CBA 101: The Kovalchuk Rule

kovalchuk

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During the 2010-2011 offseason the New Jersey Devils landed the grand prize of Free Agency, Ilya Kovalchuk, when he was signed to a 17 year $102 million contract. That contract was, as many expected at the time, rejected by the NHL because it was deemed to circumvent the salary cap. At the time, Kovalchuk was 27 years old, so the contract would take him to age 44.

Ultimately, the contract was re-worked to a 15 year $100 million deal, and the Devils were penalized to the tune of $3 million in cash, a third round pick in 2011, and a first round pick in any year from 2011-2014. The Devils have yet to forfeit said first round pick in 2011 or 2012.

Additionally, an amendment was made to the Collective Bargaining Agreement (CBA) to handle long-term contracts, that take a player well into their 40′s such as this one. This amendment is commonly known as “The Kovalchuk Rule”.

1. While players and clubs can continue to negotiate long-term contracts (five years or longer) that include contract years in a player’s 40s, for purposes of salary-cap calculation the contract will effectively be cut off in the year of the contract in which the player turns 41. – NHL.com

The first aspect of the amendment, is regarding how the cap hit is calculated at age 41 and beyond. Typically, a player’s cap hit is determined by the average annual value (AAV) of the contract. Simply divide the dollars by the years and you have your cap hit. However, for long-term contracts (five years or longer), that take players into age 41 or beyond, the cap hit will be the actual salary in the given year, rather than the average.

Example: Zdeno Chara signed a seven-year, $45.5-million deal starting in 2011 (age 34) and running through 2018 (age 41). Because he earns a $4 million salary at age 41, his 2017-18 cap hit is $4 million. For all other seasons, his cap hit is $6,916,667, with his $41.5 million in remaining salary divided over six years. - CapGeek.com

 

2. In any long-term contract that averages more than $5.75 million for the three highest-compensation seasons, the cap charge will be a minimum of $1 million for every season in which the player is 36-39 years of age. That $1 million value will then be used to determine the salary cap hit for the entire contract. If the contract takes the player into his 40s, the previous rule goes into effect. – NHL.com

This second aspect effectively prevents teams from adding “bogus” years onto the end of contracts, at or near the league minimum, for the sake of reducing the AAV. It forces teams to use at least $1 million as the yearly salary for contracts that meet the criteria. Now, is $1 million instead of $600k any less “bogus”? Probably not, but at least it’s a step in the right direction.

For example, [Marc] Savard’s contract reportedly calls for him to make $525,000 per season in the final two years of his seven-year, $28 million deal. He will be 38 and 39 in those seasons. If his contract was subject to these new regulations, for purposes of calculating the salary cap the final two years on his deal will reflect as if he was making $1 million. That would make his reported $4 million cap hit go up to $4.14 million.

The club and player still can agree to a contract that pays a player less than $1 million when he is at those ages, but for salary-cap purposes the number applied to the team’s annual average salary will be $1 million. – NHL.com

It will be interesting to see how necessary the Kovalchuk Rule is in the new CBA.

Naturally, CapGeek, has a great explanation on the topic as well.