Wednesday, January 30, 2013

Insurance A-Fraud?

Fox's Ken Rosenthal reported this morning that the Yankees might be hoping that they can get out from under Alex Rodriguez' contract with an insurance payout. On its face, it's a fair point; they took out a sizeable insurance policy on the contract in case A-Rod suffered a career-ending injury. The plan, as Rosenthal explains, would be to find a doctor willing to call Rodriguez' hip injury "career-ending", file some paperwork, and presto, insurance payout covers 85 percent of the $114 million remaining on the deal.

Simple? Not so much. Ken probably wouldn't be surprised to hear that insurance companies are reluctant to pay out claims if they can avoid it. In particular, they (rightly) are especially reluctant to pay out where there's a whiff of fraud. You may have also heard that Alex Rodriguez doesn't have the best reputation as a truth-teller.

Furthermore, the fact that this strategy is being publicly discussed (Rosenthal reports that a 'high-ranking executive explained the same plan to him) will raise the insurer's suspicions even more. You can bet that they wouldn't simply take the opinion of a single doctor cherry-picked by Rodriguez and the Yankees.

Here's what would actually happen: the claim would get denied, and the Yankees and the insurer would end up in court. The insurer would insist on a second opinion, and demand the reports of every other doctor that checked on Rodriguez. If A-Rod had 'shopped around' until he got a favourable opinion, it's game over. The insurer could point to the conflicting opinions and show that Rodriguez can play. If that fails, they might still be able to insist that 'their' doctor examine hime, or they could send up a slew of expert witnesses to say he should be playing, or that the Yankees failed to mitigate his injuries, or that they allowed him to use PEDs, perhaps voiding the policy because of increased injury risks and so on...

You get the picture. You can't just fill out a form and magically get an insurance payout. Any insurance claim that approaches $100m - whether it's for a baseball contract or a construction project - will not be handled the same way as a car insurance claim for a fender-bender. There's too much money at stake, and any insurance company will fight tooth and nail to avoid paying out illegitimate claims. Unless his injury is worse than reported, you can bet on A-Rod being on the field in 2014.

Follow sports law and business nerd Rory Johnston (@rnfjohnston) on twitter:

Monday, January 21, 2013

Power plays up 38% in NHL's opening weekend, but we've seen this before

Through two days and 17 games, the 2013 NHL season has seen a lot of disorganization and choppy game play (and I'm not just referring to NHL's Gamecentre, which has led to numerous reports of bad streaming quality and unexpected blackouts). It's apparent that the short training camp has meant that teams aren't fully back in game shape, both in terms of fitness and familiarity. Of particular note is that penalties are up significantly through the first two days: we've seen an average of 9.1 power plays per game, which is a 38% increase over last season's average of 6.6.

Unsurprisingly, this has also coincided with an increase in scoring overall: goals are up 9%. So far in 2013, we're getting 5.79 goals per game compared to last year's 5.32.

Is this indicative of anything? Well, yes - we've seen much tighter calls on hooking in particular, with refs blowing the whistle on even a slight tap into the hands. There are a few factors at work here; players are a little undisciplined early, making lazy plays, and many are not at a mid-season fitness level yet. Playing in the AHL or the Swiss league is certainly helpful, but there's no way those leagues can replicate the speed they're now dealing with in NHL play. What's more, it seems the referees are erring on the side of making the call to 'set the tone' early on.

Will it last? Definitely not. Last season's opening weekend featured 8.6 power plays per game, and it seems like an opening week penalty-fest has become standard in the NHL. The referees seem to have been given the usual edict to 'call it tight' for the first few games. Things should return to normal in short order.

Thursday, January 17, 2013

Waiving Tim Connolly is Shooting the Hostage

Harry: "Alright, pop quiz: The airport. Gunman with one hostage, he's using her for cover, he's almost to the plane. You're a hundred feet away. (Long pause) Jack?"
Jack: "Shoot the hostage.""
Harry: "What?"
Jack: "Take her out of the equation. Go for the good wound and he can't get to the plane with her. Clear shot"
Harry: "You are deeply nuts, you know that? 'Shoot the hostage'... jeez..."

