Game Theory and NHL Lockouts
What is a Lockout?
If you or someone else you know has ever been a sports fan, then the NHL Lockouts are something you have certainly heard about. I am not a big sports guy myself, but with the help of a few google searches, I found that there have been 3 different NHL Lockouts. There were the 1994-95 and 2012-13 lockouts, which only shortened each season, and then the 2004-05 lockout, which actually canceled the whole damn thing!
This means that in 2004-05 the NHL did not produce any revenue from games.
Essentially, a lockout is like any other strike: the workers don't feel like they are getting paid enough compared to the owners of the company, and then the workers (or players in this case) stop working in order to push the owners towards a better deal.
In fact, the NHL is not the only sports association that has seen this sort of dispute between players and owners. The NBA, NFL, and even MLB have all seen some sort of strike in their time. Specifically, The NHL Lockout was over something called a Collective Bargaining Agreement, or CBA for short. The players felt like the owners were taking advantage of them, and that the owners were getting paid an unfair amount more than the players were. So the players decided to stop showing up to practices and games until they thought they were being treated fairly.
Now I will explain the details behind these NHL Lockouts, but the most important thing to keep in mind here is that the longer a lockout lasts, the less revenue the sports conglomerate is actually making. So each party actually gets closer and closer to having no payoff whatsoever the longer they hold out.
The Details
In 2012, the NHL posted hockey related revenues at 3.28 billion. This is where our standoff between the players and the owners begins, and how the 2012-13 lockout started. Both sides wanted to make a deal, but only if it was in their favor.
So...
PLAYERS: The players union proposed a deal that would give an average of 52.78% revenue to players, and 47.22% to the owners, over the course of 5 years.
OWNERS: The owners suggested a deal that would provide players with 47.7% and 52.3% to the owners over those same 5 years.
Payoff Matrix
Let's assume that both parties, Player and Owner, can either Cooperate (C) or Not Cooperate (NC).
In the order of (Player, Owner), we can see that (C,C) results in the best overall outcome with an average of the two deals. (C, NC) results in the Owners succeeding, and (NC,C) results in the Players succeeding. In the case of (NC, NC), the season is canceled entirely, and no revenue is made. Remember that this payoff matrix is based off the 2012 release of Hockey-related revenues, and that the only full season cancellation happened in 2004-05. Revenue was not entirely lost here.
Lockouts due to Nash Equilibria
Just as a quick reminder, here is the definition...
- Nash Equilibrium: (in economics and game theory) a stable state of a system involving the interaction of different participants, in which no participant can gain by a unilateral change of strategy if the strategies of the others remain unchanged. https://www.google.com/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=Nash+equilibrium
Looking back at the payoff matrix, we can see that there are two cases where a Nash equilibrium presents itself. One is the instance (C, NC), where the player cooperate, but the Owners do not. From here, neither party can gain anything. The same applies to the instance where the Players don't cooperate and the Owners give in, (NC, C). These Nash equilibria are justified because both the players and the owners want what is best for themselves, and not the NHL as a whole. However, as I said before, it is better for one side to cooperate instead of neither. If they both hold out too long (NC, NC), then no one would make any money AT ALL!
Conclusion
Whats interesting about these lockouts is that money can only be lost if the players go on strike during the season. They don't hold anything over the Owners in the off-season because no one spends money on watching games. If Players went on strike only during the off season, then there would be no benefit for them, because the Owners would not loose any revenue no matter how long they decide to not cooperate. Therefore, the players will wait until the season begins, and the Owners have no other choice but to listen to them.
The 2004-05 lockout was the first of its kind in any major professional sports league, completely cancelling the 88th season of the NHL. This happened because the CBA that resolved the 1994-95 lockout had expired. The 2004-05 lockout lasted 10 months and 6 days, ending in late July. A full fledged lockout is pretty crazy in my opinion, but with hockey I am not all that surprised...NHL Players are some of the toughest around, and they are trained never to give in!
The 2004-05 lockout was the first of its kind in any major professional sports league, completely cancelling the 88th season of the NHL. This happened because the CBA that resolved the 1994-95 lockout had expired. The 2004-05 lockout lasted 10 months and 6 days, ending in late July. A full fledged lockout is pretty crazy in my opinion, but with hockey I am not all that surprised...NHL Players are some of the toughest around, and they are trained never to give in!
Citations
"2004–05 NHL lockout." Wikipedia. April 10, 2017. Accessed April 24, 2017. https://en.wikipedia.org/wiki/2004%E2%80%9305_NHL_lockout.
"Networks." The NHL Lockout and Game Theory : Networks Course blog for INFO 2040/CS 2850/Econ 2040/SOC 2090. Accessed April 24, 2017. https://blogs.cornell.edu/info2040/2012/09/25/the-nhl-lockout-and-game-theory/.
So what actually happened? Did they strike some sort of deal and both cooperate? They must have if the entire 2012-13 season wasn't cancelled.
ReplyDeleteYes this is exactly what happened. The Lockout was for the first half of the season and cancelled 34 total games. Eventually they created a Memorandum of Understanding.
DeleteTo resolve the lockout, the Memorandum of Understanding put in place a new salary floor and salary ceiling that the players liked. And the length of their contracts were extended.
You mentioned that the players would stop showing up to practices and games until they thought they were being treated fairly. Would every player have to boycott in order to get effective results or would at least ½ the players have to boycott? Did you read anything about how many players would have to not go to the practices and games in order for them to get the results they want? In the NHL Lockouts that did occur, did all the players boycott?
ReplyDeleteIt's hard to imagine a situation where all the players weren't on the same page just based off of the general mentality of sport. However I can see this as being an interesting discussion amongst the players when deciding if they as a whole should stop showing up to practices.
DeleteI think everyone was on the same page. No one was practicing or playing in games. However, there was a charity game during the lockout in which some of the players participated in.
DeleteOnce a Lockout is declared, no one can do anything. It actually hurts a lot more than just hockey fans as well. Beer companies and the Canadian lottery lost revenue, amongst others.
Can you go over the outcomes for each lockout throughout history? Also, with the owners not making any revenue while the players are on strike, do you think that this impacts the payout for the owners in the payoff matrix above?
ReplyDeleteYes I am going to give a little more of an in depth history in class. And yes, it does effect the payout of the owners in the matrix above...it just depends whether or not they reach some sort of deal, and then that will determine how much the owners are affected.
DeleteI found something pretty interesting that discussed the idea of the players having a third option of going to play for another team (such as an overseas team or a lower level team in the U.S.) rather than choosing between cooperating or holding out.
ReplyDeleteIf the players leave and there is no settlement, then the players will gain since they will be getting a paycheck but the owners will still be losing money since no games are being played. If players leave and there is a settlement, then the players will return from the other leagues for the most part and continue on with the contracts they had before.
It seems that there would be a dominant strategy for the players to go play in other leagues. However, if the players do decide to sign other contracts during the lockout, they are taking many risks. If they manage to get hurt during that time their contract could be terminated and they could be out of a huge deal. They also risk having to stay in the other leagues for longer than the lockout may last because some leagues require a full years contract to play.
So, what would be the right decision in this case? Should settlement come quick? Should players go overseas and take risks? Or should each side hold out until they get what they want?