If you haven’t been following the trials and tribulations of the Ilya Kovalchuk saga over the last few months, you either aren’t a sports fan or you are still wrapped up in the Lebron James to Miami Heat ordeal.  In case you had other news on your mind, here is a recap of the events that came to an abrupt, and somewhat anti-climatic, end last Friday, September 4th.

In mid-January of this year, a fellow SAB writer noted that Kovalchuk’s future was in flux with his then-team, the Atlanta Thrashers.  Not too long before the March 3rd trade deadline, he was traded to the New Jersey Devils for a player package of several prospects, including Patrice Cormier.  While many saw this trade as purely a rental player situation for the Devils, team officials apparently thought otherwise, as they kept pursuing a long-term contract with Kovalchuk after their season ended with an early playoff exit in the first round.

However, after that period, things turned down right wacky with Kovalchuk’s contract situation.  He officially became an unrestricted free agent (UFA) as of July 1st.  Unlike past years, where big ticket UFAs were signed right after the start of the free agency period, Kovalchuk remained unsigned for several days.  At one point, Kovalchuk was rumored to be in negotiations with several teams, including the Devils and the Los Angeles Kings.  In fact, rumors circulated that the Kings had even nearly worked out a contract with the Russian sniper, only to be spurned at the last minute as the Devils re-signed him to a long term, lucrative offer…or did they?

While the NHL community broke news that forward had signed an extremely front loaded deal with New Jersey worth $102 million over 17 years, that same deal was soon challenged by the NHL front office as a circumvention of the Collective Bargaining Agreement.  The NHL Players Association did not take this rejection of the contract offer lightly, and the dispute soon went before an arbitrator, which eventually sided with the NHL after a 2 day hearing.  Because of this ruling, Kovalchuk was instantly deemed a UFA, once again, on August 9th.

While to many, this may seem like a strange group of events in and of itself, the story does not end there. The Devils then made a reported offer of nearly $100 million over 15 years, which was submitted to the NHL around August 27th.  On nearly the same day, Kovalchuk’s agent, Jay Grossman, reportedly threatened to sign his client to a contract to play in the KHL next season if that specific version of the contract was not approved within a 48-hour deadline.  Clearly neither the 48-hour deadline nor the reported threat to leave for the KHL were enforced by Grossman.

Of course, now that Kovalchuk is officially signed, his agent may have been trying to call the NHL’s bluff.  Unlike the departure of previous NHL players for the KHL, such as Jarmir Jagr, none have been in their prime nor still a potent offensive force quite as much as Kovalchuk.  He has scored no less than 29 goals in a season since coming on as an 18-year-old rookie 2001-2002, and that was in 65 games.  A player of Kovalchuk’s status would not have been a death blow to the NHL, but it would have certainly served as a healthy reminder that the KHL is surely becoming a comparable league.

Why does this all matter to NHL players and GMs?  Under the previous CBA language, GMs and agents had found an apparent loop-hole in the system.  Several high profile signings have taken place in the last several years that were top-heavy, meaning there were high paying early years and minimum salary requirements in later years.  These include the contracts of Roberto Luogno with the Vancouver Canucks, Marian Hossa with the Chicago Blackhawks, Chris Pronger with the Philadelphia Flyers, and Marc Savard with the Boston Bruins.  From the League’s standpoint, when a team structured deals in this manner, front loading contracts over a long period of time, it was a circumvention of CBA language regarding averaging the salary of a player over the life of the contract.  This means that in most cases, and likely in the case of Kovalchuk’s $102 million, 17 year offer, the contract would end long after he had ended his playing career.  Thus permitting teams to have a lower cap hit earlier in the contract when it truly mattered.

Under the old CBA language, teams could then benefit from the lower cap hit in the early years because of the reduced pay when the player is the in the twilight of his career.  Then, as one commentator noted,

Under these circumstances the teams involved could potentially buy out the contracts at a much less punitive financial hit near the tail end of the deals.  It is also believed that the players involved have no intention of completing the contracts and would likely retire before they enter the final years at near minimum salary.

