Is the Kovalchuk contract a circumvention of the CBA?
Here’s the full text of the decision. First thought: I’m glad they released it. Second: I’m a little surprised at how “short but sweet” the opinion is. The argument he makes — or I guess the one he accepts — is pretty much exactly the one I laid out (“The League’s Case”), but it’s interesting how simply the whole thing lays out, and how much the NHLPA hung their whole case on the letter/spirit dichotomy. It sums up like this:
NHLPA: The CBA doesn’t explicitly say you can’t do this.
NHLPA: So we’re done here.
NHLPA: But that’s all we’ve got.
Arbitrator: Okay, now we’re done.
Okay, so let’s dive right in
I was pleased to see (since we could only guess at it beforehand) that the decision quotes the league’s original rejection letter:
The SPC is rejected pursuant to CBA Section 116(a)(i) “because it is or involves a Circumvention of  the Club’s Upper Limit…”
But then, a curve ball…
In addition, the SPC is rejected pursuant to CBA Section 11.6(a)(ii) because the artificial decrease in the SPC’s Averaged Amount and Club’s Averaged Club Salary, and the consequent creation of artificial Payroll Room, constitute violations of Articles 26 and 50 of the CBA.
Since 11.6(a)(ii) doesn’t apply at all because (i) excludes it, I can’t think of any reason to invoke 11.6(a)(ii) except to give the arbitrator the option of restructuring the deal himself. I can’t tell if the purpose of that would be (1) to let the Devils off the hook a bit by allowing the arbitrator to whack a couple of years off the deal and call it a day, or (2) open the arbitration up to the possibility that the arbitrator could reconfigure the deal into what I would have to call “Kovalchuk’s nightmare”: $6MM every year for 17 years.
But why would the league want to do that? They wouldn’t. It would be forcing him to retire. So, I don’t know why the league put this in. Especially since it’s either (i) or (ii), not both. That’s one of the more lucid parts of the CBA.
Also note that the league invoked Article 26 right off the bat. So, hello, it may well be that we have been in an Article 26/Article 11 hybrid procedure all along.
Did the National Hockey League properly reject the SPC between Ilya Kovalchuk and the New Jersey Devils? If so, was it properly rejected under 11.6(a)(i) or 11.6(a)(ii)? If properly rejected solely under 11.6(a)(ii), how shall the SPC be reformed?
Wow, they really did leave it open to whether it’s a (i) or (ii).
Specifically, the League claims the last six years of the Kovalchuk contract are “illusory”. It says one cannot reasonably conclude this is an agreement that will be, or was intended to be, fulfilled.
The Association claims the SPC contravenes neither the Club’s Upper Limit nor any of the other CBA provisions limiting the form and content of SPCs. Specifically, there are no negotiated restrictions [in the CBA] that would serve to restrict the term, annual salary stipends, “backdive” (decreased payments during the final years) or the Move/Trade language. As such, says the Association, the Circumvention claim must fail.
The NHLPA directs the Arbitrator’s attention to, among other things, the preamble of Article 26, which notes, specifically, that while the Article is designed “to prohibit and prevent conduct that Circumvents the terms of this Agreement,” the parties made it clear that the terms of Article 26 were not designed for “deterring or prohibiting conduct permitted by this Agreement, the latter conduct not being a Circumvention.” Accordingly, says the Association, since these provisions are permitted by the CBA, they cannot be considered elements of Circumvention.
That’s pathetic. Their argument is “if it’s permitted, then it’s not a circumvention.” If that’s all they brought, I would have to seriously consider the possibility that the NHLPA did not put its heart into this.
The League’s right to review and approve or reject an SPC is clearly set forth in CBA Article 11.10 and is not here at issue. It is, instead, the contractual premises for such action that divides the parties.
The issue had been raised (here on this blog, I mean) whether the ruling was simply on the matter of the league’s authority to reject, rather than the circumvention itself. I had said, in the comments to one of this afternoon’s posts, that I didn’t think the league’s authority was in question.
The Association bases its case [!] on language in Article 26.3 that unambiguously provides that conduct permitted by the CBA cannot be considered Circumvention.
Which is stupid, is it not? I mean, to hang it all on that slender thread.
These words, says the Association, suggest a bright line test: Absent any bargained restriction on the length of an SPC or on inclusion of any other of the other particular contractual elements, there can be no resulting evasion of the CBA’s letter or spirit.
