Why Nullify Kovalchuk’s Contract?

The hours-old news that the NHL has nullified Ilya Kovalchuk’s 17-year, $100+ million contract doesn’t come as a huge surprise to me, but it has raised some questions regarding other similarly front-loaded contracts that have been agreed to in the cap era. Some of the names that I saw thrown out there today included Luongo, Pronger, Hossa, Keith, Zetterberg, Franzen, and Richards. This got me curious about how these contracts compare. I put together a simple analysis that can perhaps give us some insight into why Kovalchuk’s contract merits league intervention while the others were allowed to slide.

The approach I took was to calculate the standard deviation for the yearly values of the contract and then divide that by the cap hit. The standard deviation gives us a variance of the yearly values of the contract, giving us a numerical representation of how front-loaded the contract is. If all of the contracts were similarly valued, we could probably stop there, but calculating what percentage of that player’s cap hit that is, we now have a standardized number for the sake of comparison. My hypothesis here is that, generally speaking, higher variance compared against the cap hit would indicate a greater circumvention of the salary cap (ie. a high degree of front-loading makes things fishy).

What this doesn’t take into account is the length of the contract and the player’s age. Both of these factors are likely to have been considered in the NHL’s judgement of this contract, but they don’t play a roll in these numbers.

Let’s get to it:

Based on this metric, we have a pretty noticeable jump from Kovy to the rest of the pack, and not so surprisingly Pronger and Hossa are the next two on the list.

This, to me, is an interesting statistic, but I think the more important consideration here is the likelihood that a player will retire shortly after the bulk of the front-loaded payments are paid out. If Kovalchuk were to actually play out the entirety of this contract, then there’s no harm done. Remember that while a team enjoys a low cap hit in the early years of a front-loaded contract, they will see a heavier cap hit in the later years of the contract if the player opts not to retire. On the other hand, as CapGeek.com points out, Kovalchuk could retire at 37 and his contract is effectively 10 years at $9.5 million, saving the Devils $3.5 million in cap space every year (that’s like being able to add Rene Bourque to your roster with no cap implications).

A contract like Mike Richards’ doesn’t bother me at all. That contract takes him until he’s 35; I’d say the odds of him retiring by then are pretty low. Sure, he’s got a $8.4 million year that will cound $5.75 against the cap, but there are also two $3 million years that will still count $5.75, and chances are those will be on somebody’s cap hit.

Therein lies the difference between spreading the cap hit and circumventing it. My suggestion for the NHL in the next CBA: Adapt the existing 35+ rule. Perhaps the age for that should be 37; Should a player sign a contract that extends beyond his 37th birthday, the cap hit endures for the duration of the contract, even if the player should retire.

Any way you slice it, Kovalchuk’s deal is blatant cap circumvention where some of the others may be in a bit of a murky area, and naturally my statistics (or perhaps lies and damned lies) back it up.

There are my thoughts on the whole circus. Of course, as long as Sutter is GM in Calgary it’s unlikely we’ll have this kind of situation to cope with. Let’s just say his financial terms don’t usually hold this kind of sophistication.