advantage, how efficiently a team manages its salary cap space is just as important as how much they spend.

In this piece I will apply the same methodology I have used previously, where I showed how the Goals Above Replacement (GAR) metric can be used to quantify both a player’s and their team’s salary cap efficiency. I will apply the same methodology in order to do a league-wide review of salary cap efficiency in 2014-2015. Doing so, I will argue that (i) salary cap efficiency is an integral lens for all teams to look through when building their roster, and (ii) although an efficient use of salary cap alone will not win a team the Stanley cup – ignoring this type of financial analysis can quickly push them out of Cup or playoff contention entirely.

Determining Team-level Salary Cap Efficiency

Salary Cap Efficiency is defined as how effectively a team uses its salary cap space, based on a bottom-up analysis of each individual player.  To calculate it, I first derive the fair market value of all players as a function of their GAR (FMV = $575K + ($467K * GAR)). Then, I compare that to the Average Annual Value (AAV) of each player’s contract – his cap hit – in order to see if he is being over or under-paid. By aggregating this analysis for an entire team, you can see (a) which player contracts on each team are the most cost-efficient, and (b) approximately how well that team manages its salary cap as a whole.

As a quick refresher, here are two previous charts that summarize the cap efficiency of the 2014-2015 Chicago Blackhawks. The first chart shows all members of the team in relation to the Fair Market Value equation that I just described. The second shows the amount of value created or lost on each individual’s contract.

Hawks - Arbitrage line

Hawks - by player calc

You can see from this that – as the Stanley Cup winning team – most of Chicago’s players are quite close to the FMV line, with only a few exceptions (Seabrook, Toews, Saad). Also, to be clear, we should never expect a team to price/negotiate any given player’s contract ‘perfectly’ – there will always be far too many changing variables in that player’s performance in the years after signing. However, a team can be most competitive by largely signing players with positive GAR, and by generally paying them within a reasonable range of their FMV – or much less, as enabled by their ELC/RFA deals.

In the second chart, I also want to draw your attention to the ‘Net Value Created/(Overpaid)’ figure shown under the legend, of -$6.3M. This figure is the sum of all individual player amounts displayed on the chart. Keep it in mind, as it provides the core of my analysis in the next section.

 (Side note: this Net Value Created figure for the Blackhawks specifically will not tie perfectly to my analysis in the next section. The next section is based on team 2014-2015 GAR scores, where the chart above is based on 3-year average GAR).

Application Across the League

Now, I will apply this type of analysis across the league in order to show which teams had the most cap-efficient roster in 2014-2015, and how that may have impacted their results in the standings. Given this is a GAR-based analysis I will start by showing the total Goals Above Replacement of all teams in the league.

Chart 1 - GAR by team

Looking at this, a few things are worth pointing out:

  • The vast majority of playoff teams are concentrated on the left hand side of this graph, and likewise the non-playoff teams are on the right
  • There are obviously exceptions where teams likely should have made the playoffs, but didn’t (e.g. BOS, LAK), or teams that did make the playoffs and maybe shouldn’t have (CGY, VAN)
  • Although this is a sample of only one season, I think it supports the validity of GAR as having a strong connection with a team’s success – despite only being available retroactively

In order to keep this brief I will fast forward a few steps (e.g. I will not show the calculations for getting the FMV of each team’s roster, and subtracting their total salary cap hit from that). Instead, here is the result, which is the Net Value Created/Overpaid for each team over the season, in absolute dollars.

Chart 2 - Net Value Created by team

Although this is a useful way to look at how well a team spent, it is also impacted by their total salary cap dollars. Given Dimitri’s point about the varying spending power across teams, it is important to look at this on a basis that is directly comparable across teams. As such, I have calculated each team’s ‘Salary Cap Efficiency %’ by simply dividing their Net Value Created by their total cap hit. The larger the percentage, the more efficiently a team has managed its cap.

The chart below shows the relationship between where a team finished in the playoff race along with its Cap Efficiency %. To be clear – a higher percentage (top of the chart) is a more efficient use of cap space, and a lower percentage is a worse use of cap space.

Chart 3 - Team Level Cap Eff - A

Here are some observations from this chart:

  • Most playoff teams are above 0% on cap efficiency – e.g. successful playoff teams are not wasting money by overpaying for players
  • Notably, Chicago was barely above 0%, having won the cup, and both Nashville and Winnipeg were in the ~30% range, while both being eliminated in the first round – showing that maximizing salary cap efficiency clearly won’t win you the Stanley cup on it is own

As Filipovic’s article made clear, greater financial resources will always help a team get the best talent, despite their efficiency or inefficiency. This chart does not highlight which teams spent the most overall, and naturally if two teams are getting the same ‘bang for their buck’ (spending at equal efficiency), the team that spends more will of course win out.

