Friday, September 17, 2010

The Devils Pay Dearly for Kovalchuk

The NHL has the most entertaining, action-filled game to watch in my opinion, but the NHL front office continues to make mistake after mistake on league policy. The latest is the total mismanagement of the New Jersey Devils' signing of Ilya Kovalchuk. He was the big-ticket item in this year's free agency class. Kovy's numbers speak for themselves - at age 27, he has 338 goals and 304 assists. He could easily surpass 600 goals in his career. Kovalchuk has a devastating shot that will continue to give goalies nightmares for years to come. He made a name for himself in Atlanta by putting up huge numbers in his first eight NHL seasons on a lowly team that hasn't yet won a playoff series in franchise history.

Prior to the 2010 trade deadline, the Thrashers dealt Kovalchuk to the Atlantic division-leading Devils to provide offensive firepower to a defensive-minded team. Atlanta had attempted to re-sign Ilya to a long-term deal prior to the 2009-2010 season; their reported offer was $101 million over 12 years. Kovalchuk turned it down, saying that he had no desire to continue his career in Atlanta when he became a free agent after his contract expired this past spring.

This scoring machine didn't want to stay with the Thrashers' franchise.

The Devils won the division and entered the playoffs as a #2 seed in the Eastern Conference while Kovalchuk provided above average, but not spectacular production (10 goals, 17 assists in 27 games). New Jersey was upset in the first round by the Philadelphia Flyers in five games...although it could hardly be called an upset because Philly defeated the Devils five of six times during the regular season. Their defensive system could not overcome the Flyers, primarily due to their inability to get on the scoreboard. Scoring nine goals in five playoff games isn't exactly what the Devils envisioned when signing the goal-scoring winger. It was another in a recent string of disappointing early-round exits for the Devils.

Fast forward to this summer - the first of July is the opening of free agency period. Due to salary cap considerations, NHL teams must be extremely cautious when opening their wallets to build around their existing roster. Teams are not permitted to exceed the ceiling of $59.4 million spent on rosters. Kovalchuk had not re-signed with the Devils prior to July 1, so he was on the open market. New Jersey was left with the daunting decision on whether to make a long-term commitment to Kovalchuk. While they attempted to hammer out a deal that made Kovalchuk a rich man, they had to figure out a way to stay below the max allowed by the cap. In the meantime, stalwart defenseman, Paul Martin signed with the Penguins. Gritty center Rob Niedermayer also left to play for the Sabres. New Jersey scrambled to pick a few solid defensemen, Anton Volchenkov (with the Senators in '09-'10) and Henrik Tallinder (with the Sabres in '09-'10). These signings left the Devils in a precariously tight position. If they signed Kovalchuk to a fair market offer, their salary cap would be exceeded.

So, as the days grew into weeks, Kovalchuk's pursuers whittled down to two teams - New Jersey and Los Angeles. The Kings made significant strides from one of the league's worst teams in 2009 to a surprise playoff appearance in 2010. So, they made their play for Ilya. The highest offer was reported to be $80 million over 15 years. While that may seem like a lot of money to you and me, Kovy is an NHL superstar and expected a much bigger return. $5.3 million per year was simply not enough. The Kings apparently had the right approach, though, by trying to extend the life of his contract for 15 years to minimize the annual cap hit his future team would suffer. The Kings dropped out of the Ilya sweepstakes and it seemed as if it was only a matter of time before the Devils and Kovalchuk agreed to terms. So, on July 21, it was announced that they had indeed come to terms on a whopper of a deal - $102 million over 17 years. New Jersey would pay the vast majority of his salary ($98.5 million) over the first 12 years of his contract, while Kovalchuk's salary would dip to $550,000 for each of the last four years. This contract would not expire until Ilya was 44 years old!

There are two things to consider when looking at this deal - his actual salary and his salary cap hit each season.

Season Age Salary Received Salary Cap Hit
2010-2011 28 $6,000,000 $6,000,000
2011-2012 29 $6,000,000 $6,000,000
2012-2013 30 $11,500,000 $6,000,000
2013-2014 31 $11,500,000 $6,000,000
2014-2015 32 $11,500,000 $6,000,000
2015-2016 33 $11,500,000 $6,000,000
2016-2017 34 $11,500,000 $6,000,000
2017-2018 35 $10,500,000 $6,000,000
2018-2019 36 $8,500,000 $6,000,000
2019-2020 37 $6,500,000 $6,000,000
2020-2021 38 $3,500,000 $6,000,000
2021-2022 39 $750,000 $6,000,000
2022-2023 40 $550,000 $6,000,000
2023-2024 41 $550,000 $6,000,000
2024-2025 42 $550,000 $6,000,000
2025-2026 43 $550,000 $6,000,000
2026-2027 44 $550,000 $6,000,000

As you can see, Kovalchuk will be racking up the dollars while the Devils will maintain a $6 million per year cap hit. This is where the NHL got a little squeamish. Their intent has been to keep player salaries on a par with the salary cap hit each player has. Recently, there have been multiple deals where players got similar long-term deals to minimize the salary cap impact.

Marian Hossa signed a 12-year deal worth $63.3 million in the summer of '09 to play for the Blackhawks (a $5.275 million cap hit). His deal pays him until age 42, and the last four years of the contract pay him $1 million annually.

Hossa hopscotched his way across elite NHL teams before signing long-term in Chicago and winning a Cup.

Chris Pronger signed a 7-year deal worth $34.45 million to play for the Flyers (a $4.921 million cap hit). His deal pays him until age 42, and the last two years of the contract pay him $525,000 annually.

Pronger was all smiles when awarded a contract that will pay the big man until age 42.

Roberto Luongo signed a 12-year deal worth $64 million to play for the Flyers (a $5.333 million cap hit). His deal pays him until age 43, and the last two years of the contract pay him $1 million annually.

