Daly said at the time those contracts were registered an advisory letter was sent to the clubs notifying them that the League was going to investigate "the circumstances under which the contracts were negotiated to see if there is potential circumvention." There is no time limit to those investigations.
He added that deregistration is just one of several penalties that could be enacted, per Article 11 of the CBA. Other penalties, as outlined in Article 26 of the CBA, include fines against the club and/or the player, reducing the club's payroll for the following season, forfeiting draft picks, forfeiting games affected by the circumvention and suspensions of club officials, the player and his certified agent.
"We're at a different stage now that the contracts have been registered so there is a different procedure that we would have to employ if we ever wanted to do anything with these contracts, and I don't want to create the perception or expectation that we are. It's just that these contracts continue to be under investigation."
-- NHL Deputy Commissioner Bill Daly
Daly said the investigations are being done "by an independent third-party professional we hired to do the investigations." The players are able to play under the contracts because they were registered by the League. Ilya Kovalchuk, who had his 17-year, $102 million contract with the New Jersey Devils rejected, was not able to play under his contract because the League refused to register the contract.
"We're at a different stage now that the contracts have been registered so there is a different procedure that we would have to employ if we ever wanted to do anything with these contracts, and I don't want to create the perception or expectation that we are," Daly said. "It's just that these contracts continue to be under investigation."
System Arbitrator Richard Bloch, who last week upheld the NHL's rejection of Kovalchuk's contract on the basis that there was circumvention of the salary cap because of "illusory years" tacked on at the end of the deal, wrote in his 20-page decision that the NHL was in the process of investigating the 12-year deals signed by Hossa with the Chicago Blackhawks and Luongo with the Vancouver Canucks, and the seven-year deals signed by Pronger with the Philadelphia Flyers and Savard with the Boston Bruins.
Bloch specifically wrote into the addendum on Page 19 of his decision that Pronger's annual salary dips from $4 million to $525,000 in the final in the final year of his contract and Luongo will make an average of $7 million over the first nine years of his deal, but just $1.2 million per season over the final three seasons. All four contracts under investigation will expire when the player is in his 40s.
Without going into specifics, Daly also told NHL.com that he has ideas on how to rectify the issue of these long-term contracts that deflate the average annual salary. He added that none of his ideas involve adding language determining term limits on contracts into to a new CBA, which will have to be enacted prior to the start of the 2012-13 season.
"I don't view the issue in (the Kovalchuk) case really to be term limits on contracts," Daly said. "I think a lot of people misunderstood exactly what was at issue, and whether or not we seek term limits on contracts as part of our collective bargaining process. We may, but I don't think that really directly impacted this. What our concern in this case was the ability to tack on what we consider to be illusory years in a contract that neither party had an expectation would be performed as a way to reduce the average annual value of the player's contract and to create more payroll room."
Kovalchuk's contract would have had a $6 million cap hit, but would have seen him earn 97 percent of his salary over the first 11 seasons and an average annual salary of just $550,000 over the final five seasons.
"That was the circumvention and that's what we were concerned about," Daly said. "I think that can be addressed in a variety of ways. I have thought of some and I'm sure there are others I haven't thought of, but it doesn't necessarily come down to term limits because it wasn't the 17-year contract per se that was an issue. It was the 17-year contract, how it was structured, the player's age -- a whole host of circumstances. I'd rather not go into specifics but I think it can be fairly easily addressed, and I can say this -- I don't think any of my suggestions to address or my thoughts to address this issue really involve term limits at all."
Daly also believes the Kovalchuk case dictates why there is an eight-page circumvention provision written into the CBA. He said the Players' Association "felt that certain language within the anti-circumvention provision made the provision not applicable to this situation. We argued that that language didn't exculpate this contract and the arbitrator agreed."
"I don't think we need clearer language on the circumvention provisions," Daly added. "The arbitrator found, and really it's consistent with what arbitrators had found in the past, that the circumvention provision is in there for a reason, and it does reach what I would call absurd conduct that is intended to circumvent the CBA. The circumvention provision is meant to be a net because it's not practical to think that anybody would be able to successfully think of every circumvention that might exist over the term of a six- or seven-year contract. They just happen, and the provision is there to deal with them when they happen.
Daly is of the opinion that these "artificially deflated" contracts are not good for the players as a whole.
"To the extent you are creating artificial cap room, which allows more dollars to be spent, it will create a situation where the escrow is higher than it otherwise might have been so all the players collectively are in one sense paying for these artificial contracts," Daly said. "In that sense it's not good for the players collectively, but again, that's something that ultimately is really up to them in terms of how they spread their money. You can make an argument that the other players don't want to have to pay through escrow through artificially deflated contracts."
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