The NHL-Rejected Ilya Kovalchuk Contract with the New Jersey Devils & Article 50 of the NHL CBA

My reaction to those who claim Ilya Kovalchuk's contract violates the CBA matches Ilya in his photo from his press conference on Tuesday. (Photo by Bruce Bennett/Getty Images)

On Wednesday, I called for calm with respect to the aftermath of the NHL rejecting the New Jersey Devils' contract with Ilya Kovalchuk worth $102 million over 17 years.  Given the mixture of emotions surrounding the rejection, a statement as simple as "take a deep breath" was something I felt was necessary  The comments to that post were mostly civil and in some ways enlightening given that some users actually cited the Collective Bargaining Agreement (CBA) to back up what they would say. 

I'm still no closer to seeing on what grounds Ilya Kovalchuk contract should be rejected.  In fact, I don't believe this, or the Marian Hossa, Roberto Luongo, Henrik Zetterberg, or Vincent Lecavalier contracts (among others - all deals are from at CapGeek) were/are exploiting any loophole either.

Don't mistake me; I'm not crazy or being childishly difficult.  Article 50 of the NHL CBA, the Team Payroll Range System, which has the provisions that regulate how a team must be under the salary cap and how a standard player's contract (SPC) is regulated.  There's going to be a lot of explanation and citation, but I assure you, it will all tie together and will make my argument much clearer.

Here's a link to the NHL CBA in a 6+ MB .PDF format from the NHL's own site. Please feel free to use it while following along with this post, or look through it to see if there's something else at play.  There's quite a bit to read, so resist the urge to comment without reading (always a bad idea on this site, really).  If you're interested, take a deep breath and continue after the jump.

Citing Article 50 of the NHL CBA

Let's start with Article 50.5, which explains how a teams' Averaged Club Salary must be within the defined Lower Limit (a.k.a. the salary cap floor) and the Upper Limit (a.k.a. the salary cap ceiling).   Article 50.5.(a) is an overview of the article; and for the sake of brevity, here's what that states: 

(a) Overview of Operation of TeamPayroll Range. The Team Payroll Range created by this Agreement consists of a Lower Limit and an Upper Limit during each League Year for permissible spending by each Club based on its Averaged Club Salary. The Team Payroll Range provisions do not permit Clubs to have Averaged Club Salary that is below the Lower Limit. Nor does the Team Payroll Range permit Clubs to have Averaged Club Salary that is above the Upper Limit, except for two (2) limited exceptions provided in this Agreement, with respect to bona fide, long-term Player injuries or illnesses, as set forth in Section 50.10(d), and with respect to the "Performance Bonus Cushion," as set forth in Section 50.5(h).

For purposes of calculating any Club's "Payroll Room" at a given point in time, the Upper Limit for such League Year shall be measured against the Club's "Averaged Club Salary," as defined below. Any Club with an Averaged Club Salary that is less than the Upper Limit has available Payroll Room in the amount of the difference between the Averaged Club Salary and the Upper Limit. As set forth below, if a Club has Payroll Room during a League Year, the Club may use such Payroll Room to contract for or otherwise acquire additional Player Salaries and Bonuses. A Club may contract for or otherwise acquire additional Player Salaries and Bonuses only to the extent of its Payroll Room, subject, however, to certain limited exceptions as set forth herein.

The requirements for the Upper and Lower Limits are explicitly stated in Article 50.5.(b), though.  Further clauses in (b) specifically go over how both limits are determined among other regulations.   Article 50.5.(c) states clearly that a team cannot be below the Lower Limit at any point of the season (see 50.5.(c).(i)) and a team must be below the Upper Limit at any point during the season. The only exception is in the offseason, defined as July 1 through the end of training camp, where teams can go above the Upper Limit by 10 percent.  This is called out in Article 50.5.(c).(ii).(B):

(B) Nevertheless, in order to ensure that Clubs may have sufficient time and flexibility to plan their rosters during the off-season, the Upper Limit shall be temporarily raised by ten (10) percent to permit Clubs additional flexibility with their Averaged Club Salaries during the period from July 1 until and including the last day of Training Camp. On the day following the last day of Training Camp, the Upper Limit shall again be lowered to the level as calculated in Section 50.5(b), and all Clubs must once again be in compliance with the Upper Limit from the day following the last day of Training Camp until and including June 30.

Let's move onto the player contracts.  Take a look at Article 50.5.(d).  Section (i) explicitly defines how Averaged Club Salary is determined; and section (ii) explicitly states that multi-year contracts will be calculated towards the teams' Averaged Club Salary by the Average Amount of the contract.    Here's the opening section, quoted for emphasis.

(ii) "Averaged Amount." For any multi-year SPC, for purposes of calculating the Club's Averaged Club Salary in any League Year, the Averaged Amount of such SPC shall be used. That is, the Player Salary and Bonuses for all League Years shall be "averaged" over the length of the entire term of the SPC, using the stated amount, by dividing the aggregate stated amount of all Player Salary and Bonuses to be paid during the term of the SPC by the number of League Years in the SPC

Incidentally, there is a maximum salary a player can receive on a contract.  That's defined in Article 50.6.(a).  Note that the allowable maximum player salary is based on what the maximum is at the time when the contract was signed.

