Kovalchuk Contract - NHL Was Correct to Reject
by Crabby Appleton on Jul 21, 2010 2:58 AM EDT
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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.
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From what I’ve read, this wasn’t Lou’s decision, it came from higher up in the organization.
I am a hockey fan first, and a Caps fan second.
by iwearstripes on Jul 21, 2010 9:32 AM EDT up reply actions
Very interesting.
So why did the NHL jump on Kovy’s contract and not the others?
Was it simply the subjectivity that they thought 750K over a few years was way too low and the odds of him pulling out early were extremely high. Or maybe because they think in 12-13 years that the league minimum salary will be at or higher than 750K?
So why did the NHL jump on Kovy’s contract and not the others?
The initial long-term contracts were at least credible, but when we started seeing ones like Hossa’s it became obvious team were tacking on meaningless years to lower the cap hit. After Hossa’s deal the NHL basically said, “All right, enough is enough, no more of this, and if you try it, your going to get your contract rejected.” Nice to see them sticking to it.
Wouldnt an agreed upon limitation on how much a contract can decline from max to min over the term take care of all this mess?
That and a limit of contracts extending beyond the player’s 40th birthday.
Hanlon's Razor: Never attribute to malice that which can be adequately explained by stupidity.
..or remove years, (and pay), beyond age 40 from the cap calculation. If the last 4 years of Kovalchuk’s contract are removed from the calculation, the cap hit in the meaningful years would be more realistic. If he plays at 40-44, the cap hit in those years would be the actual salary paid in those years.
by Boodgiesdad on Jul 23, 2010 12:46 PM EDT up reply actions
One of the many things that struck me about the Kovalchuk contract was just how low he is paid in the final 5 years of the deal. Under the current CBA the minimum salary for the 2011-12 season is $525,000. Kovalchuk is signed for $550,000 for 5 years that figure to begin two CBAs from now. To give some perspective, in 2000-2001, the league minimum salary was $150,000, meaning it has increased 3.5 times over in the last 10 years. Is it really that far fetched to suspect that just maybe in the next 15 years the league minimum salary will increase by more than 5%?
Now, I’m solidly in the camp that believes the NHL should have certainly shot down the Hossa deal, and quite possibly Luongo’s deal, but at least in those deals you can make a case that there is some incentive for the player to actually play out the contract. I think its unlikely, but it seems plausible that Luongo could have a backup/mentor role late in his career, and that is reflected in his salary.
The NHL needs to either provide specific guidance as to what makes a contract invalid, or they need to write something into the CBA which will ensure that teams that sign players to long term front-loaded contracts feel the cap impact of such a contract. I would propose charging against a team’s cap the amount by which a retired player’s cap hit exceeds the amount due to the player in his SPC in a given league year. I would also abolish the shady business of allowing teams to buy out bad contracts every time the CBA is renegotiated without taking a cap hit.
I am a hockey fan first, and a Caps fan second.
Gah...
Part of me says this contract is a circumvention, but part of me says it’s an agreement between the Devils and Kovalchuk and shouldn’t be interfered with. In actuality, I’m pretty much a labor guy when it comes to these things, especially in 2004-05 during the lockout when the players said they would play under the owner’s offer as negotiations continued…go figure.
Anyway, if the owners wanted to screw over the players royally, they’d get rid of the CBA entirely and make it like any other business where a player is a free agent and can sign with anyone for any $$. Sure there’d be a lot of money thrown about at the elite players, but at the same time, the average contract value would go down because of supply and demand. If all players are UFAs once their contracts are up, the supply of players will increase and drive salaries down. It’s already happening with goaltending right now. Teams rarely give their top goaltending job to a player who isn’t in his mid-20s or later (the Caps are an exception right now, not the rule), and so what happens? When goalie contracts are up, there’s a surplus of goalies out there: Turco, Theodore, etc. are all looking for work, and they may not be signed come September. Lots of UFAs mean lower salaries. Sure a Kovalchuk would get a lot more in a non-capped system, but he’s only one player and no team (not even the Rangers) could put together an all-star team that would win every year. As I recall, the Rangers tried that for awhile in this past decade and they didn’t do very well with it.
