The value of NHL danger pay.
US$50 million over eight years
• In signing Mike Babcock as its new head coach, for a reported US$50 million over eight years, the Toronto Maple Leafs have made him the highest paid coach in the history of hockey. Is he worth it?
“Ooof. That’s big,” said Christopher Chen, an expert in executive compensation at the Hay Group, a management consulting firm in Toronto, when he reads reports of Babcock’s paycheque. “That’s unbelievable.”
The Leafs last won the Stanley Cup 48 years ago. If Babcock can lead the team to the Holy Grail, as he did with the Detroit Red Wings in 2008, then his compensation is a bargain, Chen said.
Maple Leafs Sports and Entertainment, which owns the Leafs, are apparently willing to make that bet.
“In looking at the board of MLSE, you have a group of fairly savvy, sophisticated, successful business people weighing what they need to do well in Toronto,” said Scott Munn, a partner in the Calgary office of Hugessen Consulting, an executive compensation company. “They probably feel, like Mike Babcock, that they are making a good deal.” In a news release, the Leafs noted that Babcock “posted a 458-223-105 regular season record” in 10 years in Detroit. In the business world, Munn noted that boards of directors typically link compensation not to past glory but to future performance.
While Babcock’s reported deal raised eyebrows across Canada, dramatic spikes in wages for coaches are becoming the norm across many sports, notes Bob Boland, a professor of sports business at New York University.
“It’s a trend in all the other sports that have a salary cap,” Boland said.
League rules require the Leafs to keep total player salaries below US$70 million, but they can pay coaches whatever they want. Even so, “it puts him among the highest paid coaches in all sports,” Boland noted.
Steve Keogh, a spokesperson for the Leafs, said, “we don’t discuss the terms of any of our coaching or management compensation.”
Babcock’s reported salary works out to US$6.25 million per year over eight years, which eclipses the base salar- ies of the chief executives at the two companies that own the Leafs. George Cope, CEO at BCE Inc., earned $1.4 million last year. Guy Laurence, the CEO of Rogers, earned $1.2 million.
Chen at the Hay Group, a Leafs fan, thinks that Babcock will likely earn his keep behind the bench in Toronto.
“You and I aren’t accustomed to the pace, the pressure, the complexity of a job like this,” he said. “Can you control a room of multi-million dollar players? And arguably, he’s the most successful coach over 10 years in the NHL.”
In poor, beleaguered Toronto, starved for any pro sports victory — but most especially for success on the ice — Babcock will face more scrutiny from media and fans than any CEO. That kind of scrutiny also has a price tag.
“Sometimes, we have executives who get paid a risk-premium for going to a war-torn place,” says Chen. “Perhaps Mike Babcock is getting a risk-premium.”
Babcock, 52, started his hockey career at McGill University’s hockey team, the McGill Redmen, and rose to captain of the team. Karl Moore, a professor in the Desautels faculty of management at McGill, has heard Babcock speak and believes him to be the leader that the Leafs so urgently need.
“He’s got the royal jelly,” Moore said. “He has charisma by hockey standards. We know he’s smart and that helps. As a business person, I don’t mind paying him the money, because if he has success, it will more than earn the money back.”
Boland in New York suggested that the Leafs give Babcock the autonomy to implement a scouting and player development philosophy.
“It looks good on paper,” Boland said. “When you pay a coach like that, you assume you buy some stability.” That, too, is no sure thing. “It’s a wedding day in an industry where there’s a 50 per cent divorce rate,” Boland said. “And obviously it’s a very expensive wedding.”