Home > Economics, Sports > More on Kovalchuk’s Contract

More on Kovalchuk’s Contract

The National Hockey League has approved the new contract between the New Jersey Devils and Ilya Kovalchuk.  As discussed in an earlier post, the NHL voided the initial contract between the two parties, essentially on the grounds that it violated the spirit of the league’s salary cap rules.

To summarize, the Devils originally signed Kovalchuk to a 17-year, $102 million contract, and by the NHL’s salary cap rules, this would have counted as 102/17 = 6 million dollars per year against the team’s salary cap (their yearly spending limit on players).  However, it was fairly clear from the structure of the deal that neither side expected the final five years to be played out–Kovalchuk was to earn the league minimum for those five years, and he would have been in his 40s.  So the league, and many observers, saw this really as a 12-year, $98 million dollar deal which should count over 8 million dollars per year against the team’s cap.  Through clever accounting, the team was creating an extra $2 million per year in financial flexibility, but naturally the league saw the matter differently.

The league, team, and player eventually compromised on a 15-year, $100 million deal (a 6.67 million dollar cap hit), and some changes have been made to the league’s salary cap policy so problems like this won’t arise in the future.  Until the next loophole is discovered, anyway.

Click here to see more in Sports.


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