The Devils, hell, and the NHL

“It is no longer clear exactly which frontloaded contracts are kosher and which are treyf”

by Colby Cosh

“The grievance is denied.” That’s the concluding sentence of arbitrator Richard Bloch’s Monday ruling on the 17-year $102-million contract Ilya Kovalchuk signed with the NHL’s New Jersey Devils last month. When the NHL deregistered the contract, whose terms would have seen New Jersey pay Kovalchuk 97% of the total amount in the first 11 years of the deal, the Players’ Association naturally objected.

Sure, the NHLPA argued, there were years tacked onto the far end of the deal that neither Kovalchuk nor New Jersey expect the player to be in the NHL for. Those years are priced below the likely league minimum, and are obviously in the contract for the sole purpose of lowering Kovalchuk’s average salary-cap hit in the present. But what of it? Nothing in the Collective Bargaining Agreement between the league and the PA specifically forbids this behaviour, and several similar “backdive” deals, though less extreme in every respect, have already been registered by the NHL and played under.

Bloch rejected this argument, granting a clear outright win to the league. The CBA contains a general “anti-circumvention” provision, but the guidance offered by that provision was less than clear:

No Club or Player shall enter into any Player Contract, Offer Sheet or other agreement that includes any terms which are designed to serve the purpose of defeating or circumventing the intention of the parties as reflected by the provisions of this Agreement, including without limitation, provisions with respect to the Entry Level System or Restricted Free Agency. However, any conduct permitted by this Agreement shall not be considered to be a violation of this provision.

Now that’s an odd paragraph, wouldn’t you say? Because there is no rule in the CBA that would in itself forbid the Kovalchuk deal, the NHLPA leaned on that last sentence, which basically says “anything permitted by this agreement is permitted by this agreement” and seems, in its plainest reading, to deprive the first sentence of all its potential force. Well, hell, no arbitrator’s going to go along with that—i.e., to read a paragraph completely out of a contract prepared and vetted by professionals representing both parties, as if he were physically Liquid Paper-ing it out of the document.

Bloch had little choice but to conclude that there must be some reason for a general anti-circumvention rule—and that reason, he concluded, was to allow the league to block contracts like Kovalchuk’s, which violate the spirit of the CBA rather than its letter. Nothing specific about Kovalchuk’s contract—the amount, the end date, the degree of frontloading—is forbidden by the agreement, Bloch conceded. Perhaps no single factor is even unique to it. But, taken together, the components have a vague tendency to offend the “no circumvention” concept. Supposedly.

Bloch’s decision includes an observation that is, after all, very hard to disagree with: “A contract term covering a Player’s NHL services to age 70…is not expressly prohibited by the CBA. But the parties to that SPC may not reasonably be found to be seriously anticipating its fulfillment.” Bloch would have created a serious problem for the NHL if he had found the anti-circumvention sections of the CBA to be meaningless. If he had ruled in favour of the NHLPA, you can bet your last nickel that someone would have been signing one of those age-70 contracts in July 2011. Or even sooner.

But Bloch has created a serious problem, too: as a consequence of his ruling in defence of the CBA’s spirit, it is no longer clear exactly which frontloaded contracts are kosher and which are treyf. Kovalchuk and the Devils returned to the negotiating table Monday night in an attempt to save the contract by tinkering with the math. What principles ought to guide them? What changes must they make to render the contract acceptable in the eyes of another arbitrator—one who wouldn’t even be Richard Bloch? (The NHL and the Players hire arbitrators for the duration of only one grievance; experience in the sporting world has shown that owners will inevitably and instantly fire any “permanent” arbiter who rules against them.)

Bloch hasn’t really said what kind of deal meets the no-circumvention test. He didn’t even give the parties the reassurance that existing frontloaded contracts are definitely legal and could be safely imitated. In fact, he specifically said the opposite. Which puts the league under no apparent obligation to even treat like contracts equally, or two different teams consistently. All that the Devils and Kovalchuk can really do here is to seek Commissioner Bettman’s advice in advance of signing, or make another deal and cross their fingers that either the Commissioner will like it or the next arbitrator will uphold it.

