Kovalchuk's Box

Before Pandora was a planet in Avatar, or a cool iPhone app, it was a box that you did not want to open. The meaning is the same across the board. In Avatar, Pandora was a planet that humans should not have trolled. The iPhone app, like many others, is an addictive time waster. Ilya Kovalchuk’s first Devils contract, rumored to be a 17-year deal worth $102 million, was denied by an arbitrator last week after being challenged by the NHL. Kovalchuk is a free agent again, but the NHL may not be stopping there.

Four other contracts have been rumored to be called into question as Kovalchuk-like contracts, or as Justin Bourne calls them, “Kovalcontracts”. Three of the four “Kovalcontracts” are contract extensions that take effect this upcoming season. These contract extensions belong to the Bruins’ Marc Savard, the Flyers’ Chris Pronger, and the Canucks’ Roberto Luongo. One other contract is already underway: the Blackhawks’ Marian Hossa. These contracts were picked from the litter because of their similar structure, but how alike are they?

First, the structure of the Ilya Kovalchuk’s denied contract that was offered by the Devils:

• 2010-11 through 2011-12 (2 seasons): $6 million per season
• 2012-13 through 2016-18 (6 seasons): $11.5 million per season
• 2018-19 (1 season): $7.5 million
• 2019-20 (1 season): $6.5 million
• 2020-21 (1 season): $3.5 million
• 2021-22 (1 season): $750,000
• 2022-27 (5 seasons): $550,000

The key issues with this contract is the term, which would expire in 2027 when Kovalchuk was 44 years old, and the precipitous drop-off of dollars during the back-end of the contract. The loophole in the Collective Bargaining Agreement is that if a player retires, the cap hit is removed from the team. With the average salary number constituting the cap hit, back-loading these contracts are a nice way for the team to pay out more money than is counted against the team’s ability to sign players. A provision was put into the CBA to count the cap hit for a retired player if the deal takes effect after the player turns 35 years old. However, for these ultra-long-term deals that take effect before the player turns 35, ultimately eschewing future free agency and causing a marriage between team and player, the loophole exists and it has been exploited by NHL franchises.

If we dissect Kovalchuk’s denied contract, the first year is an “average” year by this contract’s standards, as $6 million is the average of the 17-year/$102 million deal. The number goes up to $11.5 million (+91.7% change from previous season), which would be somewhere near a “max” contract the NHL would allow, which is 20% of the salary cap figure for a season. The salary cap is at $59.4 million for the 2010-11 season and $11.5 million works out to 19.4% of the total cap number. Conceivably, this number may change, as the salary cap is redefined from year to year and the provision may change for the next labor contract, which would take effect no earlier than the 2012-13 season. A drop-off to $7.5 million (-34.8% change from previous season) and $6.5 million in consecutive seasons is not that appalling, considering Kovalchuk would be aged 36 and 37, respectively.

The drop-off between season 11 of the deal is worse, as Kovalchuk’s pay would fall from $6.5 million to $3.5 million in 2020-21 (-46.2% from previous season), almost halving his salary. The final thud in the contract is the following season (2021-22), when the pay falls from the millions to the hundreds of thousands, from $3.5 million to $750,000 (-78.6% from previous season). This was the eye-opener and, more so than the length of the deal, should have caused the NHL to have heart palpitations. If the Devils offered similar dollars throughout the life of the ultra-long-term deal, such as what the Islanders offered goaltender Rick DiPietro, the NHL would most likely not have investigated the legality of the contract. It was the lower amount of money in the final six seasons of the contract that was most responsible for its rejection. With the diminutive salary figures in years 12 through 17 of the contract, there was an overwhelming probability Kovalchuk would retire before playing out the contract, as only a handful of players have still played the game at the highest level at the age of 44.

Also, after 11 years of the deal, 96.6% of the total dollars in the deal were paid out. At that point, the percentage of length of the contract (64.7%) was greatly outpaced by the percentage of total dollars paid by that point in the contract. The difference between the two percentages was 31.9%, which is staggering and defines a “front-loaded” contract. Think of it as a rollercoaster. You start to climb the initial hill, and the higher you go, the more you will have to have to fall quickly at the end of the ride because the start and the end of the ride has to be at the same height. If a player makes the same amount for an entire contract, the rollercoaster is completely level. A perfectly acceptable contract is one where the first couple of years are a little less than average, the middle of the contract is a little more than average, and the last couple of years are a little less than average. This makes for a nice hill in the middle for a very easy-going coaster. Kovalchuk’s contract has a rapid rise and an even more extreme fall.

The NHL drew the line in the sand for these types of contracts, sure to be addressed in the next labor agreement. In the meantime, executives, player agents, and fans can only guess where that line truly is.

