Notes on “The Contract”

Got some interesting feedback from a couple sources regarding Kovalchuk’s 17 year deal, and its potential impacts on future CBA negotiations.

Source 1:

“These long-term deals are getting ridiculous. How many teams can compete? Kovalchuk only had two suitors due to the number of years he wanted. The league is going to look at both capping contract term and moving toward non-guaranteed contracts in the next CBA.  Contracts signed 1-2 hrs after FA are also going to be looked at and hopefully resolved. The gloves will be off on both sides, but this stuff needs to be done.”

Source 2:

“Kovalchuk may have unwittingly screwed the escrow issue for a lot of players. As more players make more salary than cap hit, payroll figures get inflated and the players end up paying a higher percentage of their salaries back into escrow. Kovalchuk’s salary will be 5.5m beyond his cap hit for five years of the contract, 4.5m and 2.5m above for another two years after that. He’s not the only player whose contract does this, but is the most high-profile given his standing and the absurd length of his deal. It’s going to be interesting to see how this affects negotiations as players will inevitably find themselves fighting opposing fronts — for contract freedoms such as term and front-loading, but against the escrow payments that result from those very freedoms. Advantage: league.”

The interesting part about the escrow concern is Kovalchuk’s salary doesn’t jump beyond his cap hit until the 2012-13 season — the same year it is anticipated a new CBA will be in effect (I believe the existing CBA has been or will be extended through the 2011-12 season). The contract was set up this way by design, and should be considered very telling as to what the focus of CBA negotiations will be from the NHLPA’s perspective.

Update: Some have been asking in the comments why Kovalchuk’s contract doesn’t violate either of the so-called “100%” and “50%” rules. The reason for this is after the jump.

NHL CBA
Article 50.7

The difference between the stated Player Salary and Bonuses in the first two League Years of an SPC cannot exceed the amount of the lower of the two League Years. Thereafter, in all subsequent League Years of the SPC, (i) any increase in Player Salary and Bonuses from one League Year to another may not exceed the amount of the lower of the first two League Years of the SPC (or, if such amounts are the same, that same amount); and (ii) any decrease in Player Salary and Bonuses from one League Year to another may not exceed 50 percent of the Player Salary and Bonuses of the lower of the first two League Years of the SPC (or, if such amounts are the same, 50 percent of the same amount).

Key Information:

(a) Item (i) in the above excerpt is known as the “100% Rule”.
(b) Item (ii) in the above excerpt is known as the “50% Rule”.
(c) Kovalchuk will earn $6 million in each of the first two years of his contract.
Therefore …
(d) According to the “100% rule” no increase between consecutive years of the contract can exceed $6 million, and …
(e) According to the “50% rule” no decrease between consecutive years of the contract can exceed $3 million.

The largest financial increase in Kovalchuk’s contract occurs in 2012-13, when he jumps from $6m to $11.5m (an increase of $5.5m). The largest financial decreases in the contract occur when he drops from $6.5m to $3.5m in 2020-21 (a difference of $3m), and then to $750,000 in 2021-22 (a difference of $2.75m).

In other words, in terms of getting around the CBA the Devils and Team Kovalchuk negotiated this one perfectly.

Update: Looks as though the NHL is none too happy with the contract, and has rejected the deal on an ethical basis despite its terms fully complying with the CBA as currently written.

Interesting food for thought as — extensions aside — the pending end of the CBA is on the horizon. I’ll be back with some thoughts on the Kaberle situation for you in a bit.

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  • Marpole_Leafs

    So now the NHL is interpreting when a player will retire and or be effective ? Wow. Sketchy ass shit. Lou is already on the horn with the Jersey mob and Kovi isn’t going anywhere….my keeper league sort of depends on it.

  • light’em up

    They could probably rework it by taking 2-3 years off the end adding those figures to earlier years and squeak it by with a slightly larger cap hit

  • http://www.mapleleafshotstove.com Schenn

    light’em up wrote:

    @ CarltontheBear:
    entirely possible
    also he turns 38 during the 20-21 season which is the last season he earns real NHL money from 21-22 on 1 year @750000 then 6years @550000
    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
    There is no way he is going to play for 750000 let alone the following 6 years for 550000 until he is 44.

