There was an uproar this week due to the massive contract signed by Ilya Kovalchuk with the New Jersey Devils. Not only is it the longest contract in NHL history, but it immediately raised eyebrows due to the obvious attempt to cheat the salary cap. Kovalchuk would be paid market value of $9.5 million a year for the first 10 years of the deal, but the team would only take a salary cap hit of $6 million a year during that time.
How does that work, and what's a fair way to deal with this situation?
The solution to the fiasco surrounding the league rejecting the Kovalchuk deal is simple. The league just has to follow their own example of how buyouts work. When a player is bought out, the team’s cap hit for the buyout period is calculated to ensure that the total money paid by the team to the player is exactly equal to the total cap hit incurred by the team. See NHL Offseason: What's the Cap Hit For A Buyout? for an explanation of how this works.
Similar to a buyout, if a player retires before his contract has expired, the team should have to suffer a cap hit penalty if the contract is front loaded, or a cap hit rebate if the contract is back loaded. The way this would work is to figure out what the total the player had been paid during the contract, and what the total cap hit was during this time. If the amounts aren’t equal, the difference is spread out over the years remaining on the deal and applied to the team cap total for those years.
In the case of the 17 year, $102 million Kovalchuk deal, Kovalchuk would have earned $95 million in the first 10 years of the deal, but only $7 million in the last seven years. The average cap hit is only $6 million, even though Kovalchuk would be paid an average of $9.5 million until he turns 37. If he decided to retire at that time, the team would be off the hook for the $6 million a year cap hit for the remained of the deal when Kovalchuk would be paid an average of $1 million a year.
The league correctly assessed that the deal was designed to circumvent the salary cap because there is very little chance that Kovalchuk would play out the last years of the deal when he would be paid so little.
The Kovalchuk Rule.
The rule I am proposing would require the team to square up how much it has paid the player and how much of a cap hit they took. In Kovalchuk’s case, the team would have paid him $95 million in the 10 years that he played, but only took a cap hit of $60 million during that time. So, the team owes a cap hit of $35 million. This would be spread out over the seven years that would have remained on Kovalchuk’s deal. That would work out to $5 million a year. With this rule in place, teams would still be able to sign players to ridiculously long deals. There would just be no way of cheating the cap.