That would be fine, were it not for the fact that the CBA says that the intent of the CBA is protected and that violating the intent of the CBA is a circumvention of the CBA.
A careful review of the language at issue and the thorough presentations of the parties compels the conclusion that […] the signatories to the CBA foresaw the need for, and provided language to support, a considerably more comprehensive examination of a particular SPC than that here proposed by the Association.
He rejects the “letter” of the CBA argument, having just noted that their entire case is based on it.
He then looks to the previous CBA for language regarding circumvention and concludes that the current CBA was/is intentionally more broad and inclusive. This mostly hinges, as I argued, on the “or has the effect of circumventing” clause.
These broadly drawn [Article 26] admonitions are consistent with the conclusion the parties anticipated the type of broader review here urged by the League, as contrasted with the markedly narrower scope proposed by the Association. The broader approach permits one to read all clauses in Article 26 in harmony with one another. One may thereby acknowledge the absence of restrictions as to SPC term length, dollar amount or compensation structure, taken individually, but conclude, as well, that that is not the necessary end to the inquiry. A contrary conclusion would effectively read Article 26 out of the CBA.
Which was the gist of my argument in the above-linked post (“The League’s Case”). If you assume the NHLPA’s interpretation is correct, the CBA collapses in on itself.
Also, I can’t help pointing this out
Even before institution of the new salary cap mechanism and the revised language of Article 26 in ‘04-‘05, arbitrators sitting in judgment of disputes between these parties (under the terms of the 1995 CBA), alluded to a certain breadth of review based not on specific benchmarks, but rather on a consideration of the totality of circumstances.
In the grievance of Sakic, Blake, Turgeon and Nolan (Arbitrator Parker, 2003), the Arbitrator concluded the League had failed to meet its burden in disputing the propriety, under Article 26, of the allocation of certain signing bonuses in particular player SPC’s. But the Arbitrator also made it clear that such challenges were fact specific, depending on the nature of the particular agreement […]
I believe it was the NY Post which cited a certain pre-2005 arbitration case as somehow damning evidence that the league was certainly going to lose because (I’m paraphrasing) they were overstepping just like they overstepped in the cited case. So I think it’s hilarious that Bloch cites the case to make the opposite point.
But, the language of Article 26(3) speaks loudly to the parties’ intention that one look not only to whether the individual terms of the agreement conform but also to whether the agreement, taken in its entirety, may be said to have been intended, or even if not intended, has the effect of defeating or Circumventing the CBA.
Insert smiley face.
A contract term covering a Player’s NHL services to age 70, for example, is not expressly prohibited by the CBA. But the parties to that SPC may not reasonably be found to be seriously anticipating its fulfillment. The Association does not suggest that such agreement must pass muster under Article 26.
I am delighted — okay, DELIGHTED — that the NHLPA concedes that there is in fact a limit to term out there somewhere, that, as I argued, an infinite term is not permitted, and last but not least, that the arbitrator actually adopted the same absurd contract length example I used to illustrate the point.
The dynamics of this SPC, with particular reference to its final six years, are such that there is scarce reason for either Player or Club to continue the relationship. The incentives are strongly to the contrary.
Bloch then discusses the differences between Kovalchuk and the other mega-term deals, and notes — as I have argued — that the investigation into those contracts is still open:
First, while the contracts have, in fact, been registered, their structure has not escaped League notice: those SPCs are being investigated currently with at least the possibility of a subsequent withdrawal of the registration. It is also the case that the figures in Kovalchuk’s case are demonstrably more dramatic […]
The way I put it was, Kovalchuk’s contract is the other contracts with all the knobs turned up to eleven.
And that’s, literally, all there is.
Except maybe I will suspend my moratorium on gloating just to say this: I’m pretty sure I’m the only one who (1) said don’t be surprised if this contract is rejected for exactly the reasons it ended up being rejected, and then (2) said don’t be surprised if the league turns out to have a case, and then (3) laid out that case, and in so doing (4) anticipated the league’s — and the arbitrator’s — opinions, more or less point-for-point.
I still don’t know what’s up with that 11.6(a)(ii) reference. And I notice the arbitrator never resolved it, either. I guess he just decided, no. It’s Article 50 all the way. No “re-tooling” possible.
That’s all for now. I’m going to hit publish so I can read what plot twists have occurred while I’ve been typing…