    I know it’ll never happen, but wouldn’t it be awesome if the NHL shaved the final 6 years off the deal, making it an 11 year deal worth just under $9.0 million a season. That’d prevent teams from making deals like that in the future!!

  • rustynail

    KatsHockey

    RT @mforbes37: I have a bad feeling the NHL’s punishment for NJD contravening the CBA will be the Leafs coughing up a 4th round pick.

  • rustynail

    FriedmanHNIC

    Really wonder if Kovalchuk deal gets rejected without Lamoriello comments.

  • ionsys

    It wud not surprise me that the fine print in the CBA gives the League sole authority to approve or reject contracts having to do with cap–ie it may not legally matter that the NHL accepted previous shams

    Think for a moment–the NHL lawyers know all about the circumvention loophole and that they created precedents by approving others—So, ask yourself WHY then wud NHL reject this particular sham. Why wud they even think they could uphold this rejection?

    Answer may be in the fine print of the CBA that gives the League the final say on any contract and precedents do not legally matter

    just a wild hunch

  • rustynail

    DarrenDreger

    If the NHLPA grieves the leagues decision, the contract remains dead until an arbitrator decides otherwise.

  • REID

    DownGoesBrown
    Oh my god, Bettman had him killed! RT @dchesnokov: NHL.com front page still reads “Devil for life.”

  • Richard-Steven Williams

    Damn there goes Burkies 1,000,000 year $100 dollar a season contract for Luke.

  • http://www.mapleleafshotstove.com Schenn

    Does this mean that the NHL trade market is on freeze again??

  • rockydundas

    Hmmmm….isn’t it kinda like us? We work our whole life to retire on a paltry pension. Kinda like front loading our paychecks!!! I always just tell people I’m on the Freedom 95 Plan!!!

  • ionsys

    I’m not entirely convinced that the NHLPA will grieve the decision–

    These kinds of deals over time have the adverse effect of eventually increasing the escrow that ALL players must pay due to the cap exceeding revenues–ie a few prima donnas cause all the others to pay a larger escrow, which the players hate doing but have to at present.

    The 2nd reason is that the players most definately do not want to go thru another lock out as they were embarassed last time–so, maybe better to lie low–if an arbitrator rules against the nhl then the nhl will look like a laughing stock, making a lock out almost certain in 2012.

    the 3rd reason is that it is likely that the vast majority of players privately know that it is a sham and many won’t want to look as if they approve of the sham

  • LeafsRyan.

    @Focker
    I was kidding relax..

  • light’em up

    The league does have the authority to reject the deal

    There is a whole article dealing with circumvention
    Article 26 ( I believe)

    The NHLPA can grieve it but that could take some time.

    I think NJ shaves a couple years of it and Bettman et al let it squeak by

  • djamon

    The NHL takes another credibility hit IMO. Their level of inconsistency is staggering. From their idiot Campbell deciding on discipline to some fool lawyer nixing this deal.
    .
    Look…most people hate these deals, but they don’t violate the CBA. Circumventing it is allowed. How on God’s green earth they can OK Hossa’s (he’ll be 42 when his is up) and reject this one is genuinely beyond me. If the NHLPA or NJ appeals this they’ll win in 5 minutes.
    .
    As has been said, I’m sure the deal will get tweaked. Maybe the idiots in NY already told them what it would take to slide through their imaginary standards.

  • moimoi28

    @ ionsys:
    Who are the owner’s going to lock out? Themselves. There the problem here. They whined that player salaries were getting out of control and got themselves a good deal in the CBA. Then they went looking for loophole’s so they could gain an advantage over the competition. The whole thing is completely ridiculous. I hope we never have to go through another strike or lockout cause of some greedy owner’s or player’s again.

    P.S. Im not angry at you as it seem’s to appear. I just hate how dumb the owner’s and GM’s truly are. I also really don’t want to lose more hockey to hear squabble’s.

  • ionsys

    Article 26.3 of the CBA says ‘no club may enter into any spc if it is intended to or has the effect of defeating or circumventing the provisions of the cba’—-key word being ‘intent’

    one might infer from that that the NHL, regardless of any loophole or not, has the authority to overturn it if they deem it be against the ‘intended’ purpose of the cba

    one of the intended purposes of the cba was to protect smaller market teams etc etc

  • http://www.mapleleafshotstove.com Schenn

    @ djamon:
    The diference between the Hossa and Kovalchuk deals is that Hossa won’t be making the league minimum for the final 6 years of the deal!!

  • moimoi28

    @ djamon:

    The league did warn team’s a couple year’s ago that if team’s continued to do this there would be repurcussion’s. It just took them forever to stand up to the owner’s/gm’s. Hossa’s deal isn’t quite as ridiculous but it still did circumvent the cap and they should have punished them. IMHO I think the league wanted Chicago to win the cup. It was for the “good of the game” and were willing to turn a blind eye to it. But there’s also the Roberto Luongo, Vinny Lecalvier, Chris Pronger, Marc Savard, Duncan Keith and to a lesser extent Mike Richard’s deal.
    .
    Does anyone else think that if he Leaf’s would have tried to pull off one of these deal’s earlier they would have been all over it. I sure do.

  • djamon

    moimoi28 wrote:

    @ ionsys:
    Who are the owner’s going to lock out? Themselves. There the problem here. They whined that player salaries were getting out of control and got themselves a good deal in the CBA. Then they went looking for loophole’s so they could gain an advantage over the competition. The whole thing is completely ridiculous. I hope we never have to go through another strike or lockout cause of some greedy owner’s or player’s again.
    P.S. Im not angry at you as it seem’s to appear. I just hate how dumb the owner’s and GM’s truly are. I also really don’t want to lose more hockey to hear squabble’s.

    You’re looking at the owners and GM’s as if they were one entity. The fact is that they’re made up of haves and have-nots, smart guys and idiots. Some of them, because they have more money than brains, are just looking for ways to circumvent the cap. Others aren’t.

  • moimoi28

    djamon wrote:

    moimoi28 wrote:
    @ ionsys:
    Who are the owner’s going to lock out? Themselves. There the problem here. They whined that player salaries were getting out of control and got themselves a good deal in the CBA. Then they went looking for loophole’s so they could gain an advantage over the competition. The whole thing is completely ridiculous. I hope we never have to go through another strike or lockout cause of some greedy owner’s or player’s again.
    P.S. Im not angry at you as it seem’s to appear. I just hate how dumb the owner’s and GM’s truly are. I also really don’t want to lose more hockey to hear squabble’s.
    You’re looking at the owners and GM’s as if they were one entity. The fact is that they’re made up of haves and have-nots, smart guys and idiots. Some of them, because they have more money than brains, are just looking for ways to circumvent the cap. Others aren’t.

    I’m not really looking at it like that, although it may sound like that. I know some play within the rule’s and some are looking for a way to cheat. That’s alway’s the way it is. Especially in the business world.

  • http://www.mapleleafshotstove.com Schenn

    New Blog up!!

  • djamon

    @ Schenn:
    Hossa’s making 1M his last 4 years, so while the numbers may be different at the end of the contract, the principle is the exact same…spreading out the cap hit. And Pronger is making 525k his last 2 years, when he’s 43 so…
    .
    @ moimoi28:
    They warned them? So what? The contracts are either illegal or not. It’s black and white in my eyes. The language of the CBA is ponderous and convoluted precisely so they could cover everything they wanted to cover. The fact is they never foresaw this happening so they’re shit out of luck. They can deal with it next time around.
    .
    The NHL just seems so bush league to me. It makes me sad.

  • light’em up

    moimoi28 wrote:

    Does anyone else think that if he Leaf’s would have tried to pull off one of these deal’s earlier they would have been all over it. I sure do.

    I was thinking that exact same thing earlier

  • http://www.mapleleafshotstove.com Schenn

    djamon wrote:

    @ Schenn:
    Hossa’s making 1M his last 4 years, so while the numbers may be different at the end of the contract, the principle is the exact same…blockquote>
    That is nearly twice as much as Kovalchuk was scheduled to make in each of his last 5 years and he was scheduled to make $750K in 2021/22, which is over $7 million less than what Hossa is scheduled to make in 2015/16, which is 6 years before he becomes a UFA.

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