New wrinkle in Kovalchukopia

Kypreos reveals the last Kovy contract numbers - sportsnet.ca
2010-11: $6 million

2011-12: $6 million

2012-13: $11 million

2013-14: $11.3 million

2014-15: $11.3 million

2015-16: $11.6 million

2016-17: $11.8 million

2017-18: $10 million

2018-19: $7 million

2020-21: $4 million

2021-22: $1 million

2022-23: $1 million

2023-24: $1 million

2024-25: $3 million

2025-26: $4 million

Let's compare those numbers to my guess from last week:

WHY NOT PRE-APPROVE?

  • 2010 6
  • 2011 6
  • 2012 9.5
  • 2013 9.5
  • 2014 9.5
  • 2015 9.5
  • 2016 9.5
  • 2017 9.5
  • 2018 8.5
  • 2019 8.5
  • 2020 5.5
  • 2021 2.5
  • 2022 2
  • 2023 2
  • 2024 2

Aside from the fact that the sportsnet numbers give Kovalchuk an entire season off after the ninth year (I assume this is a typo), and the fact that the sportsnet numbers put significant money in the last two years, it's pretty much as I said it would be. Two years of $6MM, followed by six years of peak dollars ($9.5MM in mine, $11.xMM in the "real" deal), followed by a couple of years of steep decline, ending up at a much-sweetened tail (5 years at $2.8MM average in mine; 5 years at $2.2MM in the reported numbers).

What's interesting to me (and I assume a lot of people will be talking about this between now and tomorrow when the verdict is revealed), is those last two years. It's interesting because of what the effect is of weighing down the tail like that. Follow this perverse reasoning:

SPC 1.0 -- the lack of any real salary in the tail helps prove that Kovalchuk has no intention of playing in those final years. Insignificant salary in the tail means Kovalchuk won't play.

SPC 2.0 -- with so much money in the tail after several years of minimal salary, this also can be used to suggest that Kovalchuk has no intention of playing to the end of his contract. (I know; withhold laughter till the end.) Why? Because if you didn't think it was plausible for Kovalchuk to play to 44 for $500,000/yr, you might agree that it's unlikely he'll play from 36-40, through four seasons of making $1MM per year, in order to get to the last two years of $3MM and $4MM respectively.

I've been trying to think of what possible benefit could be derived from structuring those last two years like that. Here's what I came up with:

  • It benefits the Devils by deferring a bigger chunk of the deal to later years, when inflation will have chipped away at it. That of course is totally allowed by the CBA. Good business planning.
  • It benefits the Devils because $7MM of the deal occurs after the point at which Kovalchuk will likely have retired. If IK retired at 40, under this deal, the Devils save $7MM; if they had done a traditional tail (say, by continuing at $1MM through to the end), their savings would have been $5MM less. Note, this is not cap savings. It's cash savings. Whether this bullet point is allowed by the CBA, I'm not sure. I'm pretty sure of one thing, though: the big benefit for the Devils is derived only if he retires before the end of the contract. That's similar to the last deal. But what I'm not sure about: does it give the Devils an unfair advantage, or is it trivial? More on that in a few inches...

Never mind. More on that now.

I understand why the Devils would want the last two years like this, but why would Kovalchuk? After all, that's money he's never going to get. It's basically Kovalchuk giving back $6MM to the Devils (last deal, $1MM over two years; this deal, $7MM). So, the deal structure builds-in a Kovalchuk compromise.

But what's weird about that is, if the Devils are actually going to pay Kovalchuk less, why wouldn't they want to get credit for it by reducing the stated salary in those years so that the cap hit comes down? The cap hit is the prime concern for the Devils. Yet, here they are giving $7MM on paper that they are likely never going to have to pay out; they will pay for it in cap space for the next 10+ years.

It makes absolutely no sense at all. I figured it out.

Kokvalchuk doesn't mind walking away from the actual money, because he knows he likely won't miss it when he gets there. But look at what happens: this deal (1) keeps the actual cost to New Jersey down, while (2) (insanely) keeping their cap hit artificially high, and (3) maintaining the appearance of the $100MM deal.

The Devils are paying extra in cap hit so that Kovalchuk can have the feather in his cap of the $100,000,000 deal. The nine figure deal. He's actually less full of shit than I thought. He's not all about the money. He's all about the appearance of the money.

They could have gone $94MM/15 years, and Lou would have saved himself a $500K cap hit. But it was worth it to them to give Kovalchuk a little extra headline.

The first ten years of the deal went down a bit -- $95MM in 1.0, $89MM in 2.0 -- and that six million was pushed to the back.

I honestly don't know if this oddball accounting is allowed by the CBA. New Jersey is actually artificially driving up its own cap hit, which gives them an unfair disadvantage. I think they're entitled to do this, though. There's nothing in the CBA about protecting clubs from self-inflicted wounds. In terms of how this affects the players' share and escrow, Kovalchuk's salary is actually smaller relative to his cap hit (because his cap hit should be smaller)  which means that on balance there's more in the players' share for the other players. Not much more. But probably more than $100 per player, which I'm not prepared to sneeze at. Kovalchuk buys every player in the league a fancy meal, just so he can look like he's getting paid more than he is. That's okay by me.

Remains to be seen how the league will see this -- namely how they will see the single biggest issue, the 15 year term -- but as far as the issue of the big fat tail tip (or whatever it's going to be called from now on), it's kooky but I think it's allowed.

[UPDATE BEFORE I HIT PUBLISH EVEN: it just occurred to me that, because the last two years of the contract are so big, you could make the argument that the exceedingly long term -- 15 years -- also does not give New Jersey an unfair advantage. And for the same reason. The last two years are driving up the cap hit. The whole reason of tacking on the extra years is to drive the cap hit down. If you're not driving it down, you're fundamentally not doing what those other clubs have done re Hossa etc.. If the last two years were $1MM each, for example, they'd have a much more palatable cap hit of $6.33MM. But they're at $6.66MM. Now, if they simply lopped off the last two years, you'd be at $93MM over 13 years, which is a cap hit of more than $7MM, so you can't say New Jersey isn't getting some benefit from the extra two years. But the benefit is about half would it would have been. And that makes comparisons to Hossa et al much stronger than they appeared to be a day ago.]

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