Despite this, a team can very easily ruin its own chance of being a contender by failing to look at its roster through a properly quantified salary cap efficiency lens. Below is another version of the same chart, where I have highlighted the large and unfortunate set of teams whose inefficient use of cap space has very likely impacted their ability to be a contender.

Chart 4 - Team Level Cap Eff - B

Fortunately for the teams in the bottom left quadrant, I think they are all well aware of their situations, and doing everything in their power to undo the current mess they find themselves in (with maybe one exception).


To wrap up, I think it should be clear that any team not conducting salary cap efficiency (or similar) analysis when contemplating its long-term roster construction is taking a significant risk. Being the most cap-efficient team may not be able to win you a Stanley Cup on its own (which Boston and San Jose learned the hard way in 2014-2015) – but having a very poorly managed cap is uniquely capable of taking your team out of contention. All that being said, we of course should keep in mind that cap efficiency is only one piece of the puzzle – to use dollars efficiently a team first has to acquire players worth spending money on.


The Model Franchise: GAR, Roster Construction, and Maximizing Team-Level Cap Efficiency (Part 3)

 (OSA’s WAR “Explainer” Part 3)

This article is being co-posted on Maple Leafs Hot Stove as well as on my own site, Find me @michael_zsolt on twitter.

Thus far in my Wins Above Replacement (WAR) ‘Explainer’ series I have covered:

  • Goals Above Replacement (GAR) & Player Evaluation, and
  • Using GAR to Quantify Player Value & Salary Cap Efficiency

Now, for the final post in the series, I’d like to show how GAR can be applied to team level decisions. First, I will show some analysis done by Moneypuck to demonstrate the relationship between GAR and standings points. Second, I will look at the 2014-2015 Chicago Blackhawks and Toronto Maple Leafs to show (i) a textbook example of using GAR to guide a team’s roster construction and salary cap management and (ii) what happens when a team ignores it altogether. Last, using the 2000-2015 Chicago Blackhawks as the best example of a modern ‘Model Franchise’, I will show how Brendan Shanahan’s Leafs’ organization seems to be borrowing a few pages from the Blackhawks’ playbook of the last decade.

Why GAR is Important for Roster Construction

Last summer, Moneypuck did some excellent analysis where he demonstrated the very strong relationship between a team’s total GAR score and its points in the standings – even stronger than Corsi. I borrowed the chart below from Moneypuck’s analysis, showing how a team’s GAR score for a season on the x-axis can be a driver of its total points, on the y-axis.

Moneypuck image


Here is a summary of his findings:

  • Based on the R2 above, GAR has the ability to predict roughly 72% of how a team will end up in the standings (retroactively)
    • This compares to ~38% predicted by 5v5 Corsi%
  • Using this equation, a team with a total GAR of zero – the same as a hypothetical ‘replacement level’ team – would score roughly 76 points in the standings
  • Adding players above/below replacement level to a team would conceptually ‘move’ that team’s expectations up or down the curve shown, based on that players’ GAR

Moneypuck then split up all conference finalist teams since 2009 by GAR score, and had some pretty clear findings:

Moneypuck chart

Note: All GAR data original ly comes from, and the contract information from charts later on comes from Rob Vollman’s 2014-2015 comprehensive stats database.

The chart above shows that, although Cinderella stories do take place, 80% of conference finalist teams have total GAR scores of 107 or more. This analysis can almost be said to define the ‘goal posts’ of how GAR can be used for roster construction.

Based on this, NHL GM’s could reasonably set a target of 107 GAR for their teams. In years where a team is forecasting close to 107 GAR, the GM should consider trading for those last 1-2 key pieces to make a run. If the team is well off of 107, the GM can instead use it to guide his long term plan by answering (i) how he can acquire a core group of players to reach 107 GAR, and (ii) once acquired, how can he best divide his cap space between those players in order to keep them?

Now that the goal posts are established, I will look at team-level cap efficiency and roster construction of our two example teams: the 2014-2015 Blackhawks and Leafs, based on their season-end rosters.

Team-Level Salary Cap Efficiency

First, I will revisit the Cap Efficiency Curve from my last post, but for a whole team at once, rather than for just a single player. I encourage those who haven’t read my last two articles to go check them out, as it will provide the necessary context for the upcoming analysis.