(a) No SPC may provide for a total aggregate Player Salary and Bonuses that is in excess of twenty (20) percent of the Upper Limit for any League Year (the "Maximum Player Salary and Bonuses"). For a Player signing a multi-year SPC pursuant to which he receives the Maximum Player Salary and Bonuses in any League Year during the term of such SPC, the Maximum Player Salary and Bonuses for every League Year covered by the multi-year SPC shall be based upon the Upper Limit at the time the SPC was signed.

With respect to multi-year contracts, there is a separate part of Article 50 that are an additional set of regulations: Article 50.7.   The CBA refers to this as the "100 Percent Rule."  Thanks to LangerMonk for pointing this out on Wednesday.

50.7 "100 Percent Rule" for Multi-Year SPCs. The difference between the stated Player Salary and Bonuses in the first two League Years of an SPC cannot exceed the amount of the lower of the two League Years. Thereafter, in all subsequent League Years of the SPC, (i) any increase in Player Salary and Bonuses from one League Year to another may not exceed the amount of the lower of the first two League Years of the SPC (or, if such amounts are the same, that same amount); and (ii) any decrease in Player Salary and Bonuses from one League Year to another may not exceed 50 percent of the Player Salary and Bonuses of the lower of the first two League Years of the SPC (or, if such amounts are the same, 50 percent of that same amount).

Jumping back within Article 50, I'd like to point out Article 50.2.(b).(i), which governs bonuses in a contract.  As far as I know, Ilya Kovalchuk's contract doesn't have any performance bonuses.  In fact, there can't be any performance bonuses in Kovalchuk's contract.  There is something in that section that is vitally important for all to understand. Starting from Article 50.2.(b).(i).(C) (the bolded text is by me):

(C) "Performance Bonuses."

(1) "Performance Bonuses" means any Bonuses set forth in a Player's SPC, the payment of which is contingent on the Player's achievement of some agreed-upon benchmark(s) related to his performance as a Player or his Club's performance during a particular League Year.

(2) Performance Bonuses shall be allowable under this Agreement only for: (i) Players with Entry Level SPCs under Article 9 of this Agreement; (ii) Players aged 35 or older as of June 30 prior to the League Year in which the SPC is to be effective, who have signed a one-year SPC for that League Year; and (iii) Players who are "400-plus game Players" for pension purposes, and who: (i) in the last year of their most recent SPC, spent 100 days or more on the injured reserve list; and (ii) have signed a one-year SPC for the current or upcoming League Year.

As to paragraphs (C)(2)(ii) and (C)(2)(iii), such Players are not limited in the length of an SPC they may sign, but in the event any such Player signs an SPC with a term of longer than one (1) year, the SPC shall not be permitted to contain Performance Bonuses.

Thanks to LangerMonk and drhgzang for citing this back in the post on Wednesday.

UPDATE #1: And this is where I make an error - I've used this to justify that this is an explicit statement that there is no limit on the length of the SPC.  I erred by not noting this is explicitly stated for players over 35 or were recently injured veterans.   Triumph44 brought this up and he is right.   

Now, that just means that there isn't an explicit statement in Article 50 for no limit on SPCs.  There is no explicit statement for a maximum limit on SPCs, either.  I couldn't find it in Article 50; what's more, based on what Ian Pulver said in Michael Traikos' article in the National Post, the NHL wanted to have limits but failed in those negotiations - so there are no limits in the CBA.  Still, I will strike the word "explicit," "specific" in reference to this to not mislead. End Update #1

Based on these sections of Article 50 that I've referenced and/or quoted, and assuming I am not missing or misunderstanding anything, let me get this straight:

Per the CBA, there is an explicit statement that says that there is no limit to how long a contract can be for a player per Article 50.2.(b).(i).  there are no limits on the length of SPCs cited anywhere.  The cost to the team's salary cap for a multi-year contract is based on its averaged value and said team must be underneath the salary cap, per provisions in Article 50.5.  A multi-year contract must be compliant with the year-to-year breakdown of salary defined Section 50.7 and no yearly salary can exceed the maximum allowed at the time of signing per Article 50.6.

This is the system the NHL and the PA agreed upon back in 2005.  As far as I can tell, the New Jersey Devils' contract with Ilya Kovalchuk is fully compliant with all of these regulations.  Let's review with Kovalchuk's contract in mind:

Per Article 50.2.(b).(i) Given the lack of limits on contract length in Article 50, a team can certainly offer a contract of 2, 3, 12, 15, 17, 20, 40, or even 100,000 years long to a player.  As explicitly stated in CBA, there is no limit.  Whether it's extreme or never been done before or rare that any player ever played in the NHL for that long does not matter at all, per the CBA. 17 years is a valid contract length.

Per Article 50.5, the Average Amount of the contract will determine how much this will go against the team's Average Club Salary and as long as the team remains below the Upper Limit by the time the training camp ends, there's no issue.  There's no actual, legitimate circumvention of the salary cap ceiling until then, unless it's above 10% of the ceiling amount.  The Devils are within that 10% buffer with the original contract at approximately $1.8 million over the Upper Limit.  As long as they get under the Upper Limit by the end of September, there's no issue here.