In negotiations for the Roberto Luongo, Mike Gillis has been holding firm: he wants real value, and his rumoured recent asking price was along the lines of Tyler Bozak, Nazem Kadri, and a 2nd-round pick. Dave Nonis thus far hasn't seemed interested in giving up that much; Gillis has insisted he won't trade Luongo unless he gets the right return.

It was announced this morning that the Leafs will be waiving Tim Connolly just a day after sending Matthew Lombardi to the Coyotes in the first 'retained salary' trade under the new CBA. By saying goodbye to two candidates for centre spots, Nonis has made it impossible to trade Bozak and Kadri. The move has changed the negotiation: now, that trade structure is off the table. Nonis has effectively 'shot the hostage'; it may be that he had a different package in mind (maybe he would rather move a winger? MacArthur?). Now, that's the only option available.

Nonis may have wanted to call Gillis' bluff that other teams would offer more. Nonis has altered the negotiation by eliminating some of his own options - he shot the hostage. Now that Bozak and Kadri have become genuinely unavailable, Gillis may have negotiate on Nonis' terms.

Saturday, January 12, 2013

Why someone - anyone - should sign Michael Del Zotto to an offer sheet

As we wait for the NHLPA to announce ratification of the Memorandum of Understanding, news is coming out of New York that the Rangers' RFA Michael Del Zotto may not get signed before training camp.

Reportedly, the two sides are talking about a 2-year deal and are about half a million dollars apart. The Rangers are looking to pay about $2.4m or maybe less; Del Zotto is apparently asking for as much as $3m.

Last season, Del Zotto was a valuable powerplay fixture, putting up 41 points in 77 games, and was was third on the team in ice time (behind Dan Girardi and Ryan McDonagh). This isn't a guy the Rangers should be nickel-and-diming with; he's an important part of the team and a valuable player. What's more, he's just 22 years old.

It seems like this would be a prime chance for any number of NHL teams (Detroit? Toronto? the Kings?) to add a top-four defenceman at a reasonable price. Del Zotto might jump at an offer sheet like the one Niklas Hjalmarsson signed in 2010 (4 years, $14m) as he's clearly worth more than $2.5 million a year.

We are, of course, yet to see any finalized CBA details but under the previous deal, such an offer (if signed) would cost a first-, second- and third-round pick. Significant, yes, but if you're a playoff team (and we can assume Detroit certainly is), that's a late first-rounder. If you wanted to trade for Del Zotto, I doubt you could get him for those three picks. It would be a sensible move to make.

Even if the Rangers match the offer sheet, you can at least screw up the budget of a powerhouse rival. While that has less value to Detroit or LA, the Leafs might be happy to knock the Rangers down a notch. Recall the aftermath of the Hjalmarsson offer sheet: the Blackhawks couldn't fix their cap situation, so had to say goodbye to Antti Niemi and had to go with an unproven Corey Crawford, who has had mixed results since.

The team that might be most interested in screwing the Rangers, actually, might be the Penguins. The Pens have abundant cap space and could use another defender (though they would probably prefer more of a shutdown guy), as their third pairing going into camp looks to be Ben Lovejoy and Derek Engelland. Their depth beyond that isn't substantial if there's an injury.

GMs may be gun-shy about dropping an offer sheet at this stage of the season, but this is one of those situations where it may be fully warranted. The Rangers, meanwhile, would do well to stop dithering around and meet Del Zotto's demands before it's too late.

Thursday, January 10, 2013

On Brian Burke: Autonomy doesn't mean No Accountability

Brian Burke didn't have to make excuses. Explaining himself would've been enough.

According to James Mirtle's excellent Globe and Mail write-up this morning on the Burke firing, MLSE's new bosses found Burke "difficult to work with" as soon as they met him. They wanted to know about the team's direction; they wanted to know why they should trust him after the Leafs had done nothing but lose during his tenure.

Burke could have explained that. A lot of people could. The cupboard was bare when he arrived: from 2003 to 2007, the Leafs had two first-round picks; the other three were traded away. The two picks that were kept were used to get Tuukka Rask and Jiri Tlusty; Burke's predecessor, John Ferguson Jr., let Rask go in a trade to get Andrew Raycroft, who had been a pretty mediocre OHL and AHL goalie before having a great rookie year in Boston.