Hawks - Arbitrage line

Looking at the above, you can observe the following:

  • Almost all Chicago players are on or to the right of the ‘zero GAR’ line – that is, almost all have contributed more than replacement level
  • Relative to the Fair Market Value (FMV) line, Chicago has players both on value-creating and over-paying contracts
    • However, most players don’t stray too far from their FMVs; generally the team slants upward and to the right, with the highest pay going to the greatest contributors
  • The most notable exceptions to this pattern are:
    • Brent Seabrook, who has weaker shot-rate contributions than you would expect, a major driver of GAR
    • Jonathan Toews, who was in his last RFA year in 2014-2015 (which also explains the 2016 bump to 10.5M, shown in my last article)
    • Brandon Saad, who was finishing his ELC in 2014-2015, was understandably traded to Columbus once he came due for a raise in the offseason; the Blue Jackets promptly signed him for 6 years at $6M per year

Now – let’s compare this to the 2014-2015 Leafs:

TML - Arbitrage line

Here, you can make largely the opposite observations:

  • Many Leafs players are on the wrong side of the zero GAR line, putting them below replacement level over this period
  • There are very few examples of players in the ‘green’ area of the chart, with only Kadri, Bernier and Panik having value-creating contracts
  • For what it is worth, this under-sells some players: e.g. Morgan Reilly is being dragged down here by his rookie and sophomore seasons, a time when few players will score well on GAR

Value Creation / Overpayment by Individual Player

We can also look at this output as the actual dollar value created (or overpaid) for each individual player; similar to what I did for Toews, Phaneuf, Parenteau and Boyes previously. I calculate this by subtracting each player’s contracted AAV from the AAV of the FMV line, at the same GAR score. Green bars represent value being created for the team, while red bars represent value lost/overpaid to the player.

Hawks - by player calc

The Hawks’ results here are consistent with the earlier chart, where Saad, Toews and Seabrook were the most extreme examples in an otherwise balanced group. This chart also shows:

  • The Hawk’s 3-year Avg Team GAR was 105.6 – just what you would expect of a conference finalist/Stanley-Cup winning team
  • The team’s net total value overpaid was -$6.3M
    • This represents the approximate year-end cap hit of the Blackhawks at ~$69.9M(1), minus the total FMV of their players at $63.6M

(1)- Slightly off of year-end total due to timing

Although the Blackhawks slightly ‘overpaid’ their players according to this analysis, more broadly I think the Hawks were generally quite close to paying players the appropriate amount across the board.

However, what this result tells me is that a big part of effectively managing a roster will come down to simply not overpaying players. It is extremely hard to find a player that can be signed for less than he is worth, largely happening only when the player is drafted and held for all of his ELC/RFA years. As a result, the simplest way a team can effectively manage its salary cap is to be disciplined in contract negotiations, and avoid giving large contracts to high risk or potentially declining players.

Speaking of overpaying players…

TML - by player calc

This chart shouldn’t need much explaining. Nazem Kadri is the sole shining light of the Leafs’ from last season, and Phaneuf was the largest contract drag they (previously) had on the books. (Note – This was supposed to be based on season end roster but somehow guys like Holzer snuck in there).

Applying GAR Directly to Roster Construction

Last, I will look at how teams like the Blackhawks allocate cap space when constructing their rosters. Specifically, I will compare the percentage of the cap that each player receives in pay, as well as the percentage of the team’s GAR that each player contributes. Any team that is applying this type of thinking to its roster construction would ideally attempt to match these two percentages closely, so as not to ‘waste’ cap space on non-contributing players.

Not surprisingly, that is exactly what we see from the Blackhawks:

Hawks - roster construction

  • The chart above shows a very interesting, and potentially deliberate matching of a player’s GAR contribution and his portion of the cap earned
  • Many of the Blackhawks’ largest GAR contributors have slight greater GAR percentages than cap percentages, again suggesting the Hawks are getting good returns on their dollars
  • Last, this chart helps to show that the Blackhawks have constructed their roster around a ‘core’ set of 7-8 players that drive their results:
    • This core consists largely of the team’s top 4 forwards, top 3 defensemen, and starting goalie (Toews, Kane, Hossa, Sharp, Keith, Seabrook, Hjalmarsson, and Crawford)
    • These players collectively earn 64% of the salary cap, and contribute 67% of the team’s GAR
    • Interestingly, this directly matches the typical conference finalist team having ~8 or so 10+ GAR players, shown in Moneypuck’s analysis cited in my first article

This chart is relatively clean and easy to read, in part due to how well the Hawk’s connect their cap hits to player’s GAR. The Leafs, unfortunately, had a lineup that was mixed between players with positive and negative GAR scores – making this type of analysis less clear and intuitive. To make up for this, I have split the Leafs’ team GAR chart into two sub-charts, one for each of the team’s positive GAR players and its negative GAR players, with each group separately totaling to 100%. Note: as a result, the percentages of the positive and negative bars are not directly comparable to each other.