For term, let’s draw the line in the sand at 40 years old, beyond which the term would be prohibitively long for the realistic possibility of a player fulfilling the length of the contract, never mind the difficult task in finding someone to insure the guaranteed contract. For dollars, let’s raise the red flag when the drop-off of any year-over-year salary is more than half of the previous season’s salary. For the variance between term and money paid out to that point in the contract, let’s set the variance at 25%, by which if it reaches this number or goes over, we will call it a “front-loaded” contract.

Kovalchuk’s denied contract hits all of these sweet spots: the term concludes when Kovalchuk is 44 years old and season 12 of the 17-year deal caused a 78.6% drop-off. For Kovalchuk, Years 1 and 2 were level and Year 3 started the climb up to Year 10. Year 11 started the downward spiral and Years 12 through 16 represented a free fall. For the five seasons that represent Years 7 through 11 of the deal, the variance between term and money paid out to that point in the contract is over 25%.

Now, to the other four player contracts questioned as a result of the denial of Kovalchuk’s contract:

Marc Savard (Bruins) - 7 years/$28.05 million extension taking effect in 2010-11

• 2010-11 through 2011-12 (2 seasons): $7 million per season
• 2012-13 (1 season): $6.5 million
• 2013-14 (1 season): $5 million
• 2014-15 (1 season): $1.5 million
• 2015-16 through 2016-17 (2 seasons): $525,000
• The line in the sand: Term (39 y.o. at end of deal), Dollars (2014-15 is a 70% drop-off, 2015-16 is a 65% drop-off), Front-Loading (2012-13: 30.2%, 2013-14: 33.8%)
• Prediction: The drop-offs in this contract is enough cause for this contract to be DENIED. The Bruins are looking to trade him, so if this is denied, it may work out in the Bruins’ favor, who are trying to get under the salary cap.

Chris Pronger (Flyers) – 7 years/$34.45 million extension taking effect in 2010-11

• 2010-11 through 2011-12 (2 seasons): $7.6 million per season
• 2012-13 (1 season): $7.2 million
• 2013-14 (1 season): $7 million
• 2014-15 (1 season): $4 million
• 2015-16 through 2016-17 (2 seasons): $525,000
• The line in the sand: Term (42 y.o. at end of deal), Dollars (2015-16 is a 86.9% drop-off – worse than Kovalchuk), Front-Loading (2013-14: 28.2%)
• Prediction: The extension was signed before Pronger turned 35, but the extension takes effect around his 36th birthday. So, retirement will not ease the burden of the cap hit, but the drop-off is worse than Kovalchuk, as the final two years of the deal are about one-eighth of the fifth season’s salary. I am predicting this will be DENIED on those grounds.

Roberto Luongo (Canucks) – 12 years/$63.9 million extension taking effect in 2010-11

• 2010-11 (1 season): $10 million
• 2011-12 through 2017-18 (7 seasons): $6.7 million per season
• 2018-19 (1 season): $3.4 million
• 2019-20 (1 season): $1.6 million
• 2020-21 through 2021-22 (2 seasons): $1 million per season
• The line in the sand: Term (43 y.o. at end of deal), Dollars (2019-20 is a 52.9% drop-off), Front-Loading (no seasons above 25%; highest percentage in 2017-18: 22.4%)
• Prediction: I think this will be APPROVED because though the deal goes until Luongo turns 43, the drop-off is smooth enough to be approved.

Marian Hossa (Blackhawks) – 12 years/$63.3 million new contract starting in 2009-10

• 2009-10 through 2015-16 (7 seasons): $7.9 million per season
• 2016-17 (1 season): $4 million
• 2017-18 through 2020-21 (4 seasons): $1 million per season
• The line in the sand: Term (39 y.o. at end of deal), Dollars (2014-15 is a 70% drop-off, 2015-16 is a 65% drop-off), Front-Loading (2012-13: 30.2%, 2013-14: 33.8%)
• Prediction: The drop-off of the dollars is enough to deny the contract. The contract is also excessively front-loaded, which is also grounds for dismissal. But, the biggest sticking point of this or any contract under suspicion is that one year has already been played under this agreement. If they reverse the validity of this contract, the Blackhawks would have played the 2009-10 season with an illegal player for 57 games, in which the Blackhawks earned 77 points (36-16-5), not to mention the 16 wins in 22 games in the Stanley Cup Playoffs. If they deny this, expect fire and brimstone from just about everyone. So, I predict the NHL will figure that “discretion is the better part of valor” and APPROVE the contract.

It is very conceivable that the Marc Savard and Chris Pronger contracts could be overturned.  I think the other two will be upheld.  Roberto Luongo's deal is the lightest offender of the four and Marian Hossa has already played a season under his crazy contract.