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Kovalchuk Contract Rejected
by PuckStopsHere on 07/21/10 at 09:51 AM ET
Comments (17)
In the off season, any controversy that keeps hockey in the news is a good thing. At least it keeps people talking about it. The NHL has its controversy. They rejected the contract Ilya Kovalchuk signed with the New Jersey Devils as being an attempt to circumvent the salary cap. Of course they are right that the 17 year term with six years at the end where Kovalchuk is paid less than $1 million is done to keep the average annual salary down. The $6 million salary cap hit exists only on paper and it is almost a certainty that Kovalchuk will retire long before the contract expires, thus making his average payment higher than the salary cap reported figure.
The problem is that the NHL has accepted several contracts that are set up to reduce the salary cap hit by adding on several low paid years at the end when the player in question is likely retired. I think the worst one before Kovalchuk is Marian Hossa`s contract with Chicago.
Hossa signed a 12 year contract worth $62.8 million last summer. This contract gives a $5.233 million salary cap hit and keeps Hossa playing in the NHL until he is 42, if he is to finish it. For the first seven years it pays Hossa $7.9 million. In 2016/17, it suddenly drops to $4 million. The next two years are at $1 million and the final two years at $750,000. If, for example, Hossa played until he was 38, he would have an average salary of $7.4125 million. He could then retire with four years left on the contract and Chicago would have been under billed by over $17 million against the salary cap. There are several other existing NHL contracts, including Henrik Zetterberg, Johan Franzen, Roberto Luongo and Chris Pronger that could have been used for this example.
Kovalchuk`s contract is not significantly different. For the first two years he earns $6 million. Suddenly it is bumped up to $11.5 million for the next five years. Then it drops to $10.5, $8.5, $6.5 and $3.5 million over the next four subsequent years. There is then one year at $750,000 and five at $550,000. If Kovalchuk plays 11 years and retires at age 38, he earns $95 million, for an average salary of $8.64 million. New Jersey would be under billed $29 million against the salary cap.
What is different about Kovalchuk`s contract? It is higher money. It goes to a slightly higher age (44 vs. 42 for Hossa). When Lou Lamoriello was asked about whether the contract length circumvented the salary cap in the press conference, he answered:
I might agree, but there is nothing that we have done wrong. This is within the rules. This is in the CBA. There are precedents that have been set. But I would agree we shouldn’t have these. But I’m also saying that because it’s legal and this is something that ownership felt comfortable doing for the right reasons.
So there is a quote on record that might be used to suggest wrongdoing.
Nevertheless, if the other contracts stand, this one should too. It is too late to get rid of the other contracts as players have played the first season in them.
What happens next? This is the kind of ruling that the NHLPA would be expected to appeal and it would go to arbitration. This is a test for the NHLPA. Is it in any shape to make a significant challenge and will it think that is a worthwhile move?
Most likely, Ilya Kovalchuk will have to sign a new contract. Will it be with the New Jersey Devils? He will not make any friends if it isn`t, but perhaps in a more limited term the Los Angeles Kings or another team look better. What if Kovalchuk winds up going to the KHL now? It isn`t impossible that he will be offered larger money by the Russian league than any NHL team. There would be quite a bit of hand ringing if the NHL rejected a contract of one of its star players and as a result the NHL lost that player to another league. That is an interesting possible development.
What took the NHL more than a day to review the Kovalchuk contract before rejecting it? What ever happened to the reviews of the contracts from last summer that didn`t go anywhere? How can you justify rejecting the Kovalchuk contract and not the other ones? There will be a bit of legal wrangling to try to answer these questions. How much of it will be behind the scenes and inaccessible to the average fan?
One thing is certain. The NHL got itself a controversy to earn some mid-summer press. That in itself is a good thing for hockey, even if on its surface the story makes the game look bad.
Filed in: | The Puck Stops Here | Permalink
Tags: Chicago+Blackhawks, Ilya+Kovalchuk, Marian+Hossa, New+Jersey+Devils,
Comments
Wrong again!! NO contract had the Last 5 Yrs. Of a 17 year deal at the League Minimum for 2010 in 2027!! Think 550,000 Dollars will be the League Minimum 17 season from Now?? & on top of that do you see that PRIMADONNA playing till he’s 44??
Posted by Evilpens on 07/21/10 at 10:00 AM ET
@Evilpens - FUNCTIONALLY, the contract is flawed and the NHL is correct that it’s a cap avoidance contract. However, Nathan is dead on right. This is a loophole allowed by the language of the CBA. It shouldn’t be, but one cannot take an IS statement and turn it into an OUGHT statement.
Posted by redxblack from Akron Ohio on 07/21/10 at 10:04 AM ET
UMM I think the NHL has some pretty High Priced Lawyers who know more than you or I about it HUH?
No matter how much money lawyers make (nor how many misplaced capitals letters or how much poor punctuation you use), they can’t change the wording of the CBA.
