Friday, April 16

NHL draft rules create perverse incentives

It's one of the most basic principles of economics: people respond to incentives. And when it comes to incentives, the National Hockey League creates some pretty perverse ones.

If we want teams to try to win, we should reward winning and punish losing. But the NHL offers a hefty reward for losing. The worse teams do, the more likely they are to get a high draft pick the following summer. A top draft pick can land you a franchise player that can bring success to your team for years to come — a Sidney Crosby or an Alex Ovechkin. It gives teams who don't think they can compete for the Stanley Cup an incentive to tank at the end of the year. Sure, there's a lottery that creates some uncertainty around what team gets which draft pick, but it depends on a rigid formula that ensures teams that lose are still rewarded with high picks.

I understand why the NHL gives draft picks to the worst teams. They want to even out talent across the league. If they gave the top draft picks to top teams, the gap between the best and worst teams in the league would grow, and competitive balance would fall.

But rewarding the worst teams still gives bad teams a huge disincentive to throw games, or to make themselves even worse. A friend of mine who is a Toronto Maple Leafs fan was rooting for his team to lose last year so they could get the top draft pick and select highly-touted John Tavares in last year's draft. The Edmonton Oilers, the NHL's worst team this year, traded some of their best players at the trade deadline, weakening their team and improving their shot at the top draft pick.

Encouraging teams to lose is not the way to motivate players to win and generate excitement on the ice. Maple Leafs general manager Brian Burke got a lot of flack for trading away three of his struggling team's draft picks to acquire Phil Kessel earlier this year. But one aspect of the deal has been overlooked by the media was that by trading away his top draft picks, Burke removed any incentive his team had to tank (although the Leafs still performed poorly this year despite the improved incentives).

There are several steps the NHL could take to create more incentive for the worst teams to win — some are more realistic than others:
  • Currently, teams draft in the same order each round. The draft could be altered so the order gets flipped each round. The team that picks last in the first round would go first in the second round. This would decrease the value of obtaining the first overall draft pick, thus reducing incentives for the worst teams to lose.
  • Determine the draft order at random. This would remove any incentive to tank to get a higher draft pick. Of course, it may result in the top teams getting high draft picks, which could have an adverse effect on competitive balance.
  • In the English Premier League, the three soccer teams with the worst record are relegated to the Coca-Cola Championship for the following season, a level below the Premiership. The relegation system gives teams at the bottom of the Premiership a huge incentive to win, and the incentive of avoiding relegation gives their fans a real reason to cheer on their teams. The NHL could split into two 15-team tiers — a premier league and a first division. The top eight teams in the premier league could compete in the playoffs for the Stanley Cup. Teams nine through 11, which narrowly missed out on the playoffs, could stick around for next year. Teams 12 through 15 would get relegated to the first division the following season, being replaced with the top four teams from the first division.