Yet Burke did himself in by refusing to account to the MLSE board. I had the chance to hear Burke speak this time last year while the Leafs were visiting Vancouver. Burke talked about the importance of autonomy. He needed to be the one driving the bus - no meddling from above. He had seen the problems the Leafs had had before his arrival and didn't want the higher-ups meddling with hockey decisions.

In this conviction, Burke was right. He knew team-building better than an executive board. Happily for him, the bosses agreed. Burke would have final authority on all hockey decisions. It was the right way to run the team, given his wealth of experience.

Yet Burke forgot that autonomy doesn't mean that there is no accountability. He reacted brusquely when questioned by media on his decisions; he refused to explain himself but was more than happy to explain how hard his job was. According to the accounts coming out the last few days, he had a similar approach to the MLSE board. Despite the fact that he could have explained his decisions, he saw the questions from above as intrusive.

Burke had insisted that the team was capable of making the playoffs in the near term, despite the fact that its core players were past their prime and the youngsters were nothing to write home about. Burke stuck to his guns.

Burke made moves to add pieces to the team; in need of first-line scoring, he traded two first-round picks and a second-rounder for Phil Kessel, who delivered as promised, scoring 30 goals every year since his arrival. Last season, he scored 37 goals and 82 points overall, sixth-best in the NHL. Yet despite Kessel's success, the trade has been seen as a failure for Burke: the Bruins used the picks to get future stars Tyler Seguin and Dougie Hamilton.

Yet at the time the trade was made, it seemed more like an acceptable risk. The picks weren't expected to be high in the first round; the Leafs expected to make the playoffs and so the pick used to get Seguin wasn't going to be a second-overall; it was going to be a 20th overall. The Hamilton pick was supposed to be similarly late. A surprise collapse by the Leafs in 2009-10 caused the trade to go bad, not bad judgment by Burke.

Analysis of the Kessel trade at the time was favourable to Burke - it seemed like a reasonable risk to take. We shouldn't confuse the outcome with the decision: at the time, no one foresaw how valuable the picks would turn out to be. It's not fair to blame Burke with revisionist history.

And then there were injuries. Burke continued to build rosters that, on paper, had a shot at the playoffs. He started the 2011-12 season counting on James Reimer to backstop a winning team, but then Reimer got concussed. The team again missed the playoffs, though perhaps Burke could have done more to replace his goaltender and make a playoff push, or could have cleared the lineup for the first-round picks that were supposedly on offer via trade. Instead, Burke chose the middle route: stay the course, and build around the current group.

Burke could have explained all these things to his MLSE overlords. The Kessel trade, the Reimer injury - most people understand these events as containing a lot more luck than they do bad judgment on Burke's part. Yet Burke felt no need to account to anyone, because he needed to be autonomous.

I find it hard to blame Burke: he has had a lot of success as a GM in his career and shouldn't have to take a lot of the abuse he gets. He might've done well to insulate himself with someone in the 'Team President' role - the role Paul Godfrey played for a long time with the Blue Jays. The man who is best at making the hockey decisions might not be the best person to answer the questions from the corporate guys. Godfrey took on the role of translator and mediator in his role; Burke and the Leafs needed someone to do the same. Perhaps this whole mess could have been avoided if they had the foresight to do that, to have someone to stick up for Burke without disenchanting the Board.

Wednesday, January 9, 2013

Why the Vancouver Canucks need a 'Team Mom' (seriously)

Deadspin put out an article today profiling the mess that was Tyler Seguin's bachelor apartment while he was in Germany for the lockout. Needless to say, it wasn't pretty:
"Coca-cola bottles, garbage and dirty linen lay scattered across the floor, while rotten bananas were left on a table...Blick said the hockey player was "not versed in appliances" and as a result tried to wash his clothes in the dryer.
"He also did not know how to operate the dishwasher . . . when he ran out of clean plates, glasses and cutlery, he bought plastic tableware."
Disgusting, yes - but we shouldn't be too hard on Seguin. He's 20 years old, and frankly, sounds like a lot of roommates I've had. When I was an undergraduate at UBC, I had a roommate who left - I kid you not - a full glass of milk on his desk over the winter holidays. His bedroom door was locked for that time, and when he came back, some mutated science experiment was waiting for him when he opened the door. I had been suspecting something worse, given the smell of lactic death emanating from the room, but yeah, newsflash: young men are slobs. Some are worse than others.