The saga was not without its critics.  Marc Savard’s agent, Larry Kelly, openly criticized NHL Comissioner Gary Bettman for his treatment of the events, and Kelly even threatened litigation if Bettman revoked his client’s contract.  While no players have been quite as outspoken, there are probably more internal rumblings than any outside of the locker room will ever hear.  Luckily for the League, no such revocation of contracts took place in the modification and Kelly can rest a bit easier.

However, with the signing of Kovalchuk comes some amendments to the current CBA that will effect how teams structure long-term contracts with players.  The NHL and the NHLPA agreed to change CBA language that now covers long-term contracts, or those for five years or longer.  With these changes, which went into effect as of Saturday, September 4th, teams are essentially prevented from securing long-term deals that will result in a lower cap-hit once the player retires at the tail-end of his contract.  Two changes are of particular importance for teams looking to sign a player to a contract of five years or more:

1. While players and clubs can continue to negotiate long-term contracts (five years or longer) that include contract years in a player’s 40s, for purposes of salary-cap calculation the contract will effectively be cut off in the year of the contract in which the player turns 41.

This basically means that if a 33-year-old player signs an eight-year contract, the amount owed to him in the first seven years of the contract will be averaged for the purposes of salary-cap computation. Then, in Year 8 of the contract, the salary he will make for that particular season will determine his salary-cap hit for that season.

…

2. In any long-term contract that averages more than $5.75 million for the three highest-compensation seasons, the cap charge will be a minimum of $1 million for every season in which the player is 36-39 years of age. That $1 million value will then be used to determine the salary cap hit for the entire contract. If the contract takes the player into his 40s, the previous rule goes into effect.

With these amendments comes an agreement by the NHL to drop its investigations into the contracts of the “suspicious” contracts entered into by the likes of Luongo, Hossa, Pronger, and Savard.  That part of the agreement is no doubt music to the ears of Grossman, Kelly, and others that represent the long-term contract players.

Now that an amicable end has been reached, one can only speculate what each side determined its primary bargaining chip to be.  Did the NHL really think it would be able to revoke the contracts of players that had already signed long-term contracts, with no immediate and long-term repercussions through the NHLPA and players defecting to the KHL?  Was Kovalchuk worried that he might not be able to a) receive similar compensation in the KHL or b) have to eat his own words and play in the KHL, which has an arguably less talented player crop top to bottom than the NHL?  Will the NHL reject contract offers from teams that attempt to find other “loop-holes” in the CBA down the road?

Just because the NHL has officially accepted the Devils’ contract offer with Ilya Kovalchuk, I have a feeling the fallout is far from over.  When the current CBA ends on September 15, 2012, long-term contracts will certainly be at the front of discussions for a future CBA.  There is no doubt in my mind that the NHL will put its mind to work determining what other loop-holes GMs and agents might find in the CBA.

The Kovalchuk Deal and the CBA Redux from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules

Ilya Kovalchuk

Following the season, it was rumoured that the Devils, New York Islanders, Los Angeles Kings, and even several teams in the Russian KHL were interested in signing Kovalchuk. But on Monday afternoon, after weeks of specultaion and negotiation, word came that Kovalchuk had signed a whopper of a deal: 17 years, $102 million. Although not the richest deal in terms of salary (still Alexander Ovechkin’s at $124 million), it was the longest contract signed since the lockout. The average salary for the course of the contract worked out to $6 million per year. However, like most long term deals signed in the past few seasons, that wasn’t actually the way the deal was supposed to work. Here’s how it would breakdown:

• 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

(from The Globe and Mail)

Kovalchuk would be paid $95 million of that money in the first 10 years of the deal and only $7 million in the final 7 years. A drop from an average salary of $9.5 million per year to $1 million is enormous. In all likelihood, Kovalchuk would likely retire after the first 10 years. The Devils would then have his contract off the books and would have the salary cap space free.

While the contract may seem long, and it seems highly unlikely that Kovalchuk will continue to play until 2027, stranger things have happened. And these contracts have been around for the past few seasons with Mike Richards, Marian Hossa, and Henrik Zetterberg benefiting from them. Clubs have been looking for creative ways to sign players, and this seems to be the most creative way.