TML - roster construction

A few comments:

  • Almost 60% of the Leafs cap space was going to players who were contributing zero or negative GAR value to the team
    • 15% of this was also driven by their surprisingly high, non-contributing $10.5M of bought out and retained cap space
  • As mentioned, the Leafs’ net GAR score is 19.5, or the difference between positive GAR players of 43.9 and the negative players of -24.4
  • The Leafs ‘core’ players were simply not of the same caliber or ability to drive a team’s results as the core on the Hawks

In the end, it is clear this type of analysis was not driving the roster construction decisions of the legacy TML front offices. Instead, the lack of it helped to dig the giant salary cap hole that Shanahan inherited.

Building ‘The Model Franchise’ In Toronto

Although the Leafs entered 2015-2016 in a difficult position, the last 8 to 10 months have given fans ongoing reasons to be optimistic about the future. As such, I will close out by touching on five major parallels between the 2000-2015 Chicago Blackhawks organization, and what Brendan Shanahan has begun to do to fulfill his vision of “returning an original six franchise to its rightful place in the league”.

  1. Front Office & Coaching

Under GM Stan Bowman, head coach Joel Quenneville, and with a senior advisor of the winningest coach in NHL history, Scotty Bowman, the Chicago Blackhawks easily have one of the best front offices in the league. Over the last two years, Shanahan has done an unbelievable job putting together a team of arguably the same caliber: between Lou Lamoriello, Mike Babcock, Mark Hunter, and Kyle Dubas, the Leafs’ have an equally all-star leadership team. It is also worth noting the similarity between Babock’s and Quenneville’s system-driven styles, which are both centered on driving puck possession.

  1. Building Through the Draft: Quantity First

Between 2000 and 2004, the Chicago Blackhawks had the highest number of picks of any team in the league at 64, versus the league average in that period of 48, and the next highest of 58. This allowed them to pick up many core pieces they still have, long before Toews & Kane arrived (e.g. Keith (2nd round), Crawford (2nd round), or more recently, Saad (2nd round). As I discussed in a previous article, the Leafs are employing a similar strategy, both by maximizing the quantity of their picks, and also by hopefully leveraging Mark Hunter’s strong scouting organization and network.

Separately, to the concept of ‘building a core 7-8 players’, many fans have enjoyed speculating that the Leafs’ major recent draft picks of Nylander, Marner, Reilly, Kadri, (as well as Gardiner, who they traded for) etc., will make up that group going forward. Only time will tell.

  1. Investing in Player Development

Both teams focus on managing their organizations holistically, by working closely with all of NHL, AHL, and often ECHL rosters. Like Babock’s former Red wings, both teams also push players to develop in the minors, with even two-time Norris Trophy winner Duncan Keith having spent two years in the AHL. The Leafs also lean on the Marlies to help young players learn the team’s system, and help the entire organization focus on every player’s development at both levels. Finally, building a large pipeline of young talent through the draft also allows both the Hawks and Leafs to hold those players on very beneficial contract terms for approximately seven seasons while players play through their ELC/RFA years.

  1. Global Scouting & Free Agents

Finding elite talent is a very difficult task, and the most successful organizations leave no stone unturned. The way Chicago’s was able to pick up a first-line player like Artemi Panarin as a free agent signing (also currently on an ELC deal) is the NHL-equivalent of found money. Although Nikita Zaitsev will not necessarily be of the caliber of Panarin, if the media is right that Zaitsev plans to sign with the Leafs at seasons’ end, he will no doubt be a major player to land. The potential to pick up a developed, 24 year old potential top four defensemen provides even more strong evidence in support of investing in scouting around the globe.

  1. Strategic Cap Management & Roster Construction

Last – although the analysis above shows Shanahan and company have inherited a very unfortunate roster situation, they are clearly doing the right things to slowly off-load anchor contracts, sign value-creating free agents, and offload pending UFA contracts for future assets in picks and prospects. I think it is safe to say that two or three years from now, the Leafs’ roster and salary cap situation will look a lot more like that of the 2014-2015 Chicago Blackhawks’ than it resembles the Toronto Maple Leafs team that Shanahan inherited.


With that, I will wrap up my ‘WAR Explainer’ Series – so thank you to those who have made it through all three parts. In it, I have covered (i) GAR & Player Evaluation, (ii) Player Value and Contract Efficiency, and (iii) GAR and Roster construction/Team-Level Cap Efficiency. Hopefully the series has also provided an interesting view into how the current Leafs’ organization is implementing these principles in their long term rebuild, and helped us all build our patience a little longer. Maybe, just maybe, 5-10 years from now fans will be looking back at the Shanahan-Era Toronto Maple Leafs as the modern NHL’s next Model Franchise, to be emulated for years to come.