Information Asymmetry in a Zero-Sum League
Why "being in on everything" is a damaging managerial trait
It Takes Two To Tango
Finding a dancing partner is becoming increasingly more challenging for NHL General Managers.
Inter-team NHL transactions are filled with mirth. Divergence in defining player characteristics, opposing trajectories, geographical proximity, and philosophical incongruence create barriers and inefficiencies within the traditional trade markets.
In a hard-capped league where 50% of teams qualify for the playoffs, the zero-sum transactional nature of the NHL can create significant swings in value propositions. These swings have the potential to be so substantial that they alter the trajectory of an organization for years and, in some specific cases, a decade or more. As the league continues to struggle with implementing a deeper understanding of performance and outcome with statistical measurements now reaching beyond facile counting statistics, the landscape for information asymmetry impacting trade outcomes is growing more apparent.
Like most transactions, the party with more or better information is likelier to come out on top of the transaction by manipulating or taking advantage of the gulf in information. Like with financial markets, this asymmetry can eventually lead to market failures. After years of market imbalances between the haves and have-nots, the NHL has reached a state where the trade market is failing.
Managing in the NHL is primarily about accountability avoidance, as mistakes carry more outward consequences than successes provide accolades. This should be seen as a natural consequence of the quality and involvement of NHL ownership. It is simply too difficult to responsibly manage an NHL organization with the disparate and harsh pressure management faces from owners. As a result, NHL front offices are less motivated by certainty than they are motivated by loss aversion. With increased information asymmetry, that loss aversion has contributed to the current trade market failure that has teams gridlocked in their ability to consummate transactions. It is preferential for most markets to maintain the status quo than to materially improve or decline.
The response from organizations facing the attention of trade losses has not motivated these organizations to improve the quality of information they use to arrive at decisions. Instead, the fallout from public scrutiny and personal consequences has reduced significant trade movement. You can’t lose trades you don’t make, and an NHL front office that won’t make a splash doesn’t make waves.
I Know Something You Don’t Know
While the league continues to modernize its approach to data, there remains a significant gap in how franchises track, utilize and incorporate evaluation data into their managerial direction. What some organizations see in themselves is not reflected by the outside world. This introduces an element of irrationality into what should be a rational market. Irrationality in the NHL trade market influences the commodity prices in the same way home sales significantly above or below the local average impact housing prices for that area.
Some organizations value one type of asset class over another, and some don’t appear to value others at all. An asset that should cost X one year costs Y the next. Like a commodity market, I can destroy the value of a market asset by flooding the market with a similar asset of my own; or, worse, multiple assets of the same type.
While the best trades are win-win for both participants, ultimately, the NHL is a zero-sum trade environment; to improve my team, I have to make your roster worse. I have argued previously that the difference between contending and rebuilding rosters is the ability and willingness to lose trades. Irrationality enters the market when a team that is or should be rebuilding displays a desire to lose trades. A group in this situation is a ripe target for other organizations with a better grasp of their trajectory and position.
How does a savvy organization identify those opportunities? Information.
The nature of unreliable data tracking, evaluation, and analysis means that the most valuable information in the NHL is still the palace intrigue of what is going on in other organizations. The more I talk to you about what I’m interested in acquiring from your team, the more you can glean areas of weakness within the organization. If trade discussions advance where I am now spitballing value equations with you for something I have identified off your roster, the more you can glean the value I place on my assets.
The more discussions I have of this type around the league, the more this information spreads. By the time I am ready to call Team X, they are waiting for that phone call, prepared to offer me exactly what I want to hear to separate me from an undervalued asset within my organization.
A manager must maintain their information advantage while taking calls from around the league. The best way to do that is with a firm grasp of your organization, its pivot points, and its trajectory.
Don’t go shopping unless you’re hungry.