As for this contract… yeah, it’s the Devils trying to make the loophole even bigger for long term deals and doing it now before the present CBA expires. It may also be the first shot in the upcoming negotiations, in that the Devils might be pointing out the loophole to get it closed…
Washington Capitals 2009-10 = Quebec Nordiques 1994-95
--- D'ohboy
I agree that this contract is cap circumvention. The problem is that so are the Hossa and Luongo deals, Pronger’s (despite him being 35+), etc. I really do think the Lou’s comments forced the NHL to act here, because he basically came out and said the contract is bogus. Maybe the league would have acted anyway, but it just pulls the previous bad decisions not to act on Hossa, etc. into sharper focus.
Everyone is focusing on the retirement aspect as the reason why this contract is bad, but I think the problem is even more fundamental than that. Any contract with years on the back end that are 1/4 or less of the value of the years on the frontend is designed to circumvent (or at least manipulate) the cap. That covers pretty much all of the contracts above (except perhaps Richards), if I’m not mistaken.
Everyone is focusing on the retirement aspect as the reason why this contract is bad, but I think the problem is even more fundamental than that. Any contract with years on the back end that are 1/4 or less of the value of the years on the frontend is designed to circumvent (or at least manipulate) the cap. That covers pretty much all of the contracts above (except perhaps Richards), if I’m not mistaken.
The problem with that logic is that in some cases, the salary on the back end is probably about right for a 38 or 40 year old player. If Luongo is still an NHLer at 41 or 42, you have to figure he’ll be in a backup or mentor role, at which point $1.5M or $1M is probably in the ballpark. I don’t like Luongo’s contract, but I can see where they would arrive at about that number. Lecavlier at 39 or 40 for $2.5 will probably be about right, the guy will be slowing down considerably by then, and I figure he might or might not get that on the FA market at 39.
The problem I have is with contracts like Hossa’s 4 years at $1M per year on a 12 year deal. Once the years where the player is basically playing for free start to exceed 1/4th of the length of the contract, I start getting a bad taste in my mouth.
I am a hockey fan first, and a Caps fan second.
by iwearstripes on Jul 21, 2010 10:42 AM EDT up reply actions
I recognize that the salary is sometimes fair for a player of that age, in theory. My point is more that no team wants to sign a guy who’s 28 (to pick a number) to a contract when he’s 40, even if it’s for a small salary. You’re essentially committing salary to a complete unknown. They only want to do that to bring the cap hit down. In other words, it’s cap manipulation at best, circumvention at worst.
I also recognize there is a valid counter to this – that players want the security of a long term deal if they can get it, and it’s a bargaining chip for teams to offer. But I can’t help but think that the teams are driving the bus in tacking in these deals, and the players don’t care since they’re either (a) not planning on playing then anyway or (b) like the option to continue playing and get that paycheck if they so choose. Tweak the rules to make the strategy ineffective, and the market will correct itself (and try to find another loophole).
A bigger issue at hand is why anyone would want to commit to living in the state of New Jersey for this long a period……..
by SA-Town on Jul 21, 2010 10:39 AM EDT reply actions 6 recs
Having left at 18, I suppose I should second and rec this comment.
On the other hand, I consider that the only people who have the right to say something like that are those who actually have lived there.
"It's always good to have vikings."
Proud member of the Oxford dictionary police.
Perhaps he’s the kind of guy that doesn’t like to pump his own gas
by Brainumbc on Jul 23, 2010 9:26 AM EDT up reply actions 1 recs
Is there a specific section of the CBA that would address this type of problem, or what rights the NHL has to void a contract?
The NHL was right to reject this contract and you can count it as a Good Faith move for the future CBA talk. The deals before this one raised eyebrows but weren’t hugely far-fetched.
The CBA has no protection agianst deals like this. However it did give the NHL certain rights about this. The nhl is allowed to reject the deal, and it seemed to indicate that Kovy is still signed to the devils just not to the contract and for the time being doesn’t receive any benefit or penalties the contract may invoke.
Bruce Boudreau when asked about Brooks Laich's return to the lineup, he said: "He just adds another dimension to our team. If it was puzzle, he just fits that thing. He completes us."
Brooks Laich completing everything from teams to tires and everything in between.
