SALARY CAPS IN PROFESSIONAL SPORTS: CLOSING THE KOVALCHUK LOOPHOLE IN NATIONAL HOCKEY LEAGUE PLAYER CONTRACTS♦ INTRODUCTION ................................................................................. 375 I. BACKGROUND ........................................................................ 377 A. Salary Caps and the 2005 Collective Bargaining Agreement ................................................... 377 II. THE LOOPHOLE ...................................................................... 382 A. Clubs Begin to Exploit .............................................. 382 B. The Final Straw.......................................................... 383 III. THE ARBITRATION HEARINGS ................................................ 384 A. The Kovalchuk Decision ........................................... 384 B. Not A New Problem .................................................. 388 C. An End to the Matter?................................................ 391 IV. FIXING THE CBA .................................................................... 393 A. Remaining Loopholes ................................................ 393 B. Flawed Solutions ....................................................... 393 1. League-Issued Advisory Opinions ........................ 393 2. Amend Section 26.3 .............................................. 394 3. National Basketball Association Approach .......... 395 C. Salary Cap Solution ................................................... 398 CONCLUSION ..................................................................................... 402 INTRODUCTION On June 23, 2001, Russian hockey superstar Ilya Kovalchuk was selected by the National Hockey League’s Atlanta Thrashers with the first overall pick in that year’s draft,1 and since then has led the League in goals scored.2 On February 4, 2010, Kovalchuk was traded to the ♦ Permission is hereby granted for noncommercial reproduction of this Note in whole or in part for education or research purposes, including the making of multiple copies for classroom use, subject only to the condition that the name of the author, a complete citation, and this copyright notice and grant of permission be included in all copies. 1 Joe Lapointe, Islanders Create Stir with Trade for Yashin, N.Y. TIMES, June 24, 2001, at 8.1, available at http://www.nytimes.com/2001/06/24/sports/hockey-islanders-create-stir-with-trade- for-yashin.html. The National Hockey League draft is held every year after the season ends. Each club’s draft slot is determined based on its record the previous season, with the last place club drafting first and the first place club drafting last. The first overall pick is often the best player taken in the draft. Previous first overall picks include all-stars Sidney Crosby and Alexander Ovechkin. The Crosby-Ovechkin Rivalry, SPORTS ILLUSTRATED VAULT, http://sportsillustrated.cnn.com/vault/gallery/featured/GAL1150721/1/index.htm (last visited July 2, 2011). 2 Kovalchuk Traded to Devils, NHL.COM NETWORK (Feb. 4, 2010, 9:07 PM), 375 376 CARDOZO ARTS & ENTERTAINMENT [Vol. 29:375 New Jersey Devils,3 and at the conclusion of the season, on July 1, 2010, Kovalchuk became an unrestricted free agent,4 allowing him to sign a new contract with any club. Kovalchuk was described by hockey journalists as being “the most unique free agent ever. [and] has a chance to become one of the greatest scorers in [League] history.”5 Although many clubs attempted to sign Kovalchuk,6 he chose to re-sign with the New Jersey Devils.7 The contract between Kovalchuk and the Devils was the longest contract in League history, valued at $102 million over seventeen years.8 The deal was short lived, however, as the League rejected the contract on July 21, 2010.9 The League claimed that the contract was a circumvention of the salary cap, as neither the Devils nor Kovalchuk intended for Kovalchuk to play out the term of his contract.10 As a result, the National Hockey League Players’ Association filed a grievance on Kovalchuk’s behalf on July 26, 2010, protesting the League’s rejection of the contract, which was heard before arbitrator Richard Bloch in August 2010.11 The arbitrator ruled for the League, finding that the contract violated the League’s Collective Bargaining Agreement (“CBA”).12 http://devils.nhl.com/club/news.htm?id=516303. 3 Devils Get Kovalchuk!, HOCKEY INDEPENDENT (Feb. 4, 2010), http://hockeyindependent.com/blog/devs0304/11003/. 4 See, Dan Rosen, Kovalchuk Headlines Left-Wing Free Agents, NHL.COM NETWORK (June 29, 2010, 1:18 PM), http://flames.nhl.com/club/news.htm?id=533155. An unrestricted free agent is a player that is “completely free to negotiate and sign a standard player contract with any Club, and any Club shall be completely free to negotiate and sign a [contract] with such Player, without penalty or restriction, or being subject to any Right of First Refusal, Draft Choice Compensation or equalization obligation of any kind.” Collective Bargaining Agreement Between National Hockey League and National Hockey League Players’ Association, § 10.1(a)(i) (2005), http://www.nhlpa.com/CBA/2005CBA.asp [hereinafter 2005 NHL CBA]. To become an unrestricted free agent for the 2010–11 season, a player’s most recent contract must have expired and the player must have played seven seasons or be twenty-seven or older as of June 30, 2010. Id. 5 Elliotte Friedman, Kovalchuk Biggest Free-Agent Name, Plus 30 Thoughts, CBC SPORTS (June 30, 2010, 5:43 PM), http://www.cbc.ca/sports/blogs/elliottefriedman/2010/06/kovalchuk-biggest- free-agent-name-plus-30-thoughts.html. 6 The Los Angeles Kings, New York Islanders, St. Louis Blues, Vancouver Canucks, Toronto Maple Leafs, and SKA St. Petersburg of Russia’s Kontinental Hockey League all expressed interest in Kovalchuk. James O’Brien, Top 5 Most Likely NHL Destinations for Ilya Kovalchuk (Plus the KHL), NBC SPORTS (June 30, 2010, 4:00 PM), http://prohockeytalk.nbcsports.com/2010/06/30/top-5-most-likely-nhl-destinations-for-ilya- kovalchuk-plus-the-khl/. 7 Mark Everson, Kovalchuk Signs with Devils; $102M over 17 Years, N.Y. POST (July 20, 2010, 2:11 AM), http://www.nypost.com/p/sports/devils/one_devil_of_deal_GRBXUv2ODeSwnh136CoCEN. 8 Dave Caldwell, Devils’ Deal With Kovalchuk Is Rejected by the N.H.L., N.Y. TIMES, July 20, 2010, at B18, available at http://www.nytimes.com/2010/07/21/sports/hockey/21devils.html. 9 Id. 10 NHL Rejects Kovalchuk Contract for Salary Cap Circumvention, TSN (July 21, 2010, 1:20 PM), http://tsn.ca/nhl/story/?id=328025. All contracts must be filed with the Central Registry and approved by the League. 2005 NHL CBA, supra note 4, § 11.3. 11 Ilya Kovalchuk, (2010) (Bloch, Arb.) at 3 [hereinafter Kovalchuk] (on file with the author). 12 Id. at 20. A collective bargaining agreement is “a contract between an employer and a labor union regulating employment conditions, wages, benefits, and grievances.” BLACK’S LAW DICTIONARY 299 (9th ed. 2009). In professional sports leagues, CBAs are signed between the 2011] CLOSING THE KOVALCHUK LOOPHOLE 377 This Note argues that although Bloch acted within the scope of his authority granted by the CBA, the standard for determining which contracts are circumventions of the CBA is overly broad and highly subjective. This allows the League to selectively enforce which contracts to define as a circumvention of the CBA, which may lead to inequitable enforcement. Further, this Note proposes that by switching the current National Hockey League salary cap format to a similar system adopted by the National Basketball Association, a bright-line rule for determining which contracts circumvent the CBA would be created, thereby preventing the League from making arbitrary and abusive decisions in the future. Part I of this Note discusses the complexities of salary cap systems in general, with special attention devoted to the National Hockey League’s salary cap system, as dictated by the 2005 CBA, signed between the League and the Players’ Association. Part II discusses the loophole in the CBA exploited by certain clubs, including the Devils in signing Kovalchuk to a standard player contract.13 Part III details the arbitration decision concerning Kovalchuk and argues that the standard provided for determining a circumvention of the CBA is too flexible, allowing the League to selectively enforce the provisions in the CBA. This section also discusses previous arbitration decisions in which the arbitrators advocated for fixed standards in defining what constitutes a circumvention, and then details the recent amendments made to the 2005 CBA in light of the rejected Kovalchuk contract. Part IV suggests possible solutions to create a more rigid standard for determining when a contract circumvents the CBA in order to eliminate the League’s selective enforcement. I. BACKGROUND A. Salary Caps and the 2005 Collective Bargaining Agreement Leading up to the 2004–05 season,14 with the National Hockey League’s CBA expiring on September 15, 2004, many feared a lockout was likely.15 The League insisted on cutting costs, a move that leagues and the players’ unions. 13 Standard player contract “means the standard form contract . which will be the sole form of employment contract used for all Player signings . .” 2005 NHL CBA, supra note 4, art. 1. 14 League seasons span two calendar years, beginning in the fall and culminating in the spring of the next. 15 A lockout is “[a]n employer’s withholding of work and closing of a business because of a labor dispute.” BLACK’S LAW DICTIONARY 1024 (9th ed. 2009).