With the NHL Entry Draft 2013 less than a month away, many Leafs fans are amusing themselves with thoughts of who the Leafs should draft with the 21st overall pick, or of how we might be able to trade-up to grab a more desirable player. Leading up to the draft, I’ve tried my best to keep up with the prospects and have gotten a sense of where the “experts” think these young hockey players might be selected. We’ve also started our NHL Draft Profiles, with the next coming later on today. Many have compared this draft to the 2003 draft, where ample high end talent was available into the late first round and the likes of Shea Weber, Corey Crawford, Patrice Bergeron and David Backes were snatched up in round 2. In other words, if the hype is true this draft offers major opportunities for those teams that get their selections right.
The Trade “Market”
One of my inspirations for this blog was a Vancouver Sun headline reading “Tough guy Sestito re-ups with Canucks“. It wasn’t the signing in particular that got me thinking, but it was the way Canucks Assistant GM Laurence Gilman described Sestito:
“Players like Tom Sestito are a commodity, they really are.”
We’ve often heard players referred to as assets and commodities but when you think about what a commodity really is, you might hesitate to use it in endearing terms. To my knowledge, and I’m sure my freshman year econ professor will appreciate me remembering this, a commodity is a basic good that is interchangeable with other commodities of the same type.
Another word you often hear pandered-around is the trade “market” at the draft. Now, the use of “market” implies some sort of supply and demand of players and draft picks, all created and driven by the market participants, namely NHL teams. Each team has its own idiosyncratic set of resource endowments and seek to optimize their competitive make-up through acquiring, signing, and drafting players. At the micro-level, the Leafs’ strengths and deficiencies are well-documented, and fans seem to have a pretty good handle on what they think the team needs going forward. However, barring our ability to have complete knowledge of what each team is looking for (demand), and willing to part with (supply), we must look to other indicators to gauge the trade market.
One way to assess a market is to analyze the volume of transactions within a certain time-frame. High-volume is usually the sign of a liquid and stable market, where regulations are well-defined and participants are quickly matched with counter-parties that meet each others’ needs.
The following chart tracks the absolute number of draft picks transacted between teams and the relative percentage of those transactions that contained draft picks in future drafts, within a given draft year from 2008-2012.
You can see that the number of draft picks transacted has dropped precipitously from 2008 to 2012, while the relative percentage of future picks transacted has almost doubled. For example, in 2008, 73 draft picks were transacted between teams and 21 percent of those transacted picks were future picks. Fast forward to 2012 and the number of draft picks transacted falls to 22, with 35 percent of those picks being future picks.
Another way to assess a market is to observe the kinds of assets, or goods, that are transacted most often. To use a common investing analogy, investors are usually advised to diversify their holdings in order to reduce their overall portfolio risk. However, just as economies go through business cycles, the attractiveness of certain companies change according to the macro/investing/return environment. Likewise, NHL teams may have a propensity for trading for certain kinds of players over others. The following chart shows the total number of players traded within each draft year, and the relative percentages of the various positions.
A couple of things stand out in this graph. Firstly, it appears that the total number of players traded has been trending upwards since 2008. Secondly, center and defense continue to take the greatest share of players being transacted at the draft on a yearly basis. On the other hand, right-wing, left-wing, and goal consistently represent the three-lowest percentages of types of players transacted.
After taking a look at market volume and having dis-aggregated the volume into its component parts according to position, we should also seek to understand the market participants and the nature of their transactions with other participants. Namely, who is trading with who? The following pie-chart shows the average percentage of intra-division, intra-conference, and inter-conference trades over the past 5 drafts.
Judging from the data, it appears that on average, 64 percent of transactions occur between teams from the opposing conference, 32 percent between teams in the same conference, and 4 percent between teams in the same division.
Lastly, another way to classify teams within the pool of transaction participants is between playoff and non-playoff teams. The following chart shows the percentage share of transaction volume that is attributable to playoff and non-playoff teams since 2008.
In compiling the data for this particular chart, I was initially intrigued by the possibility that playoff teams might be driving the bulk of the transactions at the draft, and the trend between 2008 and 2009 certainly gives that impression. However, over a 5-year period, it appears that transaction volume, on average, is driven by an equal percentage of playoff and non-playoff teams.
Exhibit 1. I found this chart to be most interesting since the trend-lines are very clear. There might be numerous explanations for these trends, but I believe the most plausible answer is that in the face of regulatory uncertainty, or the most recent lock-out, teams reacted to this by opting to pick in the current year and to forgo future picks. However, if I had to choose one line to focus on, it would have to be the decrease in the number of draft picks transacted. Despite the limitation of not knowing the aggregate quality of the transacted draft picks, a decrease in the volume of picks should be most alarming, and something I expect to turn around this upcoming draft. A deep draft and medium-term visibility on the salary cap should be fertile ground for an uptick in draft pick trade volume this year.
Exhibit 2. I think it tells an interesting story. Most obviously, it reaffirms something Burke constantly reiterated, that defensemen are always in high demand. Defensemen and centermen, as a percentage of all players transacted in a given year, are consistently greater than almost all other positions. More interestingly, the number of transacted players is trending upwards over the past 5 years. I think the reason for this, once again, has to do with the expiration of the previous CBA. As the date approached, teams, having already been exposed to the system since 2005, were in a rush against time to complete certain transactions before the expiration of the old CBA. Therefore, for this upcoming draft, I think it’s safe to say that defensemen and centers will be involved in at least 50 percent of all the player transactions on the day of the draft. Might this finally the year that Nonis decides to leverage or abundance of defensive assets to move-up in the pecking order or to acquire our long-awaited first-line center? History clearly shows that the preference for defensemen and centermen is well and alive.
Exhibit 3. There is almost nothing new here except for the visualization. It comes as no surprise that the ideal trade partner is usually (64%) native to the opposite conference. If you are so inclined to play an armchair GM, this might be useful for spotting a suitable counter-party for your favorite team, come draft day. In other words, don’t expect the Leafs to deal with anyone from the same division.
Exhibit 4. The reason why I looked into this was because, as I was collecting data for the other charts, I thought I noticed a trend where playoff teams were more active in the trade market than non-playoff teams. As it turned out, on average, playoff and non-playoff teams are just as likely (50%) to participate in the draft day trade market. Therefore, for this upcoming draft, I wouldn’t expect a deviation from this trend.
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VLM: We need a modern-day Brett Olmstead – Is he a UFA this summer? Someone please find this Olmstead fellow.
TLN: Who to target with Leafs’ 21st pick – Cam Charron advises Nonis to go for the home-run.
Hope in the Big Smoke: Better Call Paul (Stastny) – Yes please.
Backhand Shelf: Hegel, Tasarov, and the Evolution of Hockey – One of the best things I’ve read in a while. Grab your thinking cap and some popcorn. **Caution, philosophy ahead**