Tuesday, August 10, 2010

A Deal's A Deal....Until It Isn't

Having grown up a sports fan in what is known as a relatively small market (Minneapolis/St. Paul); I have regularly found myself more sympathetic to the front office when it comes to contract negotiations and collective bargaining issues. It’s not that the Calvin Griffiths, Red McCombs’, and—especially—Norm Greens of the world haven’t incensed me on occasions too numerous to mention.

It’s just that when you’ve lost or nearly lost franchises near and dear to your heart, you become more familiar with terms like revenue streams, cost certainty, and luxury taxes and the effect they have on the viability of the teams you follow. I’ve also learned to evaluate a player’s worth in terms of market value versus “this market” value.

I can’t fault a player for seeking out the best deal possible for himself. But I have a huge problem with franchise players and their agents who hold ownership hostage until they secure a contract which prevents management from retaining a quality supporting cast. Of course, at the press conference announcing said signing, they feed the world a line of B.S. about how all they care about is winning a championship.

Winning has become secondary at best among the majority of today’s elite professional athletes over whom the most contentious of collective-bargaining issues are fiercely contested.  This reality is what steers me to favor management in nearly all CBA negotiations with the idea that what is bad for prima donna players—and any sports agent on the planet—is generally good for the overall wellbeing of that sport, particularly the small-market franchises.

What inevitably happens, however, is once management gets its way it immediately sets out to find ways to shoot itself in the foot. Most recent case in point: The National Hockey League.

Someone needs to explain to me how NHL owners can justify losing an entire season successfully fighting, in conjunction with league management, for a system which they would ultimately blatantly circumvent. With heavily front-loaded contracts to players like Roberto Luongo, Marian Hossa, Chris Pronger, and Marc Savard including terms likely stretching well beyond their useful playing years, who are these people trying to fool?

But by far the most insultingly laughable attempt to make a mockery of a season-stealing document was the attempted signing of Ilya Kovalchuk by the New Jersey Devils. From this day forward, when I hear or read the word circumvent, my mind will immediately take me back to the image of Kovalchuk and Devils’ GM Lou Lamoriello smugly seated before the media looking like the cat that ate the canary.

The 17-year, $102 million agreement between New Jersey and the magical Kovalchuk, whose playoff disappearances precede him, could not have been more transparently cap evasive. It went a little something like this for those who haven’t seen it already:

2010-11: $6 million
2011-12: $6 million

2012-13: $11.5 million
2013-14: $11.5 million
2014-15: $11.5 million
2015-16: $11.5 million
2016-17: $11.5 million
2017-18: $10.5 million
2018-19: $8.5 million
2019-20: $6.5 million
2020-21: $3.5 Million
2021-22: $750,000
2022-23: $550,000
2023-24: $550,000
2024-25: $550,000
2025-26: $550,000
2026-27: $550,000


The deal also came with a no movement (trade, waive, demotion) clause from the contract’s inception through 2016-17 and a no trade clause from 2018-19 through its conclusion leaving one year in which Kovalchuk could be moved by the Devils. But more embarrassing was the $98.5 million over the first 11 years while only $3.5 million is spread out over a final six years in which his age would range from 38-44.

Keep in mind that the annual salary cap figure is calculated by the average salary spread out over the course of the entire term of the contract, $6 million in this case. So while Kovalchuk is drawing these huge salaries,  New Jersey has the luxury of retaining a so-called elite player long term with a relatively reasonable cap hit. But if, as expected by everyone (including the parties involved),  Kovalchuk were to retire before or during this time, he would stand to lose very little while the Devils, on the other hand, would gain $6 million per year in cap space.


Sounds like a win-win for everyone, right? Except for the spirit of the CBA that is. 

Thankfully, rational thought prevailed in this case and the NHL rejected the contract which launched the league and the National Hockey League Players' Association into a binding arbitration process. A process culminating with the Aug. 9, 2010 decision by Arbitrator Richard Bloch to uphold the league’s rejection lending traction to a slippery slope.

In his ruling, Bloch stated:
“the record strongly supports the claim this contract is “intended to, or has the effect” of defeating or circumventing the Salary Cap provisions of the CBA. The overall structure of this SPC reflects not so much the hope that Mr. Kovalchuk will be playing in those advanced years, but rather the expectation that he will not. This is a long contract --17 years -- the longest in NHL history. That, in itself, poses no contractual problem, for the reasons discussed above.18 But Kovalchuk is 27 years old, and the agreement contemplates his playing until just short of his 44th birthday. That is not impossible, but it is, at the least, markedly rare.”
“The record reflects that the result of this SPC, considered in its entirety, is to artificially extend the term of that agreement, thereby decreasing the annual salary cap figure and increasing the Club’s payroll room in a manner that serves to defeat the intentions of the parties as manifested in the Team Payroll Range provisions”
Bloch also addressed the contracts of Luongo, Hossa, Pronger, and Savard:
“It is true, as the Association observes, that the NHL has registered contracts with structures similar to the Kovalchuk SPC PA Exh. 8 reflects a list of 11 multi-year agreements, all of which involve players in their mid to late 30's and early 40's. Most of them reflect reasonably substantial "diveback" (salary reductions that extend over the "tails" of the Agreement). Of these, four such agreements, with players Chris Pronger, Marc Savard, Roberto Luongo, and Marian Hossa reflect provisions that are relatively more dramatic than the others. Each of these players will be 40 or over at the end of the contract term and each contract includes dramatic divebacks.
Pronger's annual salary, for example, drops from $4,000,000 to $525,000 at the point he is earning almost 97% of the total $34,450,000 salary. Roberto Luongo, with Vancouver, has a 12-year agreement that will end when he is 43. After averaging some $7,000,000 per year for the first 9 years of the Agreement, Luongo will receive an average of about 1.2 million during his last 3 years, amounting to some 5.7% of the total compensation during that time period. The apparent purpose of this evidence is to suggest that the League's concern is late blooming and/or inconsistent.”
There was language indicating those contracts would be under review by the NHL which caught me off guard as I thought it strange that a Standard Player's Contract (SPC) already approved and registered by the league could be re-examined with the same scrutiny of the Kovalchuk deal. That was, however, until I researched the CBA and stumbled across Article 26.10(b):
“The Investigator's authority to investigate (i) a possible Circumvention relating to an SPC shall in no way be limited by the fact that such SPC was approved and registered by Central Registry pursuant to Article 11 of this Agreement”
James Mirtle of the Toronto Globe and Mail spoke to several agents troubled by this revelation including this one:
“I’ve never heard of a contract that had been registered and approved and then having that registration withdrawn,” said one agent, who requested to remain anonymous.
“The league has two months now to go after Savard, Pronger and Luongo [whose contract extensions began July 1]. Until they start getting paid, they’ve got two months.”

Reading further in the CBA, that last statement may not be true according to Article 26.10(d):
“There shall be no limitation of time barring the investigation of Circumvention by the Commissioner.”

To make a long story longer, this isn’t over. Ilya Kovalchuk is now an unrestricted free agent again and has currently resumed negotiations with Lamoriello and the Devils while some players have to feel somewhat insecure about their own contractual status. Rest assured, though, legal experts on both sides of the issue have already begun seeking the Holy grail of an arbitration-proof loophole making it difficult to choose which end of the bleachers to cheer from. 

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