The Collective Bargaining Agreement doesn’t appear to offer the team and the player any freedom to sign a contract without some degree of league interference—which raises the question, what good is the CBA at all if we’re going to have a “Bettman decides everything” system? (And, more particularly, how did the Players’ Association get manoeuvred into signing an agreement that doesn’t protect its rights very effectively?)

The Devils, hell, and the NHL

  1. What a ridiculous rant of an article. If you want to understand what is a reasonable contract, start with one that actually works within the known statistics of the game. How likely is it that the player would 'last' playing to 44 as a forward in the NHL? You don't need Bettman to tell you this is a 'reasonable' test.

    Remember, the arbiter wasn't asked to rule on what constitutes the boundaries of contracts under the CBA. You seem to think he was asked that. Of course he didn't establish these tests.. that's what the authors of the CBA do, and you can bet they'll be looking at changes the next time the contract is renegotiated. My guess is they'll either have to deal with provisions for dealing with the term of contracts, or with 'cap hit' averages that impact players entering into their 'retirement' years (a change in the formula so front end loading isn't so appealing).

    It's entirely possible that there was evidence produced that neither side expected the player to complete the term of the contract (e.g. an email, or documented conversation) thus proving the NHL's assertion. I wouldn't be shocked by such a revelation. Lou didn't want this deal, he was saddled with it from his owner. He may have intentionally introduced a poison pill to ensure the deal fell through, establishing an important precedent for the league, and saving him from an albatross of a deal 5 or 6 years from now.

    • 44 seems like an eminently reasonable number if the intent was to ensure that a franchise player never plays for another team. It could be argued that when a Farve leaves Green Bay, or a Roy leaves Montreal that those brands are diminished. Sure, both of those brands remain remarkably strong…. why?

      In part, the brand of a team is associated with the legendary players that are associated with it. Players associated with only one team are much more valuable than hired guns. Especially if the hall of famer leaves under traitorous conditions it is tough for teams to recondition them after retirement (although most still try because of the value to their team's brand.) Both Green Bay and Montreal are rich with a history of great hall of fame players that spent essentially their entire careers there.

      Currently the NHL has a sprinkling of 40 something players, so to achieve the above 44 is about right.

    • The league had no problem at the time with the contract of Roberto Luongo, which was signed less than a year ago and lasts until he's 43.

      • Interesting quote from the Globe article:

        Bloch also noted that several other long-term contracts are under investigation for circumvention, listing deals given to Vancouver Canucks netminder Roberto Luongo, Boston Bruins centre Marc Savard, Philadelphia Flyers defenceman Chris Pronger and Chicago Blackhawks winger Marian Hossa as raising similar red flags to Kovalchuk's rejected contract.

        “While the contracts have in fact been registered, their structure has not escaped league notice,” the decision reads. “Those players' contracts are being investigated currently with at least the possibility of a subsequent withdrawal of the registration.”

        I think it would be a bit shocking for the league to now de-register contracts they already registered, but it's certainly worth noting the possibility that the League was waiting for a completely ridiculous slam dunk case like Kovalchuk's, and that they might now use this precedent to go after earlier contracts that weren't quite so crazy, now that they can point to Bloch's ruling as an "independent" evaluation of the problems with THOSE contracts as well.

        It'd surprise me a bit were that to happen, but I'm fascinated by the fact that it's even possible. Technically, the NHL apparently still has time to de-register Luongo's contract, if they wanted to (though, of course, the NHLPA would grieve that).

        • As a Vancouver Canucks fan, I can only hope that Bettman delists Luongo's contract. These ridiculous deals are essentially Bugs Bunny's anchor-dressed-up as a doll to fool the suddenly empathetic owners (ie Yosemite Sam) from sinking their own ships.
          But even i know Bettman hates Canada and hockey fans in general; he's not gonna do what we want, unless it helps his future and his future Boots-like owners.
          If they can wrap up a long-career contract below legal salary limit, why aren't owners now offering players contracts that begin below the bottom salary limit as an enticement to a long contract?

    • "It's entirely possible that there was evidence produced that neither side expected the player to complete the term of the contract (e.g. an email, or documented conversation) thus proving the NHL's assertion"? I guess you could read the actual ruling and find out. When you get around to it, and thus form some basis for your opinion, you'll find that limits on contract lengths were specifically left out of the CBA. Since the "authors of the CBA" didn't incorporate any tests for contract validity into the document, it's at least a little anomalous that one party has now arbitrarily devised such a test and has been allowed to depend upon it.

