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Photo Credit: NHL.com

From the Community – Retirement, Recapture, and Recrimination: How the Canucks Could Approach the Roberto Luongo Situation

Earlier this season, I opened up the possibility for readers to submit posts about various topics that they wanted to cover in a series called ‘From the Community’.

One of them is now CanucksArmy contributor, Stephan Roget and another was Matthew Dolmage.

Matthew has reached out and submitted another post but if you missed his first one, it can be found here. A little background on him as well:

Matthew Dolmage is a lawyer practicing in Northern BC and the producer of The Hockey PDOCast with Dimitri Filipovic. He has been a CanucksArmy reader since 2011.

Without further ado, let’s dive into his post: Retirement, Recapture, and Recrimination: How the Canucks Could Approach the Roberto Luongo Situation


Roberto Luongo turns 40 next month. Few NHL goalies play until 40, and even fewer play beyond. Luongo was playing at an elite level up to last season when he posted a .929 save percentage in 35 games. This year, however, he has struggled with injuries and is below .900 for the first time in his career, and there are rumblings that this season may be his last.

If Luongo retires, the Canucks could be subject to a significant cap-recapture penalty. A number of writers in the Canucks world have written about this over the past few years, but there are some avenues open to the Canucks to avoid a potential cap catastrophe.

So, without further preamble, how would a potential Luongo retirement affect the Canucks?

Genuine Retirement

If Luongo genuinely retires after this season – that is, he announces formally that he is no longer going to play professional hockey – the Canucks will be subject to a cap recapture penalty of roughly $2.8 million per season over the next three years, under Article 50.5 (d)(ii)(A)-(B) of the Collective Bargaining Agreement (CBA) signed during the 2012-2013 season. It’s not ideal, but it’s far from team-destroying. However, the cap recapture penalty for the Canucks gets worse the longer Luongo continues to play.

Should Luongo choose to play one more season and retire, this penalty rises to about $4.3 million for two seasons. Given that several of the Canucks’ brightest young players are going to be staring down their second contracts and the team should be entering their window to win, being penalized an amount equal to what one might expect to pay for a solid top-six winger or second-pairing defenceman could really hurt the team’s chances at contention.

Finally, if Luongo retires in two years, the cap recapture penalty is a whopping $8.5 million for the 2021-2022 season. This could potentially hamper the Canucks’ ability to re-sign one of their young stars, or to bring in a high-end player in free agency to round out what should be, by 2022, a very competitive team.

The cap recapture penalty for the Panthers? If Luongo retires this year or next, it’s negligible – in the million dollar range. If Lou retires in two years’ time, it’s $0. For a team like the Panthers that never spends to the cap, this will not be a problem. The Canucks, however, want to avoid the cap recapture penalty generