Better late than never: CBA perspicuity arrives after Kovalchuk decision

It is ironic to pause on Labour Day and analyze what the NHL and NHLPA have finally accomplished.  More than five years after the current CBA was finalized and now, approximately two years before its expiration, the two sides have finally completed a drawn-out, laborious process to partially rectify what they failed to get done during bitter bargaining table negotiations in 2005.  Out of the negative that was the Ilya Kovalchuk contract controversy, lingering over the summer of 2010 like an annoying haze of smog, came a positive: the addition of two supplements to the previously vague CBA that will quantify specific boundaries and restrictions on future long-term contracts that attempt to intentionally lower the annual salary cap hit.

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Last Friday afternoon, the NHL approved the most recent iteration of a mega-year deal between the Devils and Kovalchuk.  The new contract is not radically different than the original one, totalling an even $100-million spread over 15 years for an annual salary cap hit of $6.667-million, up slightly from the $6-million yearly figure contained in the deal that was revoked by the league and arbitrator Richard Bloch.  The table below shows a comparison of the invalid contract (left columns) and the approved contract (right columns).

Sources: capgeek.com and Offside: A Sports Law Blog (Eric Macramalia)

What is obvious at first glance is that the structure of both the approved and rejected contracts are insignificantly different over the first eight seasons.  Both deals call for $6-million in years 1 and 2.  Both deals also stipulate earnings of between $11-million and $12-million in years 3 to 7 followed by a drop in year 8 to either $10-million or $10.5-million.  After 2017-18, when Kovalchuk will turn 35, he will have earned $79-million or 79% of the contract’s total value.  Under the invalid agreement, he would have earned $80-million or 78% of the total value after the same initial eight seasons.

The point of disagreement was clearly with what Bloch termed the “6-year tail” of the original contract, a period the arbitrator ruled that New Jersey would not actually have “hope that Kovalchuk will be playing, but rather the expectation that he will not”, essentially a time when the Devils could expunge the $6-million salary cap hit by demoting or waiving him or by simply watching Kovalchuk retire.  In the approved deal, instead of six final seasons with annual payouts of $750,000 or less, Kovalchuk will take home (in $-million) annual salaries of: 4,1,1,1,3 and 4.  Thus the 6-year tail has a slight ski-jump at the end to mollify the NHL office, with no single season dropping below $1-million.

With the matter now settled, what about the investigations into the possible cap-circumvention deals signed by Marian Hossa, Roberto Luongo, Chris Pronger and Marc Savard?  Those inquiries will not proceed; all four contracts will be allowed to stand, but they will be the last ones before this particular species of contract becomes extinct due to the supplements agreed upon by the NHL and NHLPA last Friday (see footnotes for specific details).  As I suggested over a month ago when the original contract of Kovalchuk was rejected, it was poor form for the NHL to invoke the Circumventions Article and threaten to use the De-registration Clause in the CBA without specific quantification of what makes a signed deal run afoul of the Agreement.  “Better to let those contracts stand, but use the Bloch decision on Kovalchuk as a beacon of warning for all future situations where a player and club attempt to circumvent the CBA,” this space declared on August 9, hours after the arbitrator’s decision.

And shine a loud beacon of warning they did.  The NHL and NHLPA should receive credit for bringing clarity into the CBA, at least until the next round of negotiations, and for making an effort to close off the most glaring and abused loophole in salary cap regulations.  With specific ages, years and salary figures now written in stone, the league will no longer appear to pick and choose which contracts to approve and which ones to reject; no longer will they have to pinch their nose – as they surely did when finally signing off on Kovalchuk – when a contract comes across their desk clearly attempting to defeat the salary cap.  The still-leaderless NHLPA can get back to the process of finalizing their executive director search and constitution ratification as opposed to preparation of endless grievances.

Lawyers often speak about following the “spirit of the law” not just the “letter of the law” in relation to a given statute.  For several seasons, certain NHL teams thumbed their noses at the salary cap sections of the CBA, making a mockery of the spirit of the law though they followed the vague letters, sentences and paragraphs of the law.  Hopefully, with new letters and numbers in CBA law, the spirit of the law – an attempt at creating competitive balance – will be followed more properly.

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Supplements to the CBA, effective immediately, per NHL.com:

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.

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.

Please refer to the linked article for examples clarifying the new rules.