      • There's no limit on the TERM of a contract true, which is why I don't think the LENGTH of the contract is a problem, per se. However, aren't some tests of a contracts "validity" rather self evident? Tests are not set out in the CBA, but doesn't contract law in general have something to say about the validity of contracts? If neither party to a contract intends that the stipulations in the contract ever be fulfilled, is it still a valid contract?

        I too need to read the ruling to see what it actually says, but it seems to me that a quite logical argument can be made that the last 6 years of the contract are hogwash not because Kovalchuk will be old, but because they purport to pay him only $550,000-$750,00. To my mind, given that for most of the contract Kovalchuk is scheduled to make $6 million – $11.5 million per year, those last 6 years might just as well be slated to pay him, $1 a year, 'cause I think there's is absolutely no way on Earth that Kovalchuk EVER would have played a second of hockey under the terms identified in the last 6 years of the contract. Having pocketed $98.5 million of the $102 million, does it make any sense that ANYONE would play hockey for 6 more years to get the last $3.5 million?

        You're totally correct, I think wrt limits on contract lengths, however I think the issue here is subtly different. This isn't a 17 year contract. If it was, I'm not sure they could have stopped it. To me though, this is transparently an 11 year contract with 6 years no one thinks the player or the organization are going to honour tacked on specifically to change the cap number. If a contract contains stipulations that neither party have any intention of complying with, is it still "valid" in contract law?

        At the very least, I CERTAINLY think that if there actually was documented evidence (as Ron speculates about) that had the Devils saying to Kovalchuk "Of course, this isn't reallya 17 year contract, we're just adding an imaginary 6 years to the end of the 11 year contract, and we all know you're going to retire rather than take that pittance, it's just a way to get around the salary cap" that that might invalidate the contract.

        • Sure, that's more or less what the arbitrator ruled. The problem is, he's presented no concrete means of establishing validity for the extra years, and has thus added a sort of secret protocol to the CBA (which already does contain some restrictions on "backdiving"; this was't an unforeseen problem).

          • the problem is, he's presented no concrete means of establishing validity for the extra years

            Doesn't that go back to the role of the arbitrator though? His role wasn't "decide what parameters should be used to assess the validity of NHL contracts" his role was "decide if this particular contract is valid". Isn't this kind of what happens with binding arbitration? You can't agree, so you turn everything over to a neutral party and agree to abide by that party's decision no matter what?

          • I thought you were kidding when you said an arbitrator's job is to be arbitrary. How can he decide if a particular contract is valid without reference to SOME standard? If there are no objective parameters that the parties can refer to, save the money on the jackass in the suit and flip a coin instead.

            If the arbitrator were there to make a single ruling on a fact-specific situation in isolation, it would have been extremely improper for him to issue an obiter dictum on several contracts not before him. He was free to do this because the NHLPA put those contracts (until now, registered with no objection on the part of the league) in evidence.

          • Wouldn't a better test to the integrity of the parties involved be in turning this contract around — have him play for almost league minimum at the start and then receive the larger paydays at- or near the end? Certainly it would take a more 'deferred' contract nature, but i think the players association may want to throw this idea into the pool and see how Bettman bites it? or maybe not…
            Of course we'd quickly see what a charade this whole contract is when no one would consider it…

          • I actually was mostly kidding with the arbitray arbitrators thing. That said, is he really applying "no" standard?

            What if his standard is "a contract is not valid if no sentient mammal could read the contract and conclude that either party actually intends to abide by the stipulations there in" (the "is the contract patently ridiculous" standard"). If, as Ed R. implies could be tried, the Kings signed Doughty to a 10,000 yr contract extension at, say $100 a year for the last 9,999 years, would the arbitrator have to be highly specific as to the "standard" applied in invalidating the contract?

      • It's at least a little anomalous that one party has now arbitrarily devised such a test.

        Isn't deciding things arbitrarily what "arbitrators" are all about? :-)

  2. The fact that there is no prohibition on front-loading in the CBA seems like a huge oversight on the League's part. Is there any good reason that it isn't there?

