Tuesday, July 20, 2010

The CBA & The NHL's Rejection of the Kovalchuk Contract

According to TSN, the NHL has rejected the Kovalchuk contract on the basis that it circumvents the CBA.

Presumably, the NHL is of the view that deal constitutes a cap circumvention by artificially lowering the cap hit with “throwaway years" at the end of the contract. This was noted in my previous post as a possible argument available to the NHL.

Given other contracts of similar length, this is a bold move by the NHL.

As per Paragraph 26 of the CBA, the Commissioner can commence an "investigation regarding whether a circumvention has occurred". At the conclusion of the investigation, the NHL would draft a report with its findings and conclusion. If a positive finding is made of circumvention, before issuing the report, the NHL and the NHL club (in this case the Devils) would have up to 3 days to try and work things out. If they can't, then the case would go to an arbitrator for a decision.

The arbitrator under the CBA has wide discretionary powers (26.13(b) The System Arbitrator may find a Circumvention has occurred based on direct or circumstantial evidence, including without limitation, evidence that an SPC or any provision of an SPC cannot reasonably be explained in the absence of conduct prohibited by this Article 26. The investigation and findings of the Investigator pursuant to Section 26.10 shall be fully admissible in any proceeding before the System Arbitrator under this Section 26.13).

If the arbitrator makes a finding that a circumvention has occurred, the Commissioner can impose any number of penalties on the NHL club (the arbitrator imposes the penalty if the circumvention was committed by the player). Including among the penalties is voiding the contract.

I am reminded of former Paul Kelly's comments when the NHL was investigating Hossa's 12 year deal:
"To my knowledge it's still ongoing, but my understanding is the league would like to get that thing wrapped up in some form or another before the start of the season," Kelly said. "I don't see those contracts being redone, either the Hossa contract or the Pronger contract. I understand the league might not be happy about that kind of creative contract structuring, but credit to the teams involved and to the general managers in finding a way to get those deals done, which is completely consistent with the language of the CBA."

"It's been going on for years," Kelly said. "They let some of them go over the years and they registered these two contracts and then decided to start an investigation sometime later, which is a bit odd."
Assuming the penalty imposed by the NHL is the voiding of the contract, the Devils may go back and restructure the contract. However, this may open the door for the Kings to step back in if the Devils can't make the numbers work.

More to come once I get more details in this landmark case.


Anonymous said...

Eric, what happens now timewise. Do they try and restructure the deal, does Players Association file a grievance? Can other teams such as LA get back into the picture? Camp is 2 months away.How fast does all this move?

Eric Macramalla said...

We are only speculating what happened because we are missing information - nothing has been confirmed by the NHL. However, it's possible that we are at the initial stages of the dispute. By this I mean that the NHL may have conducted their investigation and advised the Devils o ftheir finding, who have 3 days to decide whether they will dispute. If they dispute, then it goes to arbitration. At that point, the arbitrator will make a decision - good contract or bad contract. One penalty can be that contract is void and they need to restructure (square one basically).

Listen to audio clip on next entry for review of next steps.