Hockey's (Purportedly) Hard Salary Cap
What if everyone believes the league office really, really, truly will monitor every single contract and not allow teams to exceed the $39m salary cap. How else might teams spend more without exceeding the cap?
This question is no different from any other price-ceiling situation that we talk about in economics all the time: impose a price ceiling on a product, and people who really want to buy that product start figuring out how to get it. E.g., for gasoline price ceilings we have, in the past, seen long lineups, favouritism, hiring drivers to wait in line, and egregious tie-in sales (get an oil change and we'll move you to the head of the line).
How might a team exceed such a hard salary cap? Here is just one possibility that I thought of during the drive:
I am sure there are many many other evasions that more creative minds than mine will discover.
I might be able to sign the player to several contracts if I have some ancillary operations or arrangements.
- I could pay him a lot to model for the cover of the programmes.
- I could give him a huge endorsement contract for some firm (that I own) that may or may not advertise in the arena.
- I could induce advertisers to offer him large endorsement contracts and in return offer them lower advertising/sponsorship rates for the team's games.
No, the cap is NOT hard. People respond to incentives.