Tuesday, April 15, 2014

NHL Pay and Performance

Yesterday I blogged about competitive balance in the NHL, and today I want to extend that to take a look at pay and performance in the NHL during the regular season.  Recently a new website has emerged which focuses on the payroll cap in the NHL, called capgeek.com.  It is excellent and I know of no better website for salary and team payroll information on the internet.  So, I am going to use their information to estimate the relationship between regular season payroll and regular season performance from the 2009/10 NHL regular season to the 2013/14 regular season.

To do that, I will run a linear regression on relative payroll and team points (team performance measure).  For those interested, here is a step-by-step guide as to how to do this yourself.  You may be wondering why I use relative payroll and why I am focusing on the statistical measure called r-squared.  I answer (or link) to those directly below.

Why relative payroll?  This is for statistical purposes, but simply stated - the average of team payrolls are rising over the time period and the average of team performance is remaining relatively constant.  So if you just take a look at payroll and performance you are comparing a variable that is increasing to one that is constant (or stationary) and you will get a lower statistical relationship that what is truly taking place.  In fact the correlation coefficient (called r) between payroll and performance falls dramatically over this time period as opposed to the coefficient of determination (r-squared).  For this time period, for payroll and performance r = 0.034 while for relative payroll and performance r = 0.235, and thus for payroll and performance r-squared = 0.001 and for relative payroll and performance r-squared = 0.055.

Why do I use r-squared?  I have answered that here.

So, what is the relationship between team relative payroll and team regular season performance?  For the the 2009/10 NHL season to the 2013/14 NHL regular season that I have data from capgeek, relative payroll is statistically significant (at the 99% confidence level) with respect to team points. Yet, in terms of the common variation between the two variables, there is not much with the R-squared = 0.055.  If I include payments of long-term injured reserve and also include bonuses, the r-squared actually decreases.  Thus relative payroll "explains" less than 6% of NHL team regular season performance since 2009/10.

Hence, I conclude that NHL regular season team payrolls are not a good indicator of NHL regular season performance.

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