Let's walk through the relevant part of the CBA as it pertains to the Kovalchuk situation. My own comments are {in italics}.

{Note that I've cut out some sentences below that aren't pertinent to the situation at hand. This was an SPC (standard player contract) that was rejected -- not an offer sheet -- and the NHLPA disputed the rejection in a timely manner. Full original text is at NHL.com and NHLPA.com}

11.6 Rejection of SPCs and/or Offer Sheets; Subsequent Challenge and/or De- Registration of SPCs and/or Offer Sheets.

(a) Rejection of SPCs and/or Offer Sheets. In the case of an SPC that is filed and rejected by the League, the following rules and procedures shall apply:

(i) If an SPC is rejected: (A) because it results in the signing Club exceeding the Upper Limit, or (B) because it does not comply with the Maximum Player Salary or (C) because it is or involves a Circumvention of either the Club's Upper Limit or the Maximum Player Salary:

...then such dispute over that rejection shall be both heard and decided by the Arbitrator within 48 hours of such referral, during which period the Player shall not be entitled to play under such SPC, and shall not be entitled to any of the rights and benefits provided for under such SPC, pending a resolution of such grievance by the Arbitrator.

(ii) If an SPC is rejected for reasons other than those specified in (i) above:

...then the Player shall be entitled to play under such SPC, and shall be entitled to all of the rights and benefits provided for under such SPC, pending a resolution of such grievance by the Arbitrator.

{So here we have two distinct categories of "rejection" with substantially different routes forward. It's easy to envision that when they were drafting the CBA, the three items under category (i) -- certainly A&B -- were assumed to be fairly cut & dried math determinations. As such, the drafters called for (very) speedy arbitration with everything "on hold" pending the ruling. Category (ii) covers everything else. Again, it's easy to imagine the drafters of the CBA saying, "We haven't the imagination to identify all the reasons why a SPC might be rejected; the issue might be complex, and impossible to arbitrate in 2 days or 2 weeks; we can't leave everything in total limbo during this period."}

(iii) If the Arbitrator sustains the League's rejection of any such SPC pursuant to subsection (i) above, then the Arbitrator shall order that the rejected SPC be deemed null and void ab initio (i.e., the Player's Free Agency and/or contractual status shall revert to the status he held prior to signing his SPC)

{That's straightforward enough, then. If the NHL rejects a SPC for reason i-A/i-B/i-C, and the arbitrator backs them up, then the contract is dead. Player goes back to being a UFA, or RFA, or 'player in the final year of his contract with no extension in place'. As we see below, though, that is not the case if the SPC had been rejected for some other, "category (ii)" reason.}

(iv) If the Arbitrator sustains the League's rejection of any such SPC pursuant to subsection (ii) above, then the Arbitrator shall reform the SPC such that it conforms to the requirements of this
Agreement, in a manner such that the term of the SPC shall not be modified and the aggregate compensation to be paid to the Player pursuant to the SPC shall, to the extent possible, be preserved. In such event, immediately upon the issuance of the Arbitrator's decision, the SPC shall for all purposes be deemed to be amended in accordance therewith and the Player shall be eligible to play. The Player and Club shall be free to agree on a different conforming SPC within three (3) days.

Catch all that last part? "Term... shall not be modified... aggregate compensation... shall... be preserved... SPC shall... be deemed to be amended..." The short version would seem to be that even if the arbitrator sides with the NHL, his/her job is then to make the smallest possible modifications to the deal to make it CBA-compliant. And then, poof, that's the official deal, unless both team and player see it in their mutual interest to agree on further or different changes within the proceeding 3 days.

Now: I had the distinct impression, based on NHL rhetoric via the hockey media (I have not parsed old quotes), that the Bettman/Daly objection to these contracts was inherent to the deals themselves. Yes, the purpose of these deals' structures is to reduce the cap hit for star players, but I never got the idea that the legitimacy of the deals was entirely dependent on which club signed it, and what their cap position is.

But! Mirtle reports that the NHL rejected Kovalchuk's SPC because of reason (i)(C) above, and there is no reason whatsoever to doubt that, particularly because we keep hearing about Kovalchuk's limbo, which would seem to indicate (per part iii) that his contract will be cancelled outright if the arbitrator backs up the NHL.

