League's top lawyers right to reject Kovalchuk deal
Length of term bites winger once more
by Josh Brewster
Hockeytalk.biz | NHL Quick Shots

JULY 21, 2010 -- NHL Deputy Commissioner Bill Daly issued a statement this morning explaining the League’s decision to void the contract signed Tuesday between free agent Ilya Kovalchuk and the New Jersey Devils.

The surprising decision opened a new chapter in the post-lockout age as the 17-year pact was heavily front-loaded, similar to deals given to Chris Pronger and Marian Hossa. However, Kovalchuk’s deal included a full six seasons close to the League’s minimum salary of $525,000, indicating that the deal was, for all intents and purposes, an 11-year pact.

$98.5M of the $102M deal would have been earned by the 11th season:

(Dollars in Millions)

Daly laid down the gauntlet as the League took a significant step toward the proper execution of its salary cap.

"The contract has been rejected by the League as a circumvention of the Collective Bargaining Agreement. Under the CBA, the contract rejection triggers a number of possible next steps that may be elected by any or each of the NHLPA, the Player and/or the Club. In the interim, the player is not entitled to play under the contract, nor is he entitled to any of the rights and benefits that are provided for thereunder. The League will have no further comment on this matter pending further developments."

Section 26.3 of the CBA reads:

(a) No Club or Club Actor, directly or indirectly, may: (i) enter into any agreements, promises, undertakings, representations, commitments, inducements, assurances of intent, or understandings of any kind, whether express, implied, oral or written, including without limitation, any SPC, Qualifying Offer, Offer Sheet or other transaction, or (ii) take or fail to take any action whatsoever, if either (i) or (ii) is intended to or has the effect of defeating or Circumventing the provisions of this Agreement or the intention of the parties as reflected by the provisions of this Agreement, including without limitation, provisions with respect to the financial and other reporting obligations of the Clubs and the League, Team Payroll Range, Player Compensation Cost Redistribution System, the Entry Level System and/or Free Agency.

After announcing the signing Tuesday, Devils GM Lou Lamoriello seemed to have unknowingly opened the door for the League’s rejection, stating that while he felt the deal was legal under the current CBA, it was the kind of deal that would likely not happen in the future, and shouldn’t.

“This is within the rules,” Lamoriello said. “This is in the CBA. There are precedents that have been set. But I would agree we shouldn't have these.”

This seems to be a matter of the length of term. Kovalchuk wanted not only $100M, but a term of at least ten seasons. In the end, the only way to cram that much money into the deal and for the club to avoid an annual salary cap hit totaling nine or ten million dollars, it would require a long section of the deal at or close to League minimums, giving Kovalchuk a deal that ran until he turned 44 years of age. No one would expect him to play that long, at such a dramatically declining rate, hence, the League’s action.

In short, the League’s top attorneys have drawn a line in the sand, and will now wait to see whether the union or player would like to take further action. The deal is now null and void.

Because the team obviously did not expect Kovalchuk to play during the final six years of the contract, the League decided to identify the matter as a clear “circumvention” of the salary cap, the final six seasons lowering the Devils’ cap hit to $6M per season.

Lamoriello thought he was taking his genius to a new level, but he has been quickly brought to earth by Bettman and Daly. Obviously feeling as though they’d seen enough of the front-loaded deals, they decided that this deal would represent a touchstone in interpreting the CBA. As for the Pronger and Hossa deals, one has to wonder whether Bettman and Daly simply gritted their teeth. In the case of Kovalchuk, the stink of the final six years of the deal overwhelmed the league’s legal department, and they decided they’d seen enough.

Kovalchuk severely limited his options by insisting on a 10-or-more season deal.  Only three clubs, the Devils, Kings and Islanders, lined up for his services.  Just as Kovy is free to earn as much as he can for as long as he can, the League and its clubs are free to leave him in the cold.  As for Bettman and Daly, fans can yelp, boo and scream every time they appear in public, but in this case, they should thank the NHL's top attorneys for taking a step toward a sane financial future. 

Love them or hate them, the League’s top attorneys—and that is, in large part, what Bettman and Daly are—work for 30 owners who would not want to see the front-load trend continue.

In fairness to Bettman and Daly, this League imploded and died with 2004-05’s lockout, and if this trend were to have been allowed to continue, the League could have a growing monster on its hands, a trend toward deals that would prove to cripple franchises a decade down the road.

If I owned an NHL club, I’d applaud my top lawyers for doing their jobs.