The Case for the Prosecution: NHL vs. Kovalchuk

Ilya Kovalchuk (Saed Hindash/The Star-Ledger)

The NHL has finally fired a shot in the salary cap circumvention war, rejecting the proposed 17-year ,  $102 million deal between Ilya Kovalchuk and the New Jersey Devils.  Initial responses range from “Why him? Why now?” to “You’ve got to be kidding!” to “It’s about time!”.

In the immediate aftermath of the NHL’s action, the next steps are impossible to determine.  On the one hand, Ilya and the Devils could quietly restructure the deal in a fashion acceptable to the NHL, and the whole thing could go away.  At the other end of the spectrum, the NHLPA could file a grievance under Article 11 of the CBA, challenging the rejection, or the NHL could invoke the “nuclear option” of alleging a circumvention under Article 26 of the CBA, which raises the specter of significant fines should the arbitrator agree.  However, for our purposes, let’s assume the NHLPA challenges the rejection, and the matter goes to arbitration.

Many commentators have discounted the NHL’s chances of prevailing should the rejection be contested.  They cite the league’s inaction on the prior contracts of Hossa, Luongo and Pronger, and don’t believe the NHL can prove that the parties intended to circumvent the salary cap.  Allow me to play the Devil’s Advocate (pun not intended), and show how a convincing case can be fashioned that this agreement does violate the CBA.

First, let’s tackle the question of  “Why now?”  Many expected the NHL to step in on the contracts signed by Hossa, Luongo and/or Chris Pronger, but the league failed to do so.  So, what makes Kovy’s contract so special?

Everyone will agree that the use of extraordinarily long, front-loaded contracts represents a loophole not expressly covered by the existing CBA.  Most will also agree that such contracts, taken to excess, controvert the “spirit” of the agreement.  So, why wait until now to challenge those contracts?  When you don’t have strong, direct contractual language that clearly addresses your desired position, you need to be sure that the facts of the case you use to challenge the practice are as crystal clear as possible.  As the old saying goes, you need to carefully pick the hill you’re going to die on.   The NHL could ill-afford to blithely challenge every one of these contracts, end up losing at arbitration, and create both bad precedents for future cases and a credibility gap relating to the viability of its position.

Let’s look at those prior deals, starting with Luongo.  At age 30, he signed a 12-year, $64 million deal to stay in Vancouver.  At the time, he was making $7.5 million, so the $5.5 million cap hit for the  new deal clearly shows some pretty good front-loading going on.  However, Luongo is a goalie.  According to the statistics (per www.hockey-reference.com), there have been 15 goalies over time who have played in the NHL beyond the age of 40, and seven of them went to age 42 or later.  Not a high percentage, to be sure, but still within the realm of possibility.  The total dollars of the deal, the relatively modest front loading and the equivocal nature of the prospects for him playing into his 40′s made this a less than ideal avenue for a challenge.

Next up — Chris Pronger, who inked a 7 year contract with Philadelphia, worth just a hair under $35 million.  That contract, which became effective after Pronger’s 35th birthday, called for salary north of $7 million for the first four years, $4 million in the fifth year, and only $525,000 in the final two seasons.   While 18 defensemen have played beyond age 40, only five have gone to age 42 or beyond.  However, since Pronger’s deal kicked in after he turned 35 (although he signed it when he was 34), Section 50.5 (d)(i)(B)(5) provides that even if he were to retire before the end of his deal, the full cap hit would apply to the end of the contract.  While that battle may yet be fought, I’m sure the NHL saw no need to test the contract rejection waters for that deal.

Gary Bettman (slapshot77)

Perhaps the toughest prior deal to fathom is the Marian Hossa contract — a 12-year, $68.2 agreement that would take Hossa to his 42nd birthday.  Now, there have only been 26 forwards to ever play to age 40 or beyond, and only 8 that have gone to age 42 — very small numbers considering how many more forwards have played in the NHL than either defensemen or goaltenders.    This contract was also dramatically front-loaded, with $59.3 million payable in the first eight years of the deal.  It seemed to be ripe for a challenge, but the NHL demurred.  Maybe the league didn’t want to interfere with the Blackhawks’ resurgence, or maybe Bill Daly told Bettman “Don’t worry — somebody will get really greedy, and THEN we will go after them.”

