Chicago Blackhawks star Jonathan Toews, right, signed a US$10.5-million-a-year contract, just one factor that contributed to the Blackhawks’ challenges in staying under the team salary cap.Nam Y. Huh/The Associated Press
When the Stanley Cup playoffs open this week, there will be one team noticeably absent from the proceedings.
With three championships in the past eight years, the Chicago Blackhawks are as close to a dynasty as you can find in the modern-day National Hockey League, but for the first time since 2007, they will be mere bystanders as 16 other teams begin their quest for the Cup.
Commentators have pointed to numerous reasons behind their fall from contention, such as injuries and an aging roster, but one of them is the impact of the NHL’s salary cap system, introduced following the lockout of 2004-05.
That cap on a team’s total player salaries, which sat at US$75-million this season, has given general managers and team presidents one more hurdle when it comes to assembling, and retaining, talented rosters. It’s especially difficult to stay under the cap for long terms as inexpensive young players develop into stars who command big pay raises.
It also gave Davin Raiha, an assistant professor of business, economics and public policy at the University of Western Ontario’s Ivey Business School in London, Ont., a novel idea for his undergraduate macroeconomics class.
A massive sports fan, Dr. Raiha felt that the circumstances around the rise and fall of the Blackhawks would make an ideal case study. Right after Chicago celebrated its last title in June of 2015, two of the team’s best players, captain Jonathan Toews and star winger Patrick Kane, began identical eight-year contracts worth US$10.5-million a year, which would account for 29.4 per cent of the team’s US$71.4-million cap for the 2015-16 season.
For general manager Stan Bowman, the new deals represented a certain amount of risk. While the cap was expected to rise year on year as a result of a new TV deal between Rogers Communications and the NHL — a massive, 12-year, $5.2-billion deal signed in November of 2013 — it didn’t, in part because its value fell as the Canadian dollar dropped.
“I think that one of the lessons that we often get out of this particular case is thinking to what degree is a situation like this foreseeable,” Dr. Raiha says. “I think on Stan Bowman’s part it’s very hard to foresee this as a GM. In some sense the Blackhawks just happened to be more exposed to fluctuations and changes in the salary cap because … they had already made a substantial financial commitment to their two best players.”
But there were other macroeconomic circumstances at play — far removed from hockey — that made the case study so suitable for his class. When the pair signed their deals in July of 2014, the price of crude oil was trading at a price of US$102.93 a barrel, the highest price that oil would reach all year. Within six months, the price of oil had fallen by 50 per cent because of a number of factors.
Slow economic growth in Europe, China and Japan cut demand for oil, the United States had almost doubled its production of oil, and Saudi Arabia decided to increase its own production to gain greater market share.
As Canada’s largest single export – Canadian crude oil and bitumen exports were valued at $92-billion in 2014 – the fall in demand for Canadian oil had a knock-on effect on things such as Canada’s gross domestic product, the Canadian-U.S. exchange rate (Canada’s dollar fell), and interest rates.
So when the cap increased for the 2015-16 season, despite projections two years prior that it would get to around US$75-million, it only increased US$2.1-million to US$71.4-million, leaving Chicago just US$1.35-million in cap room, with 12 players from the 2015 championship team still unsigned.
“In this particular case the circumstances are quite special and they lend themselves particularly well to use in the classroom and I think there are a number of reasons for it,” says Dr. Raiha.
First, he says the case helps answer an important question on the first day of class —the value of taking the course itself. Whether a student is planning to be an economist, a business person or to work in any other profession, macroeconomics are everywhere, Dr. Raiha says.
“I think this case really drives home that point by illustrating the importance of macroeconomics in an area where one conventionally wouldn’t think of these kinds of forces,” he says.
In addition to hockey and sports, the course enables him to discuss exchange rates, Canada’s economy, interest rates and monetary policy.
“It also shows how a company or team, the Chicago Blackhawks, based entirely within the United States, why they even need to care about a U.S.-Canadian dollar exchange rate,” he says.
For some of Dr. Raiha’s students, the way this case illustrates some broader macroeconomic concepts in an easily accessible way is important.
“[If] they had started with a case on the oil industry and how oil prices fluctuate or whatever, I would probably have been asleep,” says David Jaskolka, a student who took the course last semester.
As a die-hard Toronto Maple Leafs fan, Mr. Jaskolka says he may be a little bit more excited about a sports-related case study than other students might be, but says that an understanding of sports wasn’t necessary to absorbing the lessons introduced in the course.
“If you’ve read the case, you don’t need to know who Jonathan Toews and Patrick Kane are beforehand,” he says.
Mr. Jaskolka says that his professor never misses a chance to use real-world sports examples, whether it’s the Philadelphia Eagles winning the Super Bowl this past February and its effect on the Philadelphia economy, or what an NHL expansion team, such as the Vegas Golden Knights, can do to spending habits in the gambling capital of the world.
“I just find he’s really good at finding these different topics in sports that we can relate to and giving us different takeaways from them,” Mr. Jaskolka says.