    • Because, I suspect, the NHL's negotiators didn't want to include it when the CBA was drawn up, and it certainly wasn't in the NHLPA's interests to bring up ways to exploit the cap. The league's people had already seen the complex caps that evolved in the NFL and NBA in response to teams' efforts, and rather than anticipate some of those specific moves (voidable years etc.) they just included this general "no funny business" clause. Not surprising that interpreting it is a problem.

      • The problem, as Colby points out, is that last sentence:

        "However, any conduct permitted by this Agreement shall not be considered to be a violation of this provision."

        If an activity isn't prohibited in the agreement, then it's implictly permitted. If it's permitted, then it "shall not be considered to be a violation of this provision."

        In other words, the "no funny business clause" shouldn't have any force of law, as laid out in the CBA (which the league basically wrote on its own).

        • Yeah, that is a weird sentence – the only interpretation that makes sense is that the provision (i.e. the anti-circumvention rule) potentially applies, even if the conduct in question is permitted by the CBA.

          If you're looking for precedents as to a legal term that establishes a "smell test", for want of a better describer, check out section 245 of the Income Tax Act.

  3. Au contraire, Ron. Look at the first bit of the decision under the Analysis header:

    "This is a case of contract interpretation. The Arbitrator's charge, in such instances, is not to somehow construct his or her own notions of industrial justice or perceived equities, but to read and apply the CBA's bargained terms."

    Just wondering how that squares with your assertion that "the arbiter wasn't asked rule on what constitutes the boundaries of contracts under the CBA"?

    This seems like a fairly ridiculous ruling. The issue is the CBA, not whether it was likely that Kovalchuk would pay out the whole of the contract. A related issue is how the league office continues to bungle just about everything up. I'd suggest that Bettman, Daly and Campbell should be embarrased, but they seem impervious to it.

    • A related issue is how the league office continues to bungle just about everything up.

      I won't make any arguments for the competence of the League, but still, in this case didn't the League WIN?

      Also, if as suggested by the ruling, the League now decides to go and de-register the contracts of Hossa, Pronger, Luongo and Savard based partly on this ruling, and they can make THAT stick, then haven't they arguably won BIG? (I'm not REMOTELY convinced they're actually going to do that, but if that's their battle plan, and it works, that would be a pretty big win, wouldn't it?).

      • I would argue that they bungled it up in the sense that they endured an entire season without hockey so as to basically get the CBA they wanted, and they still managed to leave gaping holes in it, despite having an army of lawyers at their disposal.

        The fact that they found an arbitrator who decided to divine the spirit of the CBA rather than look at what it actually contained doesn't let them off the hook.

        I'm with you that they likely won't go after Hossa, Pronger, Luongo, Franzen, etc., but if they did, then wouldn't it be a tacit admission that they were sleeping on the job by allowing the contracts to go through in the first place?

        • wouldn't it be a tacit admission that they were sleeping on the job by allowing the contracts to go through in the first place?

          Maybe, but not if it was their plan all along. The contracts haven't actually "gone through", they've just been "registered". The ruling itself suggests that they can still be "de-registered". If the NHL meant to wait until they got a truly INSANE contract, take THAT contract to arbitration, have the arbitrator rule in their favour, and then use the favourable ruling as ammunition to attack the slightly less crazy contracts, then that would be an interesting strategy, not a "mistake". Like you, I'm not sure the NHL wants to have that kind of fight, but if they do, this could be less "bumbling" and more "following the guidance of Machiavelli". Heck, there are even those who speculate that Lou, who didn't want this contract and had his hand forced by ownership, set up this contract precisely to allow the NHL to do what they've just done.

          • While it's a VERY slight possibility, it would display a level of strategic thinking that, all things considered, has not been evident from the NHL.

            If Lou was really that cagey, I'm sure the Devils would have had a little more success in the playoffs post lockout. He's an excellent GM, but that's about it. I'd go with Occam's razor on this one. What's more likely: that this was an elaborate plan by Gary and Bill (and Lou), or that they erred in drafting the CBA and only acted to plug the hole after a handful of clearly sneaky contracts had already been handed out?

