Different Rules for the Devils?

On Tuesday afternoon, the New Jersey Devils held a press conference to officially announce the signing of Russian forward Ilya Kovalchuk to a mammoth 17-year, $102 million contract. And just a few hours later, word leaked out that the National Hockey League had rejected the contract on the grounds that it was designed to circumvent the salary cap.

By front-loading the bulk of the money – and paying Kovalchuk only $7 million in the final seven years of the contract – the Devils are effectively reducing the cap hit on the deal while still meeting Kovalchuk’s lofty salary demands in the first 10 years of the deal.

NHL Deputy Commissioner Bill Daly today issued the following statement: “The contract has been rejected by the League as a circumvention of the Collective Bargaining Agreement. Under the CBA, the contract rejection triggers a number of possible next steps that may be elected by any or each of the NHLPA, the Player and/or the Club. In the interim, the player is not entitled to play under the contract, nor is he entitled to any of the rights and benefits that are provided for thereunder. The League will have no further comment on this matter pending further developments.”

In theory, the NHL is 100% correct in their assessment of the contract. It’s highly unlikely that Kovalchuk will play until he’s 44 (the age he’ll be in the contract’s final year), and all parties involved are acutely aware of this. However, there are a few critical reasons why the NHL shouldn’t prevail if this case goes to arbitration.

  • First, the contract is consistent with the rules of the Collective Bargaining Agreement (CBA). The rules state that a player’s annual cap hit is equal to the total value of the contract divided by its length (in this case, $102 million divided by 17 years equals $6 million).
  • Second, it’s a “copycat” contract, much like the one given to Marian Hossa one year ago by the Stanley Cup Champion Chicago Blackhawks. There are numerous other contracts that are similarly front-loaded, and by failing to take action against the prior contracts, the NHL has established precedent that should be followed.
  • Third, because Chris Chelios was able to effectively suit up into his late 40s, it’s impossible to make the claim that Kovalchuk won’t be able to play for the duration of his contract. It’s easy to say that it’s “unlikely,” but it’s certainly “possible.”

The biggest problem with this situation is that the league is unfairly penalizing the Devils for playing along with the rules of the game that have already been established by their competitors. If they are expected to compete with the Cup champion ‘Hawks and the runner-up Flyers (who have signed Chris Pronger to a similarly dubious deal that pays him only $1 million over the final two years of his contract), they should be able to do so on a level ice surface. By attempting to establish different rules for the Devils, the NHL is establishing a different kind of precedent, a bad one that shouldn’t sit very well with the fans.

Another point that shouldn’t be ignored is the possibility of Kovalchuk actually having great value to a small-market team in the final years of his contract. For a team struggling to reach the payroll floor, Kovalchuk would represent a magnificent solution.

Over the course of the final seven years of his contract, Kovalchuk will earn only $7 million in actual dollars, but his cap hit will total $42 million for those seven years. Put another way, a team that’s able to convince him to play (the Devils, or a team he might get traded to) will be credited with $42 million spending towards the cap while actually spending only $7 million.

It’s easy to look at the front ends of these deals from the perspective of a large-market team trying to circumvent the cap, but it’s equally important to look at the back ends to see how they might similarly affect/benefit a small-market team.

The correct solution to this problem would be to address the issue with the next CBA, and it wouldn’t be hard at all. All the league needs to do is extend the rules regarding age 35.

As things stand now, contracts signed to players 35 and over are “fixed,” meaning if the player cannot complete the contract due to retirement or injury, the team is still on the hook for the full cap cost of the contract. In a case like Kovalchuk’s contract, it should also be “fixed” at age 35, meaning that all contract years beginning with Kovalchuk’s age 35 year should be guaranteed. This way, if the player retires before the contract reaches its conclusion, the team would still be on the hook for the full cap cost of the deal.

Unfortunately for the NHL, the time to insert that clause in the CBA passed in July 2006 (when the current agreement was ratified). Now, they’d best attempt to apply such terms retroactively (just as they reduced the value of all contracts by 35% in the current CBA). Changing the terms so that the Devils are operating under different rules than the Blackhawks (Hossa), the Flyers (Pronger) and the Canucks (Luongo) is a recipe for disaster.

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Sometimes, understanding the NHL’s approach to these matters requires some historical context.

Back in 1995, the owners celebrated their knockout victory over Bob Goodenow and the NHLPA, enjoying the certainty that the CBA they’d procured after a half-season lockout was incredibly owner-friendly. It took a little over two years for that conclusion to be turned on its head, when the Boston Bruins gave Joe Thornton a rookie contract that completely turned things in the players’ favor.

Things only got worse for the owners when Carolina Hurricanes owner Peter Karmanos brought his feud with Red Wings owner Mike Ilitch to the NHL’s boardrooms, signing restricted free agent Sergei Fedorov to a severely front-loaded $38 million contract. When the Wings matched and went on to win the Cup, Fedorov collected $28 million for playing in just 43 games (regular season plus playoffs).

So here we are, nearing the end of this CBA. Most pundits lauded the deal as yet another “huge win” for the owners, but I saw it in 2005 as I see it today, as a flawed agreement.

First and foremost, the salary cap is based upon aggregate league revenues, but there isn’t close to enough revenue sharing to make that number meaningful. The New York Rangers’ economy is vastly different from the Florida Panthers’ economy, yet the two teams are expected to adhere to payroll restrictions that are based upon an aggregate of all 30 teams’ revenues. In other words, there’s no meaningful connection whatsoever.

The NHL has picked a peculiar time to engage in a battle with the NHLPA, as the players’ union is in a state of serious flux. There are numerous reports that former MLBPA head Donald Fehr is going to take over as the union’s leader, and if that happens, a battle over Kovalchuk’s contract would be a very interesting place for him to start. With the current CBA due to expire at the conclusion of the 2011-12 season, there’s good reason to expect yet another protracted labor war between the players and owners, and this could be the first battle.

Should there be another work stoppage so soon after the canceled 2004-05 season, it’s safe to say that the fans cannot be expected to return with the same vigor they did in 2005-06. In fact, it’s more likely that the situation will mirror what Major League Baseball experienced after canceling the 1994 World Series. To recover from that debacle required a combination of Cal Ripken’s iron man streak and a steroid-fueled home run derby in 1998 (featuring Mark McGuire and Sammy Sosa).

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