The Importance of Total Salaries in Determining Team Success : An Econometric Analysis of the NHL Salary Cap

Among the popular conversation topics for Canadians, few evoke emotions as strong as hockey and defending one's favorite team. Despite its prevalence, there remains little conclusive proof to settle many of the common debates between fans. One of the most popular and divisive issues in the current state of the National Hockey League (NHL) is the effect of teams' salaries on their chances of winning. As the game has evolved over the last century, revenue and salaries have both grown steadily, but more recently, have exploded due to increased corporate interest. Since revenues were not spread equally among the thirty teams, this created a competitive imbalance where the richer teams could afford to offer higher salaries to attract most of the top players. To combat this, the NHL introduced a salary cap prior the 2005-2006 season, in an attempt to level the playing field between teams with different relative revenues. Since NHL managers have had several seasons to adjust to the new system, there is now an opportunity to study how strong the link between team salaries and team success was, both before and after its introduction to understand its effects