The Chicago Blackhawks and Chicago Bulls faced very different situations this summer.
The Bulls created an elaborate presentation at the United Center as they tried to lure Carmelo Anthony away from the New York Knicks while the Chicago Blackhawks offered some of their best players to other teams. The core reason for these differences was the accuracy of salary cap forecasting within the specific leagues.
The NHL fell victim to bad forecasting in 2014. Early in the year, the commissioner predicted a $71.1 million salary cap for the upcoming season. General Managers across the league began to plan their roster moves accordingly. It wasn’t until months later, when the actual figures came in, that the league realized it had overestimated the growth of the revenues; the hard salary cap would instead only be $68 million. The $3.1 million difference didn’t affect teams that conservatively reacted to the forecast, but teams like the Blackhawks found themselves needing to eliminate nearly $3 million worth of payroll. So as the team practiced all summer, the atmosphere was not one of anticipation and excitement but rather apprehension, knowing a significant player would need to be traded. Ultimately, Nick Leddy lost his spot on a championship team because the league falsely predicted the growth of their revenues.
In contrast, the NBA did not suffer from bad forecasting. They were not perfectly accurate, as is expected, but they conservatively expected a 4.5% increase. By not relaying an unrealistic expectation to the general managers, the league prevented premature dealings by teams. Plus, on three separate occasions throughout the year, the league adjusted their forecast to improve its accuracy. The eventual salary cap was a 7.7% increase from the previous year. This left the Chicago Bulls with extra, unexpected cap space to try to recruit top free agents—a much preferable problem than having to shed payroll.
General Managers have to find the balance between optimistic forecasts and reality. The NHL should’ve considered the effect of the lockout shortened season as well as the decline of the Canadian dollar when they predicted a forecast that followed the record growth trend from previous years. The NBA did a much better job of using environmental signs such as market values of sold teams to predict their league growth. In the years to come, I’d expect NHL managers to be more hesitant in relying on initial forecasts, and perhaps adopt NBA strategies in approaching salary cap forecasts.
The salary cap in certain leagues is an absolute maximum accompanied by severe penalties for violations. It makes it even more consequential when a forecast is overestimated. Some teams will wait until the cap is released to sign players while other teams sign players based on forecasts. It poses the question: Which is the preferred scenario? New York Jets fans are currently complaining because their team lacks talent despite having nearly $20 million in cap space to be spent while Blackhawks fans were upset with having to trade Leddy in order to be under the cap. Which scenario would you prefer your favorite team be in? Do you rely on the forecast and deal with the consequences of inaccuracy or wait until the actual cap is set to make important decisions and risk missing out on top talent?
4 thoughts on “5 for Forecasting: How Nick Leddy Lost his Roster Spot”
Great post Brenna, before I usually thought that forecasting always had to do with inventory, whereas now I can see forecasting in a new light as it can directly affect people. I guess another important forecast would also be jobs forecasts that kind of indicate just how well the economy is going.
It is interesting that forecasts affect so many of our lives from the weather, to investing, and to inventory. If I really had to make a decision based on forecasting, I would deal with the consequences of inaccuracy versus potentially missing out. I would have to deal with uncomfortable situations afterwards, but I think it is still better to try for the best than settle for practically a loss.
This post was extremely interesting and like as Matthew said I did not take into consideration the type of forecasting that is done in the professional sports world. To answer one of your questions referring to which scenario is better, obviously the desired type of forecasting is for the actual and forecasted amount to be in equilibrium with one another. In reality, that event rarely and occurs and results in an over or under forecast. In my opinion, I would rather under forecast slightly than over forecast slightly. It is easier to spend a surplus of money than it is to to try to budget out an already established roster. In the case of the Jets, I believe it is poor management which fails to bring in talent rather than trying to stay far under the salary cap. My favorite football team, The Packers, usually does not run into salary cap issues and is already a unique ownership style as the city of Green Bay owns the team. Due to a decade of good draft picks, the need to bring in high expense positions rarely occurs. Still, I would rather have the Packers be under the salary cap than over.
Rebekah, I also am a big Packers fan, and love how the city owns the team. I think it connects the fans to the team in a special way and definitely helps them avoid certain management problems!
Great post! I thought it was really interesting! I, also, never thought about forecasting in this light. Your post really made me consider how crucial forecasting can be to any organization. It can be the difference between hiring more people or letting them go. It would be interesting to see how the Blackhawks would have handled this situation knowing what their salary cap would be and if it would have made a significant difference. The Blackhawks were in a tough situation this summer with wanting to re-sign Patrick Kane and Jonathan Toews and raising their salaries, while also trying to keep the winning team intact. Ultimately, I would have to agree with Matthew that it is better to act sooner and hope your forecast is accurate than miss out on some real talent. Sometimes forecasts are all one has to go off of and waiting for the actual result may not be a realistic option.