National Hockey League guaranteed contracts: A principal agent problem impacting on performance

Jon Landry, David Edgar (Lead / Corresponding author), John Harris, Kevin Grant

    Research output: Contribution to journalArticlepeer-review

    Abstract

    Purpose
    This paper aims to investigate, through the lens of the principal?agent problem, the relationship between payment of National Hockey League (NHL) salaries and player performance during the period of 2005-2011 and explore the inherent issues within the NHL player compensation and incentive structure. Design/methodology/approach
    The research adopts a pragmatic philosophy with deductive reasoning. This paper focuses on the NHL season 2005-2011 and undertake analysis of historical player contracts and performance data of 670 players across 29 clubs to undertake liner regression analysis.
    Findings
    This paper quantifies potential inefficiencies of NHL league contracts and defines the parameters of the principal-agent problem. It is identifies that player performance generally increases with salary, is higher in the first year of a contract and despite decreasing over the life of the contract, will usually peak again in the final year of the contract.
    Research limitations/implications
    The research is based around figures from 2005-2011 and secondary statistical data. The study captures quantitative data but does not allow for an exploration of the qualitative perspective to the problem.
    Practical implications
    Entry-level or first contracts are good for all teams and players because they provide incentive to perform and a reduction of risk to the team should a player not perform to expectations. The same can be said for players at the other end of the spectrum. Although not typically used much, performance bonuses for players over the age of 35 allow clubs to "take a chance" on a player and the player can benefit by reaching attainable bonuses. These findings therefore provide contributions to the practicing managers and coaches of NHL teams who can consider the results to help shape their approach to management of players and the planning of teams and succession planning for talent.
    Originality/value
    The paper presents a comprehensive and current perspective of the principal-agent problem in NHL and extends the work of Purcell (2009) and Gannon (2009) in understanding player performance enhancement.
    Original languageEnglish
    Pages (from-to)1306-1330
    Number of pages25
    JournalManagement Research Review
    Volume38
    Issue number12
    DOIs
    Publication statusPublished - Dec 2015

    Keywords

    • National hockey league
    • Guaranteed contracts
    • Pay to performance problem
    • Principal agent problem

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