The Kovalchuk Deal and the CBA Redux

If you haven’t been following the trials and tribulations of the Ilya Kovalchuk saga over the last few months, you either aren’t a sports fan or you are still wrapped up in the Lebron James to Miami Heat ordeal.  In case you had other news on your mind, here is a recap of the events that came to an abrupt, and somewhat anti-climatic, end last Friday, September 4th.

In mid-January of this year, a fellow SAB writer noted that Kovalchuk’s future was in flux with his then-team, the Atlanta Thrashers.  Not too long before the March 3rd trade deadline, he was traded to the New Jersey Devils for a player package of several prospects, including Patrice Cormier.  While many saw this trade as purely a rental player situation for the Devils, team officials apparently thought otherwise, as they kept pursuing a long-term contract with Kovalchuk after their season ended with an early playoff exit in the first round.

However, after that period, things turned down right wacky with Kovalchuk’s contract situation.  He officially became an unrestricted free agent (UFA) as of July 1st.  Unlike past years, where big ticket UFAs were signed right after the start of the free agency period, Kovalchuk remained unsigned for several days.  At one point, Kovalchuk was rumored to be in negotiations with several teams, including the Devils and the Los Angeles Kings.  In fact, rumors circulated that the Kings had even nearly worked out a contract with the Russian sniper, only to be spurned at the last minute as the Devils re-signed him to a long term, lucrative offer…or did they?

While the NHL community broke news that forward had signed an extremely front loaded deal with New Jersey worth $102 million over 17 years, that same deal was soon challenged by the NHL front office as a circumvention of the Collective Bargaining Agreement.  The NHL Players Association did not take this rejection of the contract offer lightly, and the dispute soon went before an arbitrator, which eventually sided with the NHL after a 2 day hearing.  Because of this ruling, Kovalchuk was instantly deemed a UFA, once again, on August 9th.

While to many, this may seem like a strange group of events in and of itself, the story does not end there. The Devils then made a reported offer of nearly $100 million over 15 years, which was submitted to the NHL around August 27th.  On nearly the same day, Kovalchuk’s agent, Jay Grossman, reportedly threatened to sign his client to a contract to play in the KHL next season if that specific version of the contract was not approved within a 48-hour deadline.  Clearly neither the 48-hour deadline nor the reported threat to leave for the KHL were enforced by Grossman.

Of course, now that Kovalchuk is officially signed, his agent may have been trying to call the NHL’s bluff.  Unlike the departure of previous NHL players for the KHL, such as Jarmir Jagr, none have been in their prime nor still a potent offensive force quite as much as Kovalchuk.  He has scored no less than 29 goals in a season since coming on as an 18-year-old rookie 2001-2002, and that was in 65 games.  A player of Kovalchuk’s status would not have been a death blow to the NHL, but it would have certainly served as a healthy reminder that the KHL is surely becoming a comparable league.

Why does this all matter to NHL players and GMs?  Under the previous CBA language, GMs and agents had found an apparent loop-hole in the system.  Several high profile signings have taken place in the last several years that were top-heavy, meaning there were high paying early years and minimum salary requirements in later years.  These include the contracts of Roberto Luogno with the Vancouver Canucks, Marian Hossa with the Chicago Blackhawks, Chris Pronger with the Philadelphia Flyers, and Marc Savard with the Boston Bruins.  From the League’s standpoint, when a team structured deals in this manner, front loading contracts over a long period of time, it was a circumvention of CBA language regarding averaging the salary of a player over the life of the contract.  This means that in most cases, and likely in the case of Kovalchuk’s $102 million, 17 year offer, the contract would end long after he had ended his playing career.  Thus permitting teams to have a lower cap hit earlier in the contract when it truly mattered.

Under the old CBA language, teams could then benefit from the lower cap hit in the early years because of the reduced pay when the player is the in the twilight of his career.  Then, as one commentator noted,

Under these circumstances the teams involved could potentially buy out the contracts at a much less punitive financial hit near the tail end of the deals.  It is also believed that the players involved have no intention of completing the contracts and would likely retire before they enter the final years at near minimum salary.

The saga was not without its critics.  Marc Savard’s agent, Larry Kelly, openly criticized NHL Comissioner Gary Bettman for his treatment of the events, and Kelly even threatened litigation if Bettman revoked his client’s contract.  While no players have been quite as outspoken, there are probably more internal rumblings than any outside of the locker room will ever hear.  Luckily for the League, no such revocation of contracts took place in the modification and Kelly can rest a bit easier.

However, with the signing of Kovalchuk comes some amendments to the current CBA that will effect how teams structure long-term contracts with players.  The NHL and the NHLPA agreed to change CBA language that now covers long-term contracts, or those for five years or longer.  With these changes, which went into effect as of Saturday, September 4th, teams are essentially prevented from securing long-term deals that will result in a lower cap-hit once the player retires at the tail-end of his contract.  Two changes are of particular importance for teams looking to sign a player to a contract of five years or more:

1. While players and clubs can continue to negotiate long-term contracts (five years or longer) that include contract years in a player’s 40s, for purposes of salary-cap calculation the contract will effectively be cut off in the year of the contract in which the player turns 41.

This basically means that if a 33-year-old player signs an eight-year contract, the amount owed to him in the first seven years of the contract will be averaged for the purposes of salary-cap computation. Then, in Year 8 of the contract, the salary he will make for that particular season will determine his salary-cap hit for that season.

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2. In any long-term contract that averages more than $5.75 million for the three highest-compensation seasons, the cap charge will be a minimum of $1 million for every season in which the player is 36-39 years of age. That $1 million value will then be used to determine the salary cap hit for the entire contract. If the contract takes the player into his 40s, the previous rule goes into effect.

With these amendments comes an agreement by the NHL to drop its investigations into the contracts of the “suspicious” contracts entered into by the likes of Luongo, Hossa, Pronger, and Savard.  That part of the agreement is no doubt music to the ears of Grossman, Kelly, and others that represent the long-term contract players.

Now that an amicable end has been reached, one can only speculate what each side determined its primary bargaining chip to be.  Did the NHL really think it would be able to revoke the contracts of players that had already signed long-term contracts, with no immediate and long-term repercussions through the NHLPA and players defecting to the KHL?  Was Kovalchuk worried that he might not be able to a) receive similar compensation in the KHL or b) have to eat his own words and play in the KHL, which has an arguably less talented player crop top to bottom than the NHL?  Will the NHL reject contract offers from teams that attempt to find other “loop-holes” in the CBA down the road?

Just because the NHL has officially accepted the Devils’ contract offer with Ilya Kovalchuk, I have a feeling the fallout is far from over.  When the current CBA ends on September 15, 2012, long-term contracts will certainly be at the front of discussions for a future CBA.  There is no doubt in my mind that the NHL will put its mind to work determining what other loop-holes GMs and agents might find in the CBA.