Per Article 50.6, the contract offered can't exceed the maximum player salary, which for 2010-11 would be 20% of $59.6 million, or $11.92 million.  The peak salary Kovalchuk would get in the contract would be $11.5 million.   The largest increase in salary is less than the lowest of the first two years of the deal at $5.5 million; and the largest decrease in salary is half of the lowest of the first two years of the deal at $3 million. The salary breakdown of Kovalchuk's contract does not violate Article 50.7.

Unless there's something huge that I'm missing here, the Kovalchuk contract as originally announced is not violating Article 50.

Commentary

When Lou Lamoriello restated that this deal is legal under the CBA on Wednesday, he was not saying it to be defiant.  He said it because it's, well, true.  

You may think it's dumb, stupid, ridiculous, risky, outrageous, unreasonable, terrible for the NHL, and so forth. You can keep coming up with extreme scenarios and whine about all of this until you're blue in the face. You may feel that any team should not commit a large amount of money to any player for a period of time defined as "extremely long."  You can think this should be prevented in the next CBA.

That's fine - that's just your opinion, though; as the written rules in Article 50 allow for this sort of contract.  This serves as another reminder that dumb, stupid, ridiculous, risky, outrageous, terrible for the NHL, etc. was not, is not, and will not be the same as illegal. 

Let me take it a step further. New Jersey, and by extension Calgary, Tampa Bay, Chicago, Tampa Bay, and Philadelphia, did not exploit a loophole in the rules for front-loaded long-term deals in my opinion given these facts. They were not and are not "artificially" reducing the cap hit on a contract; the cap hit is quite real per Article 50.5. They are still held to the limits defined in Article 50.5. Quite frankly, they worked within the system agreed upon by the NHL and PA back in 2005.  I repeat: the system allows for this, not some exception or vagueness in a single rule.   

Therefore, I do not see how the Kovalchuk contract, the Pronger contract, the Hossa contract, the Lecavalier contract, the Kiprusoff extension, or the Luongo contract are "circumventing" anything.  They're all within the provisions of Article 50 of the CBA and the team's Average Club Salary are still required to be within the Upper and Lower Limits.  Teams can definitely come up with long-term, front-loaded contracts and be compliant with Article 50; I openly wonder why some teams aren't willing to do this.

Let me take another, more forceful step: The NHL didn't come up with Articles 50.6 and 50.7 just to make contract rules more complex; they were regulations on SPCs given they were going with Average Amount to determine a team's cap hit.  The NHL wanted to add limits on contract lengths; but per player-agent and CBA author Ian Pulver, they were unsuccessful as reported by Michael Traikos of the National Post. What other reason could there be to want to add regulations except to limit what teams could do with contracts?  I don't think it's out of the realm of possibilty that someone knew about the potential for long-term, front-loaded contracts given how Article 50 was written and tried to get these limits in there.  They didn't full succeed so the potential has been realized multiple times for multiple players by multiple teams prior to the New Jersey Devils signing with Kovalchuk.

Unless the NHL and the PA both agree to some kind of change via addendum, this won't be formally addressed until the next CBA talks come up in 2012.   If the NHL doesn't like the Kovalchuk contract (and it's clear they didn't since they rejected it outright), they have no one to blame but themselves for writing and agreeing to a CBA that defines cap hits by average amounts of the contract and specifically states that where there are no limits on the length of the contract.  They tried to limit that and they failed. To try and establish a "line in the sand" based on the "spirit" of the rules and not the actual written rules after agreeing upon said rules, to me, is beyond Mickey Mouse, it's just plain Goofy.

When the Kovalchuk signing was confirmed on Monday, I addressed those complaining about the contract itself with this simple and incredibly apt phrase: Don't hate the player, hate the game.

Your Take & What's Next

If I have missed or misunderstood something, then please let me know in the comments. If I am wrong, then I want to know what I'm wrong about, why I was wrong, and how to correct it so everyone reading this can get wiser.    If you're going to argue against my arguments here, fine, but please use actual facts and please cite the CBA.  I'm not interested in conjecture or popular opinion at this point, and I doubt many who are following this issue are interested anymore either.

The next post will deal with the on-going procedures now that NHL rejected the Devils' contract with Kovalchuk.  If you must, call this Part 1 of 2, since the two are connected. So don't discuss that in the comments here, do it in that post when it comes up. Here's a tease; as stated in Article 50.9.(b):

(b) Accounting for New SPCs in Actual Club Salary and Averaged Club Salary. For any newly executed SPC agreed to between a Club and a Player, the averaged Amount of Player Salary and Bonuses provided for in such SPC shall commence counting against a Club's Averaged Club Salary upon the approval and registration of the SPC with the League. For purposes of determining a Club's Actual Club Salary and Averaged Club Salary, a rejected or de-registered SPC shall be treated in accordance with Article 11 of this Agreement.

Yep, Article 11. You'll see what I mean later tonight if you haven't put the pieces together yet. All the same, thank you for reading.

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