Business of Hockey

NHL Playing With Fire

When the NHL rejected the Ilya Kovalchuk contract, it sent shock waves throughout the league. Many saw it as a huge victory in the fight against these enormous contracts, which of course it is. Many others looked deeper into the situation, and noted what could become a very big issue going forward. Rumors are/were abound that the NHL is going to be looking into the contracts of Marian Hossa, Roberto Luongo, Chris Pronger, and any other contract that has the “dummy years” tacked on at the end to lower the cap hit.

Before you can analyze the affects of reviewing other contracts, you have to read the detail as to why the Kovalchuk contract was rejected. Yes, there are the obvious reasons of $98 million paid out over the first 11 years of the contract, with the last 6 years seemingly serving as “dummy years” to drive the cap hit down. However, the Kovalchuk contract has a unique clause that, in my opinion, really was the straw that broke the camel’s back. The text in arbitrator Richard Bloch’s decision states:

The economic incentives are not limited to issues of the Player’s preferences, alone. During the final six years, the comprehensive “No Move” restriction will have been reduced to a “No Trade” clause. This additional flexibility will allow the Club to, for example, place the Player on waivers or send him to the minors. Here again, one may reasonably ask whether this Player would, at that point, accept such repositioning as an alternative to seeking continued employment outside the League or simply retiring. In either of those events, the team would be relieved of any continuing salary cap hit that, in this case, would amount to a $6,000,000 adjustment.

Essentially, the shift from a no-movement clause to a no-trade clause gives the Devils organization another outlet to remove the $6 million contract from the books. By giving the Devils a second way of removing Kovalchuk’s cap hit, Bloch determined that the contract was attempted circumvention of the salary cap. The monetary alignment of the contract was a big issue, but could not be the only issue, seeing as the NHL has previously approved the contracts of Hossa, Luongo, Pronger, etc. This shift from no-movement to no-trade was a clause unique to the Kovalchuk contract, and in my opinion, was the added factor that caused this contract to be voided.

Another aspect to look at, which is where the NHL is gaining leverage against the other contracts, is the use of the word voided, as opposed to void. Voided, in legal terms, means that the contract at one point existed, and has since been removed and deemed “illegal”. Void means that the contract itself never existed. The Kovalchuk contract was voided, meaning that the NHL can use this case, and the structure of the voided Kovalchuk contract, as evidence should they decide to pursue action against other contracts. (Note: I’m not a lawyer, but I consulted a friend of mine who just graduated law school, and he said this was an accurate statement).

However, should the NHL decide to re-open cases against Marian Hossa, Chris Pronger, and any other big contract, they are playing an extremely dangerous game. The current NHL CBA ends after the 2011-2012 season, and many are anticipating another fierce battle during negotiations. It is very obvious that the current CBA has many flaws and holes, and the owners are going to look to rectify these mistakes. However, the owners are also looking to have a lower cap ceiling in place, with rumors circulating they will be pursuing a $48 million hard cap. Should the NHL win rulings against these contracts (if they decide to pursue action), then the next round of negotiations is going to be heated, to say the least.

Collective bargaining is just that, a bargain, a give-and-take style of negotiations. All signs point to the $48 million hard cap being a sticking point for the owners, at which point they should concede to something the players want. Should the owners pursue the expulsion of these long term contracts by adding a maximum length, then these are two very big changes the owners will want. Something will have to give during the negotiations, or else we could be looking at another work stoppage. The players demands haven’t been made public yet, but you can bet that if the owners want a contract length cap, then the $48 million hard cap is going to have to give. The NHL is playing with fire when it comes to these long term deals, and the Kovalchuk ruling, along with any subsequent ruling, is going to play a significant role in 2012.

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