Musings on Ilya Kovalchuk’s recapture “penalty”

There’s been some discussion on Twitter—and a lot of confusion—over why Ilya Kovalchuk’s cap recapture penalty for the New Jersey Devils is so low in the wake of his surprise retirements while Roberto Luongo’s would be pretty high.

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The problem with the confusion surrounding the recapture process is that it’s been tagged as a “penalty”. There was a good post by Tom Tango a couple of days ago about how salary recapture isn’t necessarily a penalty, it’s just paying out salary cap savings from a previous date.

The Devils will be paying just $250K for Ilya Kovalchuk’s retirement deal until 2025. That’s absolutely peanuts, compared to the couple of million dollars the Canucks would pay if the same process occured with Roberto Luongo. This is for three reasons:

  1. Ilya Kovalchuk’s contract with the Devils was longer, so the recapture penalty is spread out over a larger number of years.
  2. For the first two years of his deal, Ilya Kovalchuk made less money than his salary cap hit, which had the unintended consequence of lowering the recapture penalty.
  3. Kovalchuk has only made $3-million more than his total salary cap hit in three years with the Devils.

Here’s how Kovalchuk’s contract shakes down. The bottom right of the table shows the total salary cap savings the Devils earned by front-loading the deal:

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  Salary Cap Hit Total Salary Total Cap Hit Total Cap Benefits
2010-11 $6,000,000.00 $6,666,666.67 $6,000,000.00 $6,666,666.67 -$666,666.67
2011-12 $6,000,000.00 $6,666,666.67 $12,000,000.00 $13,333,333.33 -$1,333,333.33
2012-13 $11,000,000.00 $6,666,666.67 $23,000,000.00 $20,000,000.00 $3,000,000.00

Since there are 12 years left on the deal, simply divide $3,000,000.00 by 12, and you’re left with a small $250k recapcture cost. It’s not so much a “penalty” as it is just charging the Devils the money against the salary cap that they saved by front loading the contract.

Compare that same deal to Luongo’s, and let’s say Luongo retires at age… 36:

  Salary Cap Hit Total Salary Total Cap Hit Total Cap Benefits
2010-11 $10,000,000.00 $5,333,333.33 $10,000,000.00 $5,333,333.33 $4,666,666.67
2011-12 $6,716,000.00 $5,333,333.33 $16,716,000.00 $10,666,666.67 $6,049,333.33
2012-13 $6,714,000.00 $5,333,333.33 $23,430,000.00 $16,000,000.00 $7,430,000.00
2013-14 $6,714,000.00 $5,333,333.33 $30,144,000.00 $21,333,333.33 $8,810,666.67
2014-15 $6,714,000.00 $5,333,333.33 $36,858,000.00 $26,666,666.67 $10,191,333.33

The Canucks would have saved more than $10-million next to the salary cap over five years. With seven years left on the deal, that would be about $1.4-million. Still not particularly high, but later on in the deal, since the Canucks front-loaded the contract so much, the costs would be much stiffer towards the end because the savings were ultimately higher.

Here’s how it shakes out, starting with this summer:

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Retires after… Recapture “Penalty” until 2022-23
2012-13 $825,555.56
2013-14 $1,101,333.33
2014-15 $1,455,904.76
2015-16 $1,928,666.67
2016-17 $2,590,533.33
2017-18 $3,583,333.33
2018-19 $4,127,333.33
2019-20 $4,333,333.33
2020-21 $4,333,333.33
2021-22 $0.00

The total savings keeping going up because Luongo is due to make more than his salary cap hit until 2018-2019.

I don’t have a huge problem with the NHL forcing teams to pay their salary cap costs, since allowing them to structure deals to avoid the salary cap in the last CBA was just a huge oversight. I do have a problem with the way that the NHL is stretching out the deals. Had Kovalchuk retired next year, the Devils’ recapture cost would be $700k. It would keep going up, and in my view the NHL shouldn’t have written this clause that makes it easier on teams if their players retire as soon as their salaries start to go down. The NHL is worse off not having Ilya Kovalchuk around, and if Luongo is still productive in 2017… well what then? Does he play another year and have a chance of further hurting the salary cap situation?