But after the Devils and Kovalchuk held a press conference in Newark on Tuesday afternoon to announce the signing, the NHL did something it hadn’t done before: it rejected the contract. The official statement on NHL.com stated that the contract was a circumvention of the Collective Bargaining Agreement. While the league has always been uncomfortable with these extra long term deals and has even scrutinized a few (Hossa’s for one), this is the first time it has taken this stance.

What happens next remains to be seen. But I’d bet the deed to my condo that the NHL Players’ Association is going to have something to say about this. One commentator speculated that this is the NHL’s first shot against the PA’s bow with respect to the next round of CBA negotiations, which aren’t all that far away. The NHL is going to try to limit these contracts in the next CBA, and this could be the first step. Additionally, Don Fehr, the former head of the Major League Baseball Players’ Association, has been consulting with the NHLPA over the past year or so. If he is interested in becoming formally involved with the union, this may be a notice to him that the NHL won’t be pushed around. However, the NHLPA will want to show that it won’t take this rejection lightly either. I would expect a grievance to be filed by the NHLPA on behalf of Ilya Kovalchuk before the weekend.

So is the “decade deal“, as I’ve called it before, dead? We’ll see. Whatever is going to play out over the next few days should be very interesting. It’s possible that Kovalchuk and the Devils will go back to the bargaining table and negotiate a new deal with a different pay structure. It’s also possible that both sides will walk away and that Kovalchuk will accept the deal from the Kings that had been speculated for so long. And there’s always the possibility that he could go back to Russia and sign a rich deal with a KHL club. I expect to see Kovalchuk stay in North America, either with the Devils or Kings, but anything is possible at this point, and for the moment the contract is dead. Stay tuned.

REJECTED: The NHL Takes a Stand from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules

Finding a professional athlete work during a lockout might amount to getting him on teams in other countries or minor leagues in North America. This strategy was widely used during the last NHL lockout in the 2003-2004 season. Players like Chris Chelios played with fringe minor league teams close to home and family while others like Joe Thornton, who went to the Swiss Nationalliga, gave a boost to European leagues across the pond.

Agents and advisors learned from the 2004 lockout and came up with strategies to maintain cashflow to their client in the event of a future lockout. With the current NHL-NHLPA Collective Bargaining Agreement expiring after the 2011-2012 season (unless the players use their option to extend it), agents are negotiating a very practical provision into newly signed contracts. The Lockout Provision calls for a player to receive his signing bonus in the year in which a lockout could occur.

Milan Lucic is the beneficiary of this new provision. Lucic recently signed a three-year, $12.25 million contract extension. Most of the buzz about this extension centered around the fact that Lucic will be paid over $4 million in each year of his contract, yet he only tallied 69 points in his two NHL seasons. Obviously, Lucic got a great deal and should be very happy with his agent’s work here. But Lucic can also play the next couple seasons without the insecurity of possibly not getting paid after the 2011-2012 season; that’s because the Boston Bruins agreed to pay Lucic a $1 million signing bonus in 2012.

Not only does the Lockout Provision provide players with financial security in a time of job insecurity, it may also enhance the NHLPA’s bargaining position during CBA negotiations. If the Lockout Provision becomes more common in contracts, the NHLPA can use the fact that some players will be paid regardless of whether they play as leverage.

The Lockout Provision from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules

Basketball

• You don’t have to be against “education” to be against “one-and-done” [Would amateur reform and a return to Frosh ineligibility help?].

Hockey

• We will have to continue to wait and see whether the court believes paying creditors off is worth more than heeding the unanimous vote of NHL owners [Judge says Balsillie should reconsider deadline].

Baseball

• Regarding the Mets moving 75 prospects from Florida to the Dominican Republic [Mets Say Moving Prospects Is About Sense, Not Money].
• A great piece to show all of your baseball clients, no matter what level they are at [Psychological issues are no longer taboo].
• Why first round picks should think long and hard before deciding to reject a team’s final offer [Always A Gamble].

