The New Jersey Devils have just made history by signing Ilya Kovalchuk to the longest contract in NHL history.
The 17-year deal beats Rick DiPietro's 15-year deal signed in 2006, and dwarfs Marian Hossa's 12-year deals signed before the 09-10 season, and the long contracts recently signed by Henrik Zetterberg and Mike Richards.
It seems as though Islanders' owner Charles Wang started this run of long term contracts with the DiPietro signing and with the 10-year $87.5 million contract given to Alexei Yashin.
Wang doesn't seem to be smart enough to have figured out the loophole, or he would have found better players to sign. He did however stumble onto a trend that many may have stayed away from in the past. It has however brought into the open a flaw in the salary cap structure that everyone seems to be taking advantage of now.
The flaw was brought out into the light right after the Chicago Blackhawks signed Marian Hossa in 2009. Dale Tallon was under investigation for his handling of the contract process. While it would be almost impossible to prove, if the Blackhawks and Hossa discussed an early retirement, the Hawks would be cheating the salary cap.
The league took these allegations very seriously, and if it was found the Hawks and Hossa's agent discussed early retirement, there was the possibility of a huge fine and loss of quite a few draft picks.
The league saw there was a problem with the contracts and their negotiations, and made an attempt to scare teams away from trying to work around the salary cap. It hasn't scared anyone away from anything. All it has done is make sure no one discusses the early retirement possibility, or make sure there is no way anyone can prove it was discussed.
The logistics of these long term contracts can be confusing, and may not seem like a problem, but it gives teams a way to get the player they want at the contract the player wants, while taking on only a portion of the contract in the salary cap.
For example, the salary cap hit each year of the Kovalchuk contract will be $6 million per year. That's the number we see, but the numbers are much different in what the player actually sees each year.
According to capgeek.com , Kovalchuk will make $6 million per year for the first two years, before and increase to $11.5 million per year for five years. It eventually drops to $550,000 a year for the last five years of the contract.
Where the problem arises is the cap hit. Kovalchuk will make exactly what his cap hit is for the next two years. However the six years after that, Kovalchuck will be making almost double what the team will have to account for in the salary cap.
The system works if the player finishes the contract, because the cap hit on the last years will be $6 million a year even though Kovalchuk only makes $550,000.
If the player does retire beforehand, the cap will no longer be affected by that contract. This is where the discussing of retirement is the cheating. Obviously a player might decide to retire somewhere in there, but it it's an unwritten understanding, it becomes an unfair way of opening up cap space.
There are contracts that have been signed by players who will probably finish out the contract with that team, making it a legitimate contract. But no team wants to be responsible for a cap hit twelve times the salary being paid, especially if the player in question has see his production drop at the age of 44. It's safe to say a team would do whatever possible to rid themselves of this problem.
Most times, other teams will buy out the contracts, and take a smaller cap hit for the remainder of the contract. This new long contract situation gives the teams an out if the player decides to retire before finishing out the contract.
It's not always going to be the case, but I'm guessing the majority of these contracts that are being signed will have the player retiring before the contract hits the low salary output. In Ilya Kovalchuk's case, it's my guess he will retire at the age of 38, just before he hits the $550,000 salary mark.
I think the league has realized that there is no way to stop teams from doing this, so we're just going to keep seeing this happen in the league until a new bargaining agreement can be reached. I just hope this doesn't lead us to another lockout.