That is, the NHL rejected it specifically because it attempts to circumvent New Jersey's upper limit, and not because of some "other" reason. Which brings up so many questions...

1. If the Islanders -- currently ~$27M below the cap -- had signed Kovalchuk to this contract, it would have been registered? Really? That's what this means.
2. If the Islanders had signed him to this contract, what would have happened if, after the contract was registered, they then traded him to New Jersey for a 2012 1st-round draft pick?
3. Let's say the Devils had waited until August 1st to trade for Arnott, and held off on signing Tallinder. Their cap hit last Tuesday would have been much lower. Would the Kovy signing still have been a circumvention?
4. What if the Devils had signed him first thing on July 1, and *then* signed Tallinder and Volchenkov. Would Kovy's contract still have been a circumvention?
5. Since the NHL considers this contract to be circumventing the Devils' upper limit, what does the NHL consider to be the "true" average annual $$ value of the deal? They must have a figure, or they could not possibly have rejected on the basis of 11.6(a)(i)(C).

Also, note the scenarios if Mirtle has been misled and the NHL rejected it on some other basis. If the arbitrator sides with the PA, fine, the original contract is valid. If the arbitrator sides with the NHL, he/she reforms the contract. And per (iv) above,

• the term stays the same
• total $$ stays the same, as much as possible
• which means it should still be a 17-year, $102M contract
• a $6M/year cap hit
• but with less front-loading
• which sucks for Kovalchuk, who might want to retire when he's 38 or 40, and now will have less $$ in his pocket
• but is good for the Devils, for the same reason. Maybe Lou's still got it after all.

UPDATE: both Mirtle in the comments and seemingly this Kings blogger don't believe that a part (i)(C) rejection hangs on evidence of the club's actual cap situation, i.e. you can be convicted of circumventing the upper limit without coming within millions of dollars of actually doing so. That sounds snarky, but that's not the intent -- see my comment #2 below.

The chatter continues about Ilya Kovalchuk, cap circumvention, and lifetime contracts with phony-baloney years tacked on to the end, but amazingly, that’s not the biggest CBA failure that was exposed this week. That happened yesterday, when Oilers owner Daryl Katz stood up in front of Edmonton city council and informed them that hockey-related revenues are not sufficient to operate an NHL team sustainably.

The NHL and its owners locked the players out for a full season because of the critical, non-negotiable imperative that player salaries needed to be indexed to league revenues. This isn’t just something I read into Gary Bettman’s public comments, or something that I assumed but was never stated. This was drilled into the fans over and over by Bettman and Daly, by numerous owners, and by sympathetic media. Cost certainty. Salaries would track revenues, down to the dollar.

Lots of other teams may receive concert revenues or operate non-hockey businesses, but the success or failure of those ventures do not impact player salary expenses – which are contractually determined by hockey-related revenue only – nor other hockey expenses like executive salaries, scouting, travel, etc. which clearly have no relationship to (e.g.) concert revenues.

It's just so bloody galling. I never for a second believed the lockout fairy tales about more affordable tickets, nor did (do) I think the 2005 CBA was good for the league as a whole, on balance. I thought I had a healthy amount of skepticism towards the motives of the very wealthy & successful people who own and run the NHL. But in 2005, I never would have anticipated an owner coming out and saying, Hey, sure we had a year-long lockout to limit player costs to a fixed percentage of hockey revenue, but that doesn’t mean hockey revenue is sufficient to run a team.

Katz Group chief financial officer Paul Marcaccio said owner Daryl Katz has subsidized the Oilers by several million dollars in each of the last two years because revenues are too low.

Unlike other NHL clubs, they don't receive concert and other non-hockey revenue from their home at Rexall Place, he said.

"If professional hockey in Edmonton is going to be sustainable, something has to change, regardless of who owns the team," he said.

"Many factors, such as the size of our market, cannot be helped ... Others can only be addressed by a new arena and having the same operating model as the Calgary Flames and all other NHL teams."

Round and round the mulberry bush. In conclusion, if you went to bat for the owners during the lockout, now would be a good time to hang your head in shame. Also, if you picture the "several million dollars" in the first quoted sentence above as "exactly 3.75 million dollars", it's good for a laugh.

Labels: New Arena

For any who are interested, I will now be writing about the downtown arena project at Why Downtown? This way, I can stick to talking about hockey here, just like so many of you asked...

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Labels: New Arena