Luongo might be flexible now, but that might not hold true in his 40s.

Up until now, these deals have been approved with no disparaging comments made by the NHL office. But, this time, the NHL decided that the Lou Lamoriello, president and general manager of the Devils, pushed the boundary too far on this one. Their two concerns were paying a player until he turns 44 years old and the dramatic decrease in salary in the final four years of the deal. A special arbiter was brought in to rule on whether the NHL would approve Kovalchuk’s deal, or if it "circumvented the salary cap." When I read that the judge hearing the arbitration case was from New Jersey, I thought it was a slam dunk that this deal would be approved. But, that wasn't the case. The deal was voided on August 9 when the arbitrator agreed with the NHL and Ilya Kovalchuk was once again a free agent. In the NHL's eyes, someone needed to be made an example of, and this case fell into their laps.

Lou Lamoriello, Devils GM, might have to lace 'em up to fill out his roster for the '10-'11 season

Kovalchuk smartly flirted with going home to Russia to play in the Kontinental Hockey League (KHL) to put pressure on any NHL team to make him a reasonable offer. But, most teams had already spent their money and moved on...except New Jersey. Lou Lamoriello's tenacity is to be commended for continuing to work on a deal that would be favorable in the all-important eyes of the NHL front office. On August 28, New Jersey announced that they had signed Ilya Kovalchuk to a 15 year, $100 million deal. He will still be paid as a 42-year old, but the salary of his final years did not drop off as significantly as the originally nixed deal.



Salary Received

Salary Cap Hit





























































It's rather ironic that this Devil signed his deal for $6.66 million a year after a tumultuous contract re-work

The deal had to be mulled over for six days before the NHL finally blessed it – 65 days after free agency opened. Ilya Kovalchuk is, as expected, a New Jersey Devil. But, the story doesn't end there. In those days when the second deal was being approved, the NHL actually contemplated reviewing the contracts of Hossa, Luongo, and Pronger to determine their legitimacy. What possible recourse could they have? Would Chicago have to give away its Stanley Cup if Marian Hossa's deal was deemed to have circumvented the salary cap? I don't think so. The issue is that the Devils didn't circumvent anything. They simply used creative bookkeeping to make a contract work. You don't have to be an expert to see it - numbers don't lie. In the initial contract, the Devils were on the hook to pay $102 million in actual salary to Kovalchuk. And, the bulk of it was paid up front! NFL players would give their right arm for a contract like this - front-loaded and guaranteed. If New Jersey wants to assume a $6 million cap hit for five seasons on a player who will age from 39-44, why is that the NHL's problem? That's bad business in my eyes, but not illegal.

Just consider Bobby Bonilla. Bobby who? Yes, the former major league baseball player who played the bulk of his career for the Pirates and Mets. When the Mets released him in 2001, they still owed him $5.9 million in salary. So, what did they do? They decided it would be wiser to defer his salary for ten years and spread their payments out over a 25-year period (2011-2035). So, guess who's on the payroll for the Mets starting next year? 48-year old Bobby Bonilla will start receiving $1.1 million each July until he turns 72 years old. 72 YEARS OLD! In total, he will receive nearly $30 million in his golden years for $5.9 million that he probably would have blown on frivolous possessions. Shrewd move, Bobby. Once again, not illegal...just stupid.

Bobby Bonilla may be the eldest member on the Mets payroll in 2035. My only question is - will he be alive to see it?

Now, in light of Kovalchuk's contract, the NHL has developed new salary cap rules for long-term deals. Hmmm...this reeks of C.Y.A. to me because New Jersey did nothing wrong. Here are the new conditions:

Any long-term contract (more than five years) that extends past a player’s 41st birthday will be valued and accounted for in two ways:

1. The compensation for all seasons that do not include or succeed the player’s 41st birthday will be totaled and divided by the number of those seasons to determine the annual average value. In all subsequent seasons, the team’s cap charge will be the actual compensation paid to the player in either that season or seasons.

2. For any long-term contract that averages more than $5.75 million for the three highest-compensation seasons, the salary cap value for any season in which the player is age 36, 37, 38, 39 and/or 40 shall be a minimum of $1 million.

If your eyes glazed over when reading the conditions, what it boils down to is that the NHL doesn't want to honor a 'retirement' contract by averaging in all contract years. They are protecting franchises from making bad business decisions in bringing unnecessary structure into these retirement contracts. The NHL may as well just step in to tell a team that it shouldn't overpay for a free agent if it is going to govern bad decision-making by general managers.

In the spirit of piling on, the NHL had the gall to fine New Jersey $3 million and will take away a 2011 third round draft pick and an additional first round draft pick by 2014...all for circumventing the salary cap. Gary Bettman - what are you thinking? Are you trying to send a message? I actually find myself feeling bad for the Devils organization at every twist and turn of the Kovalchuk signing. These penalties take the taco, though. If the NHL is interested in "growing" their brand, they may want to look around and see how successful leagues are run.

Gary Bettman is laying down the law...anybody else quaking in their boots?

Now, the Devils have their man. They are currently about $3 million over the cap with two roster spots to fill. So, they will have to trade away some middle-of-the-road (or better) talent and sign guys on the cheap before the puck drops in October. Was it worth it? Only if a Cup run is in their future, which I don't see. Washington has all the talent, Pittsburgh has done it before, and Philadelphia almost did it last year. The beasts in the East no longer include the Devils and they will only sink further as once in a generation goaltender, Martin Brodeur, continues to near his retirement age. Call me crazy, but I think the Islanders might surpass them within a year or two.

How would that Atlanta deal look to you now, Ilya? More money, less years, less headaches, same Cup hoists - none.

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