          • Perhaps I was too quick to assume that the NHL would never de-register any of those other contracts. Maybe they have their sights set on more targets after all.

    • No the issue is, quite clearly, not the CBA. The CBA has been negotiated and trying to modify it just before the players and the league negotiate a new one is not something anyone wants to do, especially since the PA still doesn't have a leader.
      The issue is the contract: the League denied the contract and the PA grieved against the denial of the contract.

      Now you might feel the CBA has holes that need to be addressed, but there's a time and a place for that. The issue at hand was the contract.

    • Who cares? I will get interested when Bettman is thrown out of his cushy job. He is paid $7 million to do what?

  4. While I haven't seen references to it yet (and I haven't even really read through the actual decision), I was curious whether the NHL would, as part of its argument, say the last 5 years at $550k, are likely to be below the minimum salary by 2022. Right now it's around $450k, so its hardly a stretch to say he'd be making below the league minimum by that time.

    • Whether this was actually a factor contributing to the decision, or just an aside comment, the Globe article on the rejection does quote the arbiter as saying that the low salary at the end of the deal "will undoubtedly constitute compensation well below the then applicable major league minimum.”

    • That was the biggest thing to stick out in my mind as well.

  5. Agree 100% that they are trying to lower the cap hit through funny business, but the CBA doesn't prohibit this sort of funny business.

    The Kings could sign Doughty to a 10,000 yr contract extension, and it would still be permissible by the letter of the CBA, as the arbitrator admitted.

  6. Damn you all!

    Now I feel compelled to go and actually read the whole ruling, lol.

    I hate each and every one of you.
    :-)

  7. I'm trying really hard to care about the contract wranglings between multi-millionaire players and owners. The hockey audience has been shrinking for years. You can get walk-up seats at Leafs games. Half the games are on deep cable, and most of my friends couldn't tell you who won the Stanley Cup last year. They're all 40-60, and used to love hockey too. And still, we push the game on those who won't pay to see it, and keep it away from those who want it. How many chances does Atlanta get, anyways?

  8. I don't think my position is all that tricky. If we're not opting for an objective "reasonableness" standard, and we can't depend on the language of the CBA, surely we should at least be able to rely on the prior behaviour of the league–but the arbitrator burst that bubble too, saying we can't know even which existing registered contracts are "reasonable". So, yeah, I would have preferred that he be more explicit.

    • Fair enough. Though I do think one could make a convincing argument that those other contracts didn't cross a line that this one did, but I can certainly see how useful (or infuriating, depending upon one's point of view) it would have been if the arbitrator had been more explicit, specific, and made more reference to previous contracts. I can also see why the arbitrator would have wanted to be careful to avoid too much specific mention of those other contracts though, particularly if he feels that they should have been rejected too!

      Out of curiosity, you mention the fact that the NHLPA put those other contracts into evidence, and that therefore you feel that the arbitrator could have made mention of his view of the appropriateness of those contracts as well. If this arbitrator also feels that THOSE contracts should be deemed to be invalid, then, given the fact that apparently it's still technically possible for those contracts to be de-registered by the League, do you think that the arbitrator should have said that he thought those contracts should also be considered invalid? And secondly, after they'd reassembled their exploded heads, what do you think the NHLPA would have done (or tried to do) had that conclusion been included in this ruling?

      • It wasn't Bloch's place to say specifically that those contracts are no good, though he could have formulated a rule that lets the league deregister them. If the league deregisters Luongo and Pronger and Savard that'll be someone else's issue to arbitrate.

  9. "how did the Players' Association get manoeuvred into signing an agreement that doesn't protect its rights very effectively?"

    You're not going bolshie on us, eh? Informative post otherwise, but I will be monitoring future posts for bolshie codewords, like solidarity and comrade.

  10. Sorry Folks this is a tempest in a teapot when the whole NHL needs a new face — Its long past time and maybe even too late, what with the new European Profesional league now in place. But, the NHL should have had a 6 team Eastern European Division Long ago, Move 4 teams and ad 2 new teams and you ad a potential 400 million new NHL Fans from a rapidly growing market. Not much further to Fly from Ottawa to Moscow than it is from Ottawa to LA and an already in place fan base.

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