If it were averaged out over a set number of years, rather than the remaining time on the deal, players could be convinced to stick around longer. For all the talk about how Kovalchuk “quit” on his team and had no honour, he really did the Devils a huge solid by walking away from $77-million now rather than $66-million next season, or $55-million two summers from now. The NHL shouldn’t be encouraging that sort of behaviour.

  • JCDavies

    Could Vancouver still buy out Luongo, say after the 2017/18 season for 2/3 rd of the 6 plus million owing spread over double years remaining? Cap hit would be much less. Or would that be some good ol’ cap circumvention?

  • JCDavies

    Best bet is either Lui plays to end of deal or goes on LTIR/PUP. That or by the time this stuff starts to matter the cap will be so high a few mil wont make a difference or the cap recapture rule will have been thrown out or modified.

  • JCDavies

    The Devils’ recapture penalties are minimized by his leaving this off-season, true. But he leaves $11.6 m on the table (with a 45% tax rate) in exchange for a $20 m salary (with a 13% tax rate).

    Pretty hard to spin it that Kovalchuk did the Devils a solid. It was merely coincidence, imo.

  • JCDavies

    Tango’s post does a good job of illustrating why cap recapture didn’t hurt the Canucks in their attempts to trade Lou as much as people suggest it did.

    The structure of Lou’s contract works out to an interest free loan.

    Benefit received in the present would merely be recaptured in the future.

    Along with the fact that teams have the ability to retain salary in trade, cap recapture isn’t as much of an obstacle as people make it out to be.

    Especially since any GM acquiring Lou may very well not be in charge when the cap benefit is eventually recaptured.

  • JCDavies

    What can I say but a marvelous job by Gillis. Not only does Luongo not want to be here, many of the fans and the team had written him off, and now Gillis has to get on his knees to try and convince him to stay cause they have no choice, cause Schneider was the victim of Gillis stupidity. Now we got a Goalie who could care less if he’s bought out, traded, or plays a bad game. God knows how much Luongo loves a meltdown at crucial times.

    And Luongo will be eventually traded or bought out one day. And when that tie comes it would be funny to see just how many more years this mickey mouse organization will have wasted yet again. Nothing good can come about when you have a goalie who doesnt want to be here, expected to be traded, and now has to stay…or not. What Gillis has done is worse than Michale Hack Bay did to the Transformers movies.

    • elvis15

      I’d argue, considering the CBA as it was at the time, Gilman as the capologist did a fine job in structuring the contract. It brought Luongo’s cap hit to a pretty reasonable level and he did so in the wake of Zetterberg, Franzen and Hossa signing their back diving deals, which the NHL approved.

      No one anticipated at that point the NHL and owners would write in a clause to penalize back diving, long term contracts. Teams didn’t even heed the rumblings this summer that there’d be something against those deals when they offered even greater money to that summer’s crop of UFAs (and RFAs in Weber).

      But, your sarcasm (however poor it may be) is duly noted.

      • elvis15

        1) The Canucks were the only team locking up a goalie until age 43

        2) The Canucks were the only team agreeing to a 10+ year, backdiving contract for a goalie

        3) The Canucks were the only team locking up a goalie/captain to a long term deal

        It was/is quite a unique contract.

  • elvis15

    Hey Cam. If Kovy had retired last year, would the Devils have gaine $100K in cap space? If so, what’s to keep teams from backloading contracts with salaries that the player has no intention to collect on, and garnering the extra cap space when they buy the player out in Year 5?

    • Clyde Frog

      The fact that a team can’t bury salary in the minors nor can they force a player to retire.

      So hypothetically they sign that contract with a wink and a grin only to find out the player won’t actually leave that money on the table…

      Strangely enough the player looks at the money left on the table and say, “I want that money!” …

      • JCDavies

        If the team and the player agree that the player won’t play the last couple years of the contract, then including those years – at higher salary – would raise the cap hit unnecessarily. The early years of the contract wouldn’t make sense either.

    • JCDavies

      According to capgeek, you don’t get to keep this cap credit. The only way you can benefit from it is to use it to offset your cap advantage from other contracts.