Which was followed.
To the letter.
Posted by Garth on 07/21/10 at 10:14 AM ET
Evilpens - I have never seen more random use of capital letters. That is all.
To redxblack - the CBA also allows the NHL to block contracts that are clearly being used to circumvent the CBA. What the NHL must show (I’m not sure who has the burden here, I’m assuming it is the NHL) is how Kovy’s contract is different than Hossa’s, which was accepted by the league.
Agreed on the statement though, it doesn’t show wrong doing, it just shows what he thinks the rule ought to be.
Posted by Chris from NOHS from Columbus, OH/Grand Rapids, MI on 07/21/10 at 10:17 AM ET
To redxblack - the CBA also allows the NHL to block contracts that are clearly being used to circumvent the CBA. What the NHL must show (I’m not sure who has the burden here, I’m assuming it is the NHL) is how Kovy’s contract is different than Hossa’s, which was accepted by the league.
Agreed on the statement though, it doesn’t show wrong doing, it just shows what he thinks the rule ought to be.
Posted by Chris from NOHS from The University of Oxford on 07/21/10 at 11:17 AM ET
This is very true, and I pointed out the rule that states this in another thread. My point is that, like you are implying, no explicit rules are being violated, it simply appears to be an issue of the NHL deciding they don’t like the contract “because” and invoking their right to reject it.
If I were an arbitrator, you’d have a hard time convincing me that there’s just reason under the rules of the CBA that this contract be rejected.
The bottom line is that the league made this bed, and now they’re realizing the sheets are soiled with piss. They have to lie in that piss till this deal expires. I see no reason an arbitrator would or should rule in favor of them based on “the spirit” of the cap. The cap isn’t about “spirit,” it’s about a hard number and cost-certainty and minute technicalities.
For our sake as hockey fans, I hope that either Kovalchuk reworks a deal with the Devils (or signs with another NHL team with an approved deal), or the PA files a grievance and wins. The other outcomes are very bad for us as fans. Kovalchuk to the KHL after this would make the NHL look like even more of a mockery to most sports fans, myself included. And the NHL winning a case with an arbitrator could be incredibly damaging in the next round of CBA discussions.
Posted by Nathan from the scoresheet! on 07/21/10 at 11:15 AM ET
The fact of the matter is, is that it is not the length of the contract that is the issue…it’s the pay structure. The salary structure of this contract directly violates the CBA (section 50.1)
Here is the salary structure of the contract (courtesy of Andy Strickland):
Ilya Kovalchuk
10-11 6.00 NHL
11-12 6.00 NHL
12-13 11.50 NHL
13-14 11.50 NHL
14-15 11.50 NHL
15-16 11.50 NHL
16-17 11.50 NHL
17-18 10.50 NHL
18-19 8.50 NHL
19-20 6.50 NHL
20-21 3.50 NHL
21-22 750 NHL
22-23 550 NHL
23-24 550 NHL
24-25 550 NHL
25-26 550 NHL
26-27 LY 550 NHL
It is the change in salary from the 20-21 season to the 21-22 season that causes the issue. Per the CBA, Kovalchuk’s compensation can not drop more than 50% from one season to the next.
SO, if the Devils want to rectify the situation, the need to completely re-structure the salary payout OR simply alter the final 6 years of the contract to conform to the CBA.
Altering the final 6 years would look like this:
21-22 = $1.75million
22-23 900 NHL
23-24 550 NHL
24-25 550 NHL
25-26 550 NHL
26-27 LY 550 NHL
It would bring the contract value up to $103.35 million…which would make the cap hit 6.08million for the duration of the contract.
A minor change makes this contract legal and within the rules of the CBA. Then the NHL really has no leg to stand on to reject the deal UNLESS they can prove kovalchuk, his agent or the people they have dealt with at the Devils ever made the implication that he would retire before the end of the contract.
Posted by SensNation on 07/21/10 at 01:16 PM ET
sorry correction….”(section 50.1)” should read “(section 50.7)”
Posted by SensNation on 07/21/10 at 01:24 PM ET
SensNation, the cap hit doesn’t even have to go up. It could just be as easily restructured like this:
2010 - 2011 6.00
2011 - 2012 6.00
2012 - 2013 10.50
2013 - 2014 10.50
2014 - 2015 10.50
2015 - 2016 10.50
2016 - 2017 10.50
2017 - 2018 9.50
2018 - 2019 8.50
2019 - 2020 6.50
2020 - 2021 3.50
2021 - 2022 1.75
2022 - 2023 1.55
2023 - 2024 1.55
2024 - 2025 1.55
2025 - 2026 1.55
2026 - 2027 1.55
Same cap hit and it doesn’t decrease as dramatically.
Posted by pens fan in baltimore on 07/21/10 at 01:30 PM ET
Pens fan - But if Kovy retires early, he doesn’t get paid as much in that one.
