FanPost

Kovalchuk Contract - NHL Was Correct to Reject


Based on the following analysis, I believe the Kovalchuk contract crossed the line in terms of "circumventing the provisions of the CBA". Thus, the NHL was correct in rejecting the current deal. The Kovalchuk contract was structured to pay him $98.5 million in the first 11 years, after which he will be 38 years old. The final $3.5 million are earned over the final six years when he is 38 to 44 years old. Clearly, he will be rich enough and have little desire to play at that advanced age for what will likely constitute minimum wage pay in the NHL at that time. Thus, there is probably little chance of Kovalchuk playing another year at age 38 for $750,000, after making $98.5 million over the preceding 11 years. Should he retire at this point, the Devils will not be assessed the salary cap hit over these final six years and they will enjoy a major windfall in the difference in the salary that they actually paid and what they were assessed against the salary cap.  

Other recent long term contracts with significant salary cap savings are summarized below:

Kovalchuk - 17 yrs, $102M, cap hit $6M
Initial 11 years pay $98.5M suggesting a true cap hit of $8.95M (33% savings)
Retire at age 37, he only loses $3.5M over the final six years.
Why play at age 38 for only $750k and five more at $550k each?

Hossa - 12 yrs, $63.3M, cap hit $5.275M
Initial 8 years pay $59.3M suggesting a true cap hit of $7.413M (29% savings)
Retire at 38, he loses $1 million per year for final four years
The risk is he may play for another $1M per year (and lower the savings and cost a huge cap hit to his team).

Luongo - 12 yrs, $64M, cap hit $5.333M
Initial 9 years pay $60.382M suggesting a true cap hit of $6.709M (20% savings)
Retire at 40, he loses $3.6 million over final three years
Again, a risk that he may stick around another year or two, or perform adequately as a goalie at that age.

Lecavalier - 11 yrs, $85M, cap hit $7.727M
Initial 9 yrs pay $82.5M suggesting a true cap hit of $9.167M (16% savings)
Retire at 38, he loses $2.5 million over final two years
Again, a slight risk he may play another year or two causing a disadvantageous cap hit.

Keith - 13 yrs, $72M, cap hit $5.578M
Initial 10 years pay $65.75M suggesting a true cap hit of $6.575M (15% savings)
Retire at 37, but he loses $2.65M, $2.1M and $1.5M in those final three years
There is substantial risk he will play out his contract and no retirement benefit will be realized.

Zetterberg - 12 yrs, $73M, cap hit $6.083M
Initial 10 years pay $71M suggesting a true cap hit of $7.1M (14% savings)
Retire at 38, he loses $2.0 million over final two years
Again, a slight risk he may play another year or two causing a disadvantageous cap hit.

Franzen - 11 yrs, $43.5M, cap hit $3.954M
Initial 8 years pay $39.5M suggesting a true cap hit of $4.938M (20% savings)
Retire at 37, he loses $4.0 million over final three years
If he plays one more year at age 37 for $2M, the savings drop to 14%.

DiPietro
His contract calls for annual payments of $4.5M per year
Thus, no cap savings due to the length.

Mike Richards
His 12 year deal bottoms out at $3M in the final year when he is only 34 years old.
Thus, no reason to believe he will retire early.

Pronger
Since his is a 35+ contract, there will be no cap savings from his final low salary years.
Stupid Flyers

As constructed, the Kovalchuk contract was a clear attempt to circumvent the provisions of the CBA. By tacking on six years at a ridiculously low total of $3.5M, it virtually assures that he will retire at age 38. This structure means that the Devils will have paid out $98.5M over 11 years while only being assessed $66M in salary cap charges, a savings of almost $3 million per year. Those annual savings equate to approximately 5% of the current annual salary cap and will allow them to pay an additional quality veteran player each year. This is a clear competitive advantage over other teams.

While it can be argued that the Hossa contract also crosses the line, it was clearly not as egregious especially since there is risk he will continue to play at the end of the contract for $1.0M per year. The Luongo contract also may push the envelope but has inherent risk due to his goalie position. After all, how many teams really want to be paying major salary cap dollars to goalies in their upper-30s? Other long term deals to players such as Lecavalier, Zetterberg, Franzen and Keith also have provisions that may provide for major salary cap savings should the player retire when his salary drops significantly. However, each of these deals still calls for a seven-figure salary at the end of the deal, which may be tempting enough for the player to consider delaying retirement even though it results in a disadvantageous salary cap hit to his team.  Thus, the NHL was correct to reject the Kovalchuk deal as a clear attempt to circumvent the CBA.

If this FanPost is written by someone other than one of the blog's editors, the opinions expressed in it do not necessarily reflect those of this blog or SB Nation.

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