Ilya Kovalchuk Decision a Landmark Defeat for Pro Athletes
That winning tradition took a significant hit Monday, when arbitrator Richard Bloch sided with the National Hockey League and invalidated Ilya Kovalchuk's 17-year, $102 million contract with the New Jersey Devils. Bloch ruled that Kovalchuk's unusual deal, which was the longest contract in NHL history and was scheduled to pay him until he's 44 years old, was in violation of the league's collective bargaining agreement.
In his decision, Bloch noted that even though the contract may not have intended to skirt the rules, the deal's provisions "had the effect of defeating" the NHL salary cap.
And it gets more frightening for NHL players: Bloch wrote that the league is now investigating whether it can reject existing contracts -- such as those signed by Boston Bruins center Marc Savard, Philadelphia Flyers defenseman Chris Pronger and Vancouver Canucks goalie Roberto Luongo -- that are structured like Kovalchuk's deal.
According to several sports-labor experts, no U.S. league has ever attempted to invalidate contracts that have already been approved. "That would be unprecedented," said Jim Quinn, a veteran sports law attorney who is co-chair of the litigation department at Weil, Gotshal and Manges. Jeffrey Kessler, who has represented the players unions of the NFL, NBA and NHL in numerous labor disputes, said he's "not aware of any instance" where a league retroactively rejected contracts. "Once (a contract) is approved by the commissioner, it's supposed to be final," said Kessler.
The NHL has not indicated whether it will now attempt to overturn previously-accepted contracts. But league executives did not hide their glee about Monday's decision. "We want to thank Arbitrator Bloch for his prompt resolution of a complex issue," said NHL deputy commissioner Bill Daly in a statement. "His ruling is consistent with the League's view of the manner in which the Collective Bargaining Agreement should deal with contracts that circumvent the Salary Cap."
The league's current labor agreement, which expires after the 2011-12 season, has no limits on contract length, and there's a strict salary cap. (Next season's cap is just over $59 million.) A player's annual cap number -- the amount that counts against the team's annual allotment -- is calculated by taking the average of the player's total compensation over the life of his contract, so a player with a five-year, $20 million contract has a cap number of $4 million.
In recent years, NHL teams and agents quickly figured out that long, front-loaded contracts were effective -- and legal -- tools to keep player salaries high and allow clubs to manage their rosters under the constraints of the cap. While Kovalchuk's deal would have set a new benchmark for total years, it's hardly the first super-sized contract signed under the current CBA. In the last two years, all-stars such as Washington Capitals sniper Alex Ovechkin, Luongo, Chicago forward Marian Hossa and Detroit Red Wings stalwarts Henrik Zetterberg and John Franzen have all signed deals that stretch over 10 or more years, though Ovechkin's salary is fairly balanced throughout the length of the deal.
The Kovalchuk ruling, however, effectively takes away that tool, and sets a de facto cap on contract length. At the very least, the decision figures to impact players' ability to negotiate longer, more lucrative deals -- and it sends a powerful message to teams about the viability of any deal over 10 years or with significant dips in annual salary.
Kovalchuk's deal was certainly unique. The vast majority of compensation -- $98.5 million, to be exact -- was scheduled to be paid in the first 11 years of the contract. His annual salary would have dropped dramatically during the final six seasons of the deal, sliding from $11 million in year 10 to just $550,000 in each of the contract's last five seasons.
Bloch took issue with several provisions in Kovalchuk's contract, particularly its length, noting that the Russian forward was unlikely to continue playing into his mid-40s. The deal extends "well beyond the typical retirement age for NHL players," Bloch wrote, adding that only six of nearly 3,400 NHL players have played to 42 over the last 20 seasons.
He also objected to a clause that took away Kovalchuk's "no movement" rights in the final, lower-salaried years of the contract. Because of a quirk in the NHL's labor agreement, players without those rights can be waived or sent to the minors for any reason -- and their salaries would no longer count against toward the team's salary cap. The upshot, according to Bloch: no player would agree to such a deal unless he didn't expect to be playing at the end of the contract.
But according to former NHL goalie Mike Liut, who's now a hockey agent for Octagon, it's impossible to predict whether Kovalchuk would have completed his contract. Moreover, according to Liut, many players are willing to accept much lower salaries at the end their careers.
"What are we going to do, get into the psyche of each player about why or why not they're going to play?" asks Liut, whose firm represents Savard and Pittsburgh Penguins goalie Marc-Andre Fleury, among others. "I don't know where you draw the line. Maybe they're going to arbitrate every contract from now on."
According to several sports-labor experts, it's not surprising that Bloch sided with the NHL. In 2005, he upheld the Philadelphia Eagles' suspension of wide receiver Terrell Owens, ruling that the team's punishment was not excessive and that Owens' conduct was "destructive" and a "continuing threat to the team." Shortly thereafter, the NFL Players' Association took him off their list of approved arbitrators. "I have no idea why the (NHL) union consented to him," said one person familiar with the Kovalchuk case. "I guess they had to agree on someone quickly, but the NFL union fired him because he was viewed as too management-friendly."
The Kovalchuk case is yet another black eye for NHL's embattled players' association. The union currently has no executive director and has fired three leaders since 2005. In a statement e-mailed to the media Monday, an NHLPA spokesman said the union was "disappointed" with the ruling.