Posted by Chris from NOHS from Columbus, OH/Grand Rapids, MI on 07/21/10 at 01:34 PM ET
If the reason the NHL rejected the contract is as simple as it having too big a decline in salary between the years 2020/21 and 2021/22, wouldn`t it have been in the best interests of the league to have clearly explained that? They haven`t. The reaction is more consistent with the idea that they do not like these realy long term contracts where the salary drops at the end. They have allowed some and this time they are going to try to stand up to it.
I don`t think NHL objections would end if the final six years that Sens Nation suggests were adopted. It seems this contract rejection is about something bigger than the drop in salary 11 years from now. It is a failure of the NHL`s public relations not to have made things clear if that isn`t the case - did it really take over a day to figure that out?
Posted by PuckStopsHere on 07/21/10 at 01:40 PM ET
@Pens fan…..as Chris pointed out, Kovy wouldn’t go for that deal because he would end up leaving an additional 5mill+ on the table (IF he retired after season2021/22)
Posted by SensNation on 07/21/10 at 01:41 PM ET
PuckStopsHere
You’re right the NHL has been vague…..like I said in my original post…the only thing that clearly violates the CBA is the pay structure of the contract.
Outside of that, the only other thing the NHL can try and prove is that someone involved in the negotiations made the implication that Kovy will retire before the expiration of the contract.
The league has no legs to stand on outside of these two areas.
Posted by SensNation on 07/21/10 at 01:44 PM ET
True Chris, but it would make the contract look better which seems to be the problem. If he retired under the contract I proposed after 2021, he’d be leaving 9.5m on the table instead of 3.5. If he needed the money that bad at that point, then he could always keep playing. Or heck, he could probably retire and then try to go over to the KHL for an even bigger payday at that point (assuming the KHL is still there).
Posted by pens fan in baltimore on 07/21/10 at 01:49 PM ET
You’re right the NHL has been vague…..like I said in my original post…the only thing that clearly violates the CBA is the pay structure of the contract.
The pay structure doesn’t violate the 50% (or the 100%) rule. The acceptable drop (or rise) are based on the first two contract years. The lower salary to be precise, but in Kovalchuks case it’s the same number, ie. $6M.
That means his salary can increase $6M (in theory) from year two to year three. Of course, paying him $12M in year three would violate the 20% rule, hence “only” $11.5M. But the 100% rule isn’t really interesting in terms of rejecting this contract.
When it comes to the 50% rule, ie. salary decrease, the reasoning is similar. You pick the lower salary from the first to contract years and calculate 50%. That’s the maximum decrease from one year to the next. In Kovalchuk’s case that’s $3M. This decrease is used from 2019-2020 ($6.5M) to 2020-2021 ($3.5M). The drop from 2020-2021 ($3.5M) to 2021-2022 ($0.75M) is within the allowable margin and therefore legal.
Therefore, in my understanding of the rules, Kovalchuk’s contract satisfies the technical requirements.
Posted by Moq from Denmark on 07/21/10 at 04:27 PM ET
@Mog
You know what, I can admit when I’m wrong. I posted my entries in haste and now after reading your post and going back and reading that section of the CBA thoroughly I believe you have the correct interpretation.
So then that means that in my opinion unless the NHL can prove some how that the contract was created in bad faith and that someone involved indicated or implied that Kovalchuck would retire before the contract expires….then I don’t see how this stands and Kovy will be a Devil.
Posted by SensNation on 07/21/10 at 11:10 PM ET
@SN
No problem, I just knew from looking at several long-term contracts recently that most of them have year to year reductions beyond 50%. So I reread the rules and tried to decipher them.
The only applicable method of rejecting a technically correct contract is article 26 of the CBA (to the best of my knowledge), which is the equivalent of “against the spirit of the salary cap” article that encompasses everything not directly stipulated. That process can end up with an arbitrator deciding the issue. The investigator, in this case the league, can be given access to all correspondence between club, player, and agent.
As I mentioned under a different thread, it would have been better to pursue the first suspicious contract, or reject them categorically as they emerged, to establish a precedent on arbitration rather than this ad hoc approach.
If they avoided any cap reduction schemes in writing, or other types of circumvention evidence beyond contract structure, it might stand, but I think it should be annulled.
Posted by Moq from Denmark on 07/22/10 at 02:23 AM ET
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No, the quote suggests that if Lou were the one to have written the rule, he would’ve written it differently. But given that the rules are what they are (that is, they allow this), he signed this deal to make his team better (whether or not he really made his team better is a different argument all together, and not one I wish to have).
I think the PA has a very strong case if they take it to an arbitrator. This is the NHL’s CBA. The PA didn’t want it, but they took it to get the game back on the ice. If the owners are unhappy that they themselves were too short-sighted or unable to scrutinize their CBA effectively enough to close “loopholes” like this, then I say they are shit out of luck, and I hope an arbitrator says the same thing.
Posted by Nathan from the scoresheet! on 07/21/10 at 09:59 AM ET