If that hypothetical conversation took place, Daly was more than correct.  It was almost a certainty, in this day and age, that somebody would push the envelope even further.  Enter Ilya Kovalchuk and the New Jersey Devils.  Everything about this contract screams “Challenge Me!”   $102 million  — 17 years (considering the average NHL career for forwards is between four and five years)  — another massively loaded deal, with $80 million in the first 8 years, another $18.5 million in the next 3, and a grand total of $3.5 million over the last 6.  There is almost an $11 million gap between the minimum and maximum payments under the contract.  The contract takes Kovalchuk to the ripe old age of 44.  Now, there has only been one forward in NHL history to play to age 44 or later —Gordie Howe.  To assume that Kovalchuk would be only the second forward to reach that milestone is pure folly.

Contract Details via CapGeek.com

Finally, the NHL had its “Perfect Storm” of a contract — one that it could reject and finally take a stand on circumvention of the CBA salary cap provisions.  There are no ambiguities or misunderstandings possible on this deal — the numbers speak for themselves.

So, what about that whole thing of proving “intent” to violate the salary cap or the CBA?  Simply stated, it doesn’t exist.  Section 11.6(a)(i)(C) of the CBA authorizes the league to reject a contract when “. . .it is or involves a Circumvention of either the Club’s Upper Limit or the Maximum Player salary . . .”   So, what is a “Circumvention”?  Section 26.3(a) of the CBA prohibits any action, inaction or agreement, including a Standard Player Contract, which:

. . . is intended to or has the effect of defeating or Circumventing the provisions of this Agreement or the intention of the parties as reflected by the provisions of this Agreement . . .

So, in order to be a circumvention, there need not be any intent to violate the CBA. Instead, it is enough a challenged action “has the effect” of subverting the Agreement.  Equally importantly, the action does not even have to violate an express provision of the CBA, if it can be shown to contravene “the intention of the parties.”   Again, there can be little dispute that the “intention of the parties” is that the salary cap be enforced, and that contracts be limited to the reasonably foreseeable, productive playing career of the individual involved.

The NHLPA has just issued the following statement on the contract dispute:

“The NHLPA is currently analyzing the basis upon which the NHL rejected the contract between the New Jersey Devils and Ilya Kovalchuk. We are evaluating the options available to us under the terms established in the CBA. The NHLPA will have no further comment at this time.”

An intriguingly vague proclamation from the union, particularly considering the vehemence with which they responded to the NHL’s investigation of the Hossa and Pronger deals.  At that time, Paul Kelly stated:

“This is an obvious effort by the League to attempt to chill the market for long-term contracts . . .the NHLPA will take whatever steps are necessary to insure that Players continue to have the unfettered ability to negotiate contracts that are compliant with existing CBA rules.”

It seems that the NHLPA may be dipping its toe rather gingerly into the water this time around, perhaps afraid that Piranha may be lurking unseen in the murky waters.  With this agreement, the Devils and Kovalchuk have finally taken the plunge over the cliff, and the NHL has no choice but to react.  Will the NHLPA challenge them?  Perhaps.  However, they also might well determine that this is not the hill they want to die on.  Time will tell . . .


Jeff Little

Jeff Little

Fan of hockey at all levels, with focus on the Blue Jackets, Miami RedHawks and the business side of the game. I try to bring a rational, even-handed analysis to my writing, wtih just a touch of snark. I use my legal background to bring some more insight on the business side. Love family, travel, hockey, golf and curling.

3 Comments

  1. Pingback: Kovalchuk Redux — The World Is Not Ending | The Hockey Writers

  2. I don’t agree with your interpretation of CBA section 50.5 (d)(i)(B)(5). This article applies to players who SIGN at the age of 35 or older as of June 30th prior to the league year in which the SPC is to be effective. As you mentioned, Pronger was 34 when he signed this deal. I believe this is why the Flyers signed him to the extension a mere two weeks after acquiring him. The NHLPA can very well use the Pronger signing as a comparable.

  3. Thanks for your insightful article. This is one of the few articles I have seen that actually points out the intent vs. effect element of this dispute. Most of the other articles, blog posts, and tweets I have read keep harping on the NHL’s need to prove intent – something that would be near impossible in this kind of situation – but nowhere in the CBA does it require that proof. Instead, the CBA’s focus is on the effect of the contract, allowing the party’s intent to be implied.

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