It will be interesting to see the eventual outcome. I think in the end the deal gets restructed enough to make everyone happy. Sure, the PA can file a grievance, but all indications are that could tie up the deal for weeks or more. If you’re NJ, you can’t be in limbo for planning the season — if they trade someone to fit under the cap and then the NHL wins, they’re hosed. If they don’t and they win, they’re hosed. And meanwhile Kovalchuk is stuck, too. Buy a house? Don’t buy a house? What if the NHL wins in October? I think it was a brilliant move by the league.
"It's always good to have vikings."
Proud member of the Oxford dictionary police.
New Jersey would have one problem with restructuring the deal – they don’t have enough cap space to take a much bigger hit than what they had planned. The $6M hit would have put them over the cap.
If 6M is going to put them over the cap.., then how was the OLD contract going to help? He had a 6M cap hit from the contract that just got voided?
Maybe he’ll just do a 1 year deal to stall
The voided contract would have put them slightly over – $1M or so, I think. They would have been forced to open cap space somehow. Maybe he’ll do a 1-year, but I’d be surprised. The two most likely options are either NJ frees space and redoes the deal (still keeping it long-term) or Kovy goes elsewhere – LA maybe?
If Kovalchuk’s goals include $100 million and making more than Ovechkin at some point during the contract, he may as well start negotiating with the KHL. To get $100 million in a term acceptable to the league probably is a $7.69 million cap hit (13 years to age 40). We already know the Kings aren’t going to make that deal, and if NJ was trying to keep the cap hit at $6 million, they’re not doing that either.
"It's always good to have vikings."
Proud member of the Oxford dictionary police.
I think a Stanley Cup is his main goal. $100M simply seems to be something he wants, but not as much.
To support that – his rejected Atlanta deal. It was for more than what Ovie makes per year, and over $100M – but he rejected it. I think because he didn’t believe the Thrashers will be contenders.
I must admit I agree with that assessment of Atlanta. Can’t say I’m confident in that team. They can draft good players but can’t seem to keep them.
Rocking the Red since 1975
A Cup is not his main goal. Not at all. If it was he wouldn’t be in this mess. He would have taken a lower hit to play for a contender.
Lockout talk makes me want to go out and choke an old lady - Elliotte Friedman
agreed. this saga has been all about the player, not about ‘contending,’ which is a smokescreen every diva free agent uses to take attention away from his ridiculous contract demands. The sweet irony is the ATL is vastly improved with what Kovy has wrought in trade and, while a not legit contender yet, Rick Dudley has some pieces to build around—they are young and will be a pain in the ass to play against for a good while.
More norrissey, less morrissey
If he went and signed back in ATL they’d be a playoff team.
Lockout talk makes me want to go out and choke an old lady - Elliotte Friedman
I agree with that. They finally have a descent goalie now.
I don’t think Kovy is the diva ppl make him out to be. He hasn’t tried to gain any spotlight. All the media is hyping his crap up on their own.
But I see NJ or LA winning a cup way before Atlanta does. Can’t blame a guy for trying to sign with a team he thinks has a better chance.
I don’t think either LAK or NJD is an immediate threat to win the Cup. I’m also 100% selling that this was a decision about winning a Cup. I’ve seen what a guy does when he really just wants to win a Cup. That ain’t what Kovy did.
Lockout talk makes me want to go out and choke an old lady - Elliotte Friedman
Maybe LA and NJ are not immediate threats to win the Cup. But their odds are probably much better than that of Atlanta.
NJ has a track record of usually making the playoffs; LA is a team on the rise. While all the deals have made Atlanta better than in past years, it is still questionable as to whether they’ll make the playoffs this coming year.
Rocking the Red since 1975
Actually seeing how LA is on the rise, DET and SJS falling, Anaheim in limbo, CHI uncertain, VAN unable to get things done, I think will be good enough to win the West within two years.
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by red army line on Jul 25, 2010 3:19 AM EDT up reply actions
Your analysis of LA’s chances is good. Detroit’s guys are getting up there in years. San Jose is at their peak and has nowhere to go except down. Chicago was forced to lose people due to their salary cap issues.
My earlier point of LA having better odds of contention for the SC than Atlanta was an understatement.
Rocking the Red since 1975
Detroit’s been lucky the last 18 years :)
Fedorov, Datsyk and Franzen were both really low in the drafts and kind of came out of no where. Even Lidstrom was drafted in the third round.
How often does a team cran out a bunch of superstars without getting a bunch of top 10 picks ;)
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