[UPDATE: THIS WAS WRITTEN AND POSTED THREE HOURS BEFORE THE LEAGUE VOIDED THE KOVALCHUK CONTRACT. AND THERE IS NO TRUTH TO THE RUMOR THAT THIS BLOG HAS A NEWLY REGISTERED MEMBER GOING BY GBETT2012]
Fire & Ice
While saying the Devils did nothing illegal in signing Ilya Kovalchuk to a 17-year, $102 million contract, general manager Lou Lamoriello admitted that such a deal was bad for the NHL and should be eliminated in the next CBA.
I asked Lamoriello what he would think if someone brought up Kovalchuk’s contract in the next round of CBA negotiations (in two years) and pointed to it as a flaw. "I might agree," he said. "But there is nothing that we have done wrong. This is within the rules. This is in the CBA. [...] But I would agree we shouldn’t have these. [...] Lamoriello said he "absolutely" rolled his eyes when the Islanders signed Rick DiPietro to a 15-year contract in 2006 and when Washington signed Alex Ovechkin to a 13-year contract in 2008. He also said he "absolutely" rolled his eyes when Kovalchuk’s contract was completed.
26.1 General. The activities described or referred to in, or expressly prohibited by, Sections 26.2 through 26.7, and 26.15, whether completed or attempted, directly or indirectly, shall be deemed Circumventions under this Agreement[...].
(a) No Club or Club Actor, directly or indirectly, may: (i) enter into any agreements [...] including without limitation, any SPC [...] 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.
"is intended to" -- requires a demonstration of intent.
"has the effect of" -- does NOT require a demonstration of intent. The league simply has to rule that these contracts have the effect of circumventing the CBA with regard to the upper limit. (The league might also rule that these contracts have the effect of circumventing the Player Compensation Cost Redistribution System, but I'll get to that in a minute.)
"the intention of the parties as reflected by the provisions of this Agreement" -- requires/allows the League and the NHLPA (who wrote this thing) to infer from the CBA itself the intent of the League and the NHLPA. Presumably, they know what they intended. This would allow, for example, the league to rule that the intent of [itself circa 2005] was to prohibit Mega-term/front-loaded contracts. Think of this as the "but we obviously meant--" clause.
26.13 Enforcement by the System Arbitrator. [...](b) The System Arbitrator may find a Circumvention has occurred based on direct or circumstantial evidence, including without limitation, evidence that an SPC or any provision of an SPC cannot reasonably be explained in the absence of conduct prohibited by this Article 26.
The Player further agrees, (a) to report to his Club's Training Camp at the time and place fixed by the Club, in good physical condition, (b) to keep himself in good physical condition at all times during the season, [...] The Club may from time to time during the continuance of this SPC establish reasonable rules governing the conduct and conditioning of the Player, and such reasonable rules shall form part of this SPC and the Agreement as fully as if herein written. [...] Should the Player be disabled or unable to perform his duties under this SPC he shall submit himself for medical examination and treatment by a physician selected by the Club. [...]
PLAYER COMPENSATION COST REDISTRIBUTION SYSTEM
Preamble. [...] The Player Compensation Cost Redistribution System acknowledges the reality that the Upper Limit of the Payroll Range prevents certain high-revenue Clubs from spending as much of their revenues toward Player Compensation [...] as they might otherwise be capable of spending. [...] The Player Compensation Cost Redistribution System described herein, therefore, is designed to cause certain high-revenue Clubs to contribute even more of their revenues toward the payment of Player Compensation -- albeit indirectly -- by redistributing a certain portion of the revenues of such Clubs to the lower-grossing, small market Clubs so that such lower-grossing, small market Clubs may be able to, and elect to, spend more on Player Compensation. The Player Compensation Cost Redistribution System is intended to enhance the ability of all Clubs to be financially competitive with one another, and, at the very least, to allow all eligible Clubs to be able to spend to at least twenty-five (25) percent of the Team Payroll Range [...]
This just occurred to me this afternoon. So let me walk through it slowly:
- The PLAYER COMPENSATION COST REDISTRIBUTION SYSTEM is the system that governs revenue sharing and escrow.
Revenue sharing forces the "high-revenue" clubs to give portions of their revenue to the "low-revenue" clubs.
Escrow withholds a percentage of every players' paycheck until the final revenues for that year are calculated. At which point, if revenues were below expectations, the players have to give back some of their salary; if revenues were above expectations, the players get a little extra.
A contract that artificially lowers an SPC's cap hit allows the club to deduct millions more from their revenues than they would be able to otherwise, because the cap hit is millions lower than the actual salary in that year.
Of course, by being able to charge more salary against their revenues, they have less "income to declare."
- Let's say the difference between a player's cap hit and salary are $5MM. That's $5MM that the club gets to deduct from its declared revenue, and that gets passed along to the over-all calculation of league-wide revenue.
And the lower the league-wide revenue, the more salary every player in the league has to give back.
But that's not all: lower league revenue also means less redistribution for the poorer clubs. Which means less money for the poorer clubs to pay players. Which means they continue to be poor, and to suck.
Now, let's read this provision again. You tell me if you think the effect of these mega-term/front-loaded deals isn't a circumvention of the intent of this passage:/
The Player Compensation Cost Redistribution System described herein, therefore, is designed to cause certain high-revenue Clubs to contribute even more of their revenues toward the payment of Player Compensation -- albeit indirectly -- by redistributing a certain portion of the revenues of such Clubs to the lower-grossing, small market Clubs so that such lower-grossing, small market Clubs may be able to, and elect to, spend more on Player Compensation. The Player Compensation Cost Redistribution System is intended to enhance the ability of all Clubs to be financially competitive with one another.
QED, Lou. But you knew this already.