This creates a host of problems. One, they're going to get sick. Having rotting food strewn about your living space and dirty laundry piling up invites all manner of germs to attack the people that live in these places.

If you're paying these guys multi-millions, would it kill you to spend a few bucks on helping them around the house? We've seen the Canucks smartly giving players access to a 'team chef', who provides players with take-home meals with real nutrition. There's room to expand on this concept, by setting up a full-on service that does housecleaning, laundry, even grocery shopping for the players. This could be the sort of thing that the team could provide as an added benefit that might elude cap-circumvention scrutiny. The 'Team Mom' could also provide a little coaching on household skills, too.

In-house moms are common in college fraternities; they help to ease the transition from living at home to moving out, which is a drastic change for a young male. Given that many young hockey players live like frat boys, they could really benefit from a little help around the house. Anything a team can do to keep the players healthy, fresh, and happy will help on the ice and will make Vancouver an even more attractive destination for free agents. This strikes me as the sort of thing that could provide a useful payoff.

Follow Rory Johnston (@rnfjohnston) on twitter:

Monday, January 7, 2013

One more way Tim Raines is underrated

It's no secret that Tim Raines is a baseball stathead favourite. He gets a lot of ink for being underrated, which he is. His OBP and stolen base % made him one of the finest leadoff men of all time, but he had only modest power and didn't drive in many runs in an era where RBI was valued perhaps above all else. Unlike many other top leadoff men, Raines only had 2605 career hits and fell short in most other counting stats. He had a lot of good seasons but never hit 20 homers, and never put up more than 71 RBI.

We've since seen past all that, noting his career .385 OBP and consistent production into his late 30s that made him an always-valuable leadoff man.

But there's one more thing we've missed: Raines' career numbers suffer considerably because he was used mostly as a leadoff man. No, I'm not talking about his RBI totals; those obviously would have been higher.

Like just about every hitter in history, Raines' numbers were better with men on base than with the bases empty:

Bases Empty 6358 0.289 0.369 0.424
Runners on 4001 0.301 0.411 0.427
Raines came to bat with men on base only 38.6% of the time.

Let's compare Tim with another recent inductee, Jim Rice.

Bases Empty 4429 0.291 0.344 0.495
Runners on 4629 0.305 0.359 0.509

Like Raines (and most players), Rice sees a nice boost in his numbers with men on base. There's a number of things at work there. Both players got a decent number of intentional walks (148 for Raines, 77 for Rice) with men on base; neither player was ever intentionally walked with the bases empty. This boosts OBP (about 3.7 points for Raines; 1.7 points for Rice).

There's also sacrifice flies: 76 for Raines, 94 for Rice. With the bases empty, a fly out hits your average, OBP and SLG. When it scores a runner on third, your OBP falls, but not your average or SLG. If sac flies were scored as outs, both Raines and Rice would lose 7 points of average and SLG with men on.

What's different, though? Rice had men on base for 51.1% of his career plate appearances. That's a clear advantage over a leadoff hitter like Raines. Though Rice certainly faced pressure to succeed with men on base, it's a more statistically favourable situation for any major-league hitter. You're going to get more walks and your average and SLG will be protected by sacrifice flies that don't count against you. What's more, you have all the benefits of a pitcher under pressure who is distracted by the men on base, and will probably have to throw you more fastballs.

Here's an experiment: what if Raines had batted more often with men on base? What if he had been used as a middle-order hitter?

Rice's 51.1% of plate appearances with men on base is a high number - typical middle-order guys see more like 48%. Here's a totally non-random sample:

  Bases Empty Runners On % w/ men on
Jim Thome 5347   4966               48.2%
Albert Pujols 4162 3941 48.6%
Carlos Delgado 4430 4227 48.8%
Vernon Wells 3597 3157 46.7%
Bobby Abreu 5301 4625 46.6%

So let's imagine what would happen if Tim Raines had come to bat with men on 48% of the time rather than 38.6%.

