What the NHL should do about sham contracts like Kovalchuk's 17 year, $102M deal

Ilya Kovalchuk will keep firing pucks for the New Jersey Devils, but his contract is just another sham designed to circumvent the NHL's salary cap system.

With today's big news that Ilya Kovalchuk finally signed with the New Jersey Devils, attention naturally turns to the implications of his new contract, a stupendous 17-year, $102 million deal (per Dmitri Chesnokov on Twitter). It's another sad example, however, of big-market teams continuing to make a mockery of the NHL's salary cap rules. According to Chesnokov, Kovalchuk will make $10 million per season during the early stages of the contract, against a cap hit of just $6M.

There have been numerous instances in recent years where teams have deliberately crafted deals to minimize the salary cap hit by adding years at the end of the contract with minimal salaries (see Vincent Lecavalier, Roberto Luongo, Henrik Zetterberg, Marc Savard, etc.). Today, New Jersey Devils GM Lou Lamoriello takes that practice to a whole new level.

Quite simply, it's pathetic to see the big-market teams driving truckloads of cash through this loophole in the CBA, and both the NHL and NHLPA need to address this as part of their upcoming negotiations. For the league, it makes a joke out of the competitive balance aspect of the salary cap, and for the players at large, it's taking money out of their pockets.

After the jump, I'll offer my own two-pronged solution to this mess...

The 50% Rule

Currently, the NHL's Collective Bargaining Agreement does have a mechanism (Article 50.7) which is supposed to help prevent teams packing low-salary years on the end of a deal to keep the overall average (and thus the cap hit) low. Basically, the difference between one year's salary and the next can be no more than 50% of the lower of the first two years' salary in that contract. The Predators actually ran afoul of this one when they first submitted Martin Erat's 7-year contract to the league.

Since the first two years of his contract payed him $3.5M and $5.25M, the current rule says that later in the contract, the salary can only go down by $1.75M per season (50% of $3.5M).

This is easily avoidable by just taking on a few extra years to the contract. The biggest joke here is Marian Hossa in Chicago. His salary goes from $7.9M to $4.0M, then $1M, $1M, $750K, and $750K in the final years of his contract. It was an example of absurd gamesmanship that should have been disallowed for circumventing the salary cap, and I'd like to propose an easy solution here:

Within a new SPC (Standard Player Contract), no yearly salary can be less than 50% of the highest salary within the span of that contract.

If you want to pay a guy $8M early on, you can go no lower than $4M in later years. It's fantasy to think that a team can project exactly when a given player's effectiveness will drop off 5, 6, or 7 years into a deal, and those final four seasons on the Hossa deal are nothing more than a sad joke.

Limit the Long Term

Here's another easy one that can help prevent jokes like the Chris Pronger contract, which has a cap hit under $5M but pays him $7.6M these days, and just $525K in 2015-16 and 2016-17 (when, presumably, he'll be able to supplement that with Social Security).

When a new SPC extends past the player's 40th birthday, the length of that SPC shall be no longer than 3 years.

This is to prevent teams signing a 34-year-old to something like a 10-year contract, and then getting off the hook when he retires halfway through. Or a 27-year-old to a 17-year deal, etc. A contract should represent an agreement between player and team about the actual value of that player's contribution to that team during the life of the deal, and not get loaded down with gimmick seasons just to keep the cap number down.

For the good of the league, and the players

So what do you think? Taken together, would these two simple rules help prevent this chicanery?

There's a good reason why players should support clamping down on these contracts, and it's called escrow. The players are entitled to a specific percentage of league-wide hockey related revenues over the course of the season, and when their combined payrolls exceed that amount (as has been the case lately), they have to give the overage back to the owners. The mechanism by which this is done is by withholding some of their paycheck into escrow throughout the season, and the totals are tallied up at the end.

What that all means here is that when stars make big money in excess of their cap hit, that inflates the amount of overall player salaries, and the rest of the players end up giving that back to the owners in the form of escrow. Tyler Dellow has a thorough analysis of the situation, and suffice it to say that when a guy like Kovalchuk gets big money now, everybody's escrow costs grow higher, too. Here are a few examples of how much individual players stand to lose next season as a result of Kovalchuk's $10M salary exceeding the cap hit of $6M:

 Player  2010-11 Salary  Extra Escrow Cost
 Alex Ovechkin  $9,000,000   $23,196 
 Dustin Brown  $3,500,000   $9,021 
 Joel Ward  $1,500,000   $3,866 

These numbers (from NHLNumbers.com) assume a total targeted player payroll of $1.55 billion, and increased player escrow costs in proportion to each individual's salary. They aren't exact, but should be in the ballpark.

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