Football

• A quiet and easy agreement made without the use of an agent [Williams signs with Dolphins through '10].
• Philip Rivers signed a very nice looking contract [Under the Cap: 2004 QB Class Cashes In].

Sports Business

• For now, everybody is in a holding pattern [Sports Agent Donald Dell Says Sponsorship Will Recover in 2010].

Shabbat Shalom: Friday Wrap-Up (9/4/09) from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules

Just prior to the start of the 2009 Stanley Cup Playoffs, Johan Franzen signed an 11 year, $43 million contract with the Detroit Red Wings. Franzen’s new contract was the latest in a series of extremely long-term contracts that have been signed by a number of National Hockey League players in the past 18 months. This trend began as a response to the restrictions that the salary cap imposed on teams following the end of the NHL-NHLPA lockout in 2005. As a way of keeping players just entering their prime for the long-term, teams have begun signing players to contracts that will essentially keep them with that team for the majority of their careers. The teams are gambling that as the salary cap rises, the players will become more of a “bargain”. Franzen joined Henrik Zetterberg (12 years, $73 million) as Red Wings who have signed long-term deals since the beginning of the new year. Marian Hossa may be the third Wing to sign one of these deals in the coming weeks.

Another reason behind the long-term deals is that these contracts are supposed to serve as a way to keep player costs down. While players get the financial security of a lengthy contract, which will ensure a high standard of living for many years to come, the teams involved are able to maintain flexibility under the salary cap. For example, Henrik Zetterberg’s contract was reportedly supposed to be for 10 years and $71 million. The contract would have counted for approximately $7 million per year against the salary cap. However, late in the negotiations Zetterberg agreed to add two extra years to the deal at $1 million per season. This made the contract worth $73 million over 12 seasons and reduced the cap hit to just over $6 million per year. On a team like Detroit which has been hovering close to the cap in recent years, every dollar saved counts.

Zetterberg and the other players who have signed deals such as these have been willing to go along with the lower cap number not only because of the enormous worth of the contract, but also because the majority of the money is paid in the first years of the contract. In Zetterberg’s case, he will be paid between $7 million and $7.75 million per season for the first nine years of the deal. That number drops to $3.35 million and eventually to $1 million. Following the ninth year of the contract, if Zetterberg wants to retire he can do so and leave very little money (comparatively speaking) on the table. The Red Wings also get the benefit of $6 million in salary cap space.

The Red Wings are not the only team that has been employing this strategy. The first player to sign this type of deal was Rick DiPietro in September 2006. New York Islanders owner Charles Wang got the ball rolling by signing DiPietro to a 15 year, $67.5 million contract. Other players have followed including Philadelphia’s Mike Richards (12 years, $69 million), Washington’s Alexander Ovechkin (13 years, $124 million), and Tampa Bay’s Vincent Lecavalier (11 years, $85 million).

As mentioned above, the teams believe that these sorts of deals may turn out to be bargains, because as the salary cap rises, inevitably so do player salaries. The collective bargaining agreement states that no single player may earn more than 20% of the salary cap. 20% of this years $56.7 million cap is just above $11 million. While no player has a cap number that high, signing a player to a long-term contract with a manageable cap number becomes a bargain if the cap continues to rise. A player like Alex Ovechkin is close to 20% of $56.7 million with a cap hit of just over $9 million, but if the cap rises (which may be unlikely in today’s economic climate), the deal looks much better for the Capitals.

NHL Commissioner Gary Bettman has said that the issue of long-term contracts may be addressed in the next round of collective bargaining with the National Hockey League Players’ Association. While he believes that signing players to short term contracts gives teams more flexibility, he has said that they are not circumventing the salary cap by negotiating these types of contracts. Only time will tell if this trend will continue. The yearly fluctuation in the salary cap number will play a part (next year’s cap is likely to be around the $56.7 million it was this season). However, these deals are a unique way of attempting to get around some of the financial restraints imposed by the cap.

The Decade Deal: What It Means for the NHL from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules