Luongo Rule: How new NHL CBA will punish cap circumventing contracts

With the NHL lockout settled, hockey fans wait with breathless anticipation for the League’s owners and general managers to find a way to subvert, cheat and undercut the rules they’ve just helped establish.

It’ll happen. Some loophole will be discovered and exploited until the next lockout eight years from now. Teams will claim they’re just playing by the established rules. Bettman will get pissy about it. Agents will guffaw on Twitter.

It’ll be like the cap-circumventing contracts of the last several years, which violated the spirit of the salary cap and created a world where Ilya Kovalchuk makes $7 million in 2018, $1 million in 2020 and $4 million in 2024.

What’s the NHL to do? At the very least, let the loop-holers know there are repercussions for their actions.

Back in Oct. 2012, the NHL proposed a way for teams that dabbled in the dark arts of cap circumvention to pay for their sins in the next CBA. From the League’s proposal:

All years of existing SPCs with terms in excess of five (5) years will be accounted for and charged against a team's Cap (at full AAV) regardless of whether or where the Player is playing. In the event any such contract is traded during its term, the related Cap charge will travel with the Player, but only for the year(s) in which the Player remains active and is being paid under his NHL SPC. If, at some subsequent point in time the Player retires or ceases to play and/or receive pay under his NHL SPC, the Cap charge will automatically revert (at full AAV) to the Club that initially entered into the contract for the balance of its term.

In other words, if any of the elephantine cap cheating deals on the books were traded – be it Kovalchuk, Marian Hossa, Roberto Luongo or Henrik Zetterberg – the club that signed that player to the circumventing deal would take on his cap hit when he retires, even if he’s playing for another NHL team.

The NHL and NHLPA agreed to include this clause in the new CBA. But Pierre LeBrun of reports there’s a significant tweak to the provision that might make trading these contracts rather difficult.

Here’s LeBrun on the new rule that targets cap circumventing deals that are already on the books:

To wit: let’s say the Canucks trade Luongo soon. Luongo has played two years of his 12-year contract, the Canucks paying him $16.716 million in salary but only absorbing a $5.33 million cap hit each year. That’s a cap savings of $6.056 million over two years so far for Vancouver. Under this new rule, should the Canucks trade him now and he retires with three years left on his contract, Vancouver would be charged that $6.056 million in cap savings over the final three years left on his deal from 2019 to 2022. However, let’s say for argument’s sake Luongo gets traded to Toronto, the Maple Leafs also would be subject to cap penalties if Luongo retires before the end of his deal.

To wit, part 2: If Luongo were to play the next seven years of his deal in Toronto before retiring, the Leafs would be paying him $43.666 million in salary but only counting $37.31 million against the cap over those seven years, a cap savings of $6.356 million. So if Luongo retires with three years left on his deal (because his salary falls to $1.618 million in the 10th year and then $1 million in the last two years of the deal), the Leafs would get charged that $6.356 million on their cap spread evenly over the remaining three years of his deal.

(For the record, we still think Luongo’s totally getting traded to the Leafs.)

Elliotte Friedman of CBC breaks it down thusly:

The simplest way to explain it is this: Let's assume the Canucks and Maple Leafs make the deal. Vancouver would be responsible for the "cap benefit" that it received in the first two years. Toronto would be responsible for any remaining "cap benefit" it gets as a result of contract structure if he walks away early.

Essentially, this was the NHLPA’s plan for all contracts that “back-dove” in the new CBA. The NHL opted for term limits and salary variance year to year, which is a much more effective way to end circumvention on new deals.

One assumes this is Gary Bettman’s revenge on those who made his 2005 lockout look like a gigantic waste of time. It’s not anything the NHLPA was going to fight – these players are getting paid regardless, and the rule affects only a handful of high-end players. It was something the majority of owners were going to support, because only a few teams dabbled in these contracts and only a handful would ever trade for these players.

But hoo-boy, does it penalize teams that issued these contracts: Keeping the contract on their cap totals if the player checks out before the end of his deal – what, no Roberto Luongo, 42-year-old goalie? – and making it rather unappetizing to trade for them.

Is it a deal-killer? Probably not in Luongo’s case. It’s all pushed down the road for both the Canucks and the Leafs in this scenario.