Calgarypuck Forums - The Unofficial Calgary Flames Fan Community - View Single Post - Friedman: Gaudreau negotiations will be put on hold during World Cup

Enoch Root · 09-14-2016, 09:28 AM

Apologies for the long post, but I think this is necessary...

One thing people need to understand, with respect to long term contracts, is that they are guaranteed, even though the future is uncertain.

You can’t simply project an optimistic scenario and say: I believe player X will be this good so he should be paid that much. Like with any forecasting, you have to project various different possible outcomes, and assign probabilities to the likelihood of them happening.

In other words, you have to establish a projected distribution of outcomes.

It isn’t just about their ceiling – you have to factor in the likelihood of them achieving that – consistently – as well as the likelihood of other possible scenarios.

When you are projecting the future, you have to assess probabilities. After his rookie season, who predicted that Phaneuf wouldn’t be a star for many years? No one that I saw. But it turned out that he didn’t live up to expectations. It happens.

So when you are signing a player to a 7 or 8 year deal - that is guaranteed – you have to factor in probabilities of all possible outcomes, not just the most optimistic.

Look at the contracts that have been signed this year with Monahan, MacKinnon, Scheifele, Forsberg, and others. All in the $6M per year range. ALL of those players are projected to be stars. Each team, and each player, hopes they will be worth more than that – the optimistic scenario for each one is higher – maybe much higher – than the AAV suggests.

So why did they sign them? Are they stupid? No. It is because the contracts are guaranteed. And therefore factor in a distribution of multiple scenarios, including the risk that they don’t come anywhere near their potential ceilings.

By asking for $8M, the Gaudreau camp is basically arguing for an optimistic scenario only. Is Gaudreau going to be a better player than all of the about players? Maybe. But his camp needs to understand that that is not a certainty by any stretch.

Does he deserve a larger contract than those players? Yes, IMO, because he outperformed them over the last two years.

But how much more? Can he justify $1.5 - $2M per year more than those players? Not a chance IMO. I can see $500k more – that seems reasonable, and justified. But any more than that seems wildly optimistic.

Ekblad is getting more, he signed for $7.5M. But Ekblad has a much longer track record of performing at the very highest level for his age. The probability that Ekblad continues to perform at the most elite level is higher, because he has been doing it longer.

This is why pedigree comes up. Does it matter where a player was drafted? No, what matters is how you play now. However, when forecasting the future, a more consistent track record leads to more confidence in your projections.

Then there is also the issue that Gauderau has 5 years of RFA vs only 4 years for Ekblad. Despite the fact that some people who are arguing for more money for Gaudreau continue to ignore this issue, it is nonetheless a significant factor.

It seems to me that the reasonable number is somewhere in between Ekblad and the rest of those players. And that suggests $6.75 - $7M per.

You can’t simply project an optimistic scenario and pay a player that much. Proper risk management must consider a distribution of possible outcomes.

09-14-2016, 09:28 AM	#1461
Enoch Root Franchise Player Join Date: May 2012 Exp:	Apologies for the long post, but I think this is necessary... One thing people need to understand, with respect to long term contracts, is that they are guaranteed, even though the future is uncertain. You can’t simply project an optimistic scenario and say: I believe player X will be this good so he should be paid that much. Like with any forecasting, you have to project various different possible outcomes, and assign probabilities to the likelihood of them happening. In other words, you have to establish a projected distribution of outcomes. It isn’t just about their ceiling – you have to factor in the likelihood of them achieving that – consistently – as well as the likelihood of other possible scenarios. When you are projecting the future, you have to assess probabilities. After his rookie season, who predicted that Phaneuf wouldn’t be a star for many years? No one that I saw. But it turned out that he didn’t live up to expectations. It happens. So when you are signing a player to a 7 or 8 year deal - that is guaranteed – you have to factor in probabilities of all possible outcomes, not just the most optimistic. Look at the contracts that have been signed this year with Monahan, MacKinnon, Scheifele, Forsberg, and others. All in the $6M per year range. ALL of those players are projected to be stars. Each team, and each player, hopes they will be worth more than that – the optimistic scenario for each one is higher – maybe much higher – than the AAV suggests. So why did they sign them? Are they stupid? No. It is because the contracts are guaranteed. And therefore factor in a distribution of multiple scenarios, including the risk that they don’t come anywhere near their potential ceilings. By asking for $8M, the Gaudreau camp is basically arguing for an optimistic scenario only. Is Gaudreau going to be a better player than all of the about players? Maybe. But his camp needs to understand that that is not a certainty by any stretch. Does he deserve a larger contract than those players? Yes, IMO, because he outperformed them over the last two years. But how much more? Can he justify $1.5 - $2M per year more than those players? Not a chance IMO. I can see $500k more – that seems reasonable, and justified. But any more than that seems wildly optimistic. Ekblad is getting more, he signed for $7.5M. But Ekblad has a much longer track record of performing at the very highest level for his age. The probability that Ekblad continues to perform at the most elite level is higher, because he has been doing it longer. This is why pedigree comes up. Does it matter where a player was drafted? No, what matters is how you play now. However, when forecasting the future, a more consistent track record leads to more confidence in your projections. Then there is also the issue that Gauderau has 5 years of RFA vs only 4 years for Ekblad. Despite the fact that some people who are arguing for more money for Gaudreau continue to ignore this issue, it is nonetheless a significant factor. It seems to me that the reasonable number is somewhere in between Ekblad and the rest of those players. And that suggests $6.75 - $7M per. You can’t simply project an optimistic scenario and pay a player that much. Proper risk management must consider a distribution of possible outcomes.