Bases Empty
0.289 0.369 0.424
Runners on
0.301 0.411 0.427

Career Total (38.6%) 0.294 0.385 0.425
Career Total (48%) 0.295 0.389 0.425

I know, it doesn't look like much. One measly point of batting average? Four points of OBP? What's that worth?

A lot, in fact. Over a 10000 plate-appearance career, that's worth an extra 41 walks and 41 fewer outs; which is worth 24.6 offensive runs - and about 2.5 extra WAR. No, it's not earth-shattering, but it means Raines would be valued at 68.7 career WAR rather than the 66.2 Baseball-Reference has him at.

That would move Raines up 12 spots on the all-time WAR leaderboard to #85, leapfrogging guys like Reggie Jackson, Johnny Mize, Jim Thome, and Barry Larkin. It doesn't make him inner-circle; but it does help to cement him as a sure-fire Hall of Famer.

Raines is typical in this regard. By playing most of his career as a leadoff hitter, his rate stats will underrate him because he took tougher at-bats than middle-order guys. He's not alone: the numbers turn out the same for other leadoff men like Biggio, and basically every modern leadoff man (except Juan Pierre, but that's for another article). OBP is much harder to come by when the bases are empty, and the guys that are tasked with the job - are being underrated for more than just a lack of RBIs.

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Wednesday, January 2, 2013

Some quick NHL pensions math

Lots of talk today about a pensions issue that is holding up NHL-NHLPA CBA negotiations. To many on twitter, it seems like this sounds like small pototaoes. It's not. Here's why:

Let's say you run a business with 700 employees. As part of their compensation, you've agreed to set up a pension plan for them.

For the sake of keeping things simple, let's assume the following:

Every single employee will earn $45,000/year in pension starting at age 65.
Every one of those employees will collect that pension until he dies, which will magically be age 80 for all of them.

The contributions to fund the plan come out of the employee's salary until age 35 - so there's a 30 year gap between his 'stop-funding' date and his age 65 pension payout date.

The money paid in until age 35 will grow, thanks to compound interest, such that there is enough money to pay the full pension benefit when the employee is 65.

How much will it grow? It depends on the interest rate the pension plan gets on its investments. Let's say the plan earns a steady interest rate of 5% for the 30 years between ages 35 and 65.

(1.05)^30 = 4.32

So the money paid in will quadruple in that time. If the total paid out per employee is $45k/year * 15 years (again, i'm really fudging numbers here, and cutting actuarial corners for sake of simplicity), the fund will need to pay out $675,000 per employee. A fund worth about $500,000 per employee at age 65 will grow enough in the retirement years (again, at 5%) to meet those obligations.

Here's the problem: what if the plan doesn't grow at 5%? What if it grows at 4%?

(1.04)^30 = 3.24

So with the same initial contribution, you don't have $500k in the plan per employee; you have $375k per employee. Your plan is short by $125,000 per employee - that's $87.5 million for the 700 total employees.

You can see the big risks created by the uncertainty of interest rates. What if the economy continues to stagnate? What if the pension plan makes some bad investments?

Pension plans run into this sort of trouble with alarming frequency. In good scenarios, such failures are backstopped by the company behind the plan (which may be what the NHLPA is asking the NHL to do). In other scenarios, the plan is protected by a large insurer or by purchase of derivatives, but this can be very expensive to cover for such distant future events...or, the plan members suck it up and get 75 cents on the dollar, or whatever it is they end up with.

Who are we to say, though, where the NHL will be in 30 years? Maybe interest in the sport will fade, or a rival league will take over, or the sport will become less profitable, and so on. Maybe massive concussion lawsuits from former players will destroy the league...who knows.

The players, earlier in negotiations, agreed to put up $50 million of the make-whole money towards the pension-shortfall backstop - but that doesn't cover all potential risks. The $87.5m figure I quoted above is from just a 1% shortfall; what if it's 2 or 3%? I only counted 700 pension plan members - granted, all of those 700 will be receiving full pension under my model (in reality, I believe NHLers with short careers get a fraction of the full pension), but what if it's a 10-year CBA and hundreds more players are affected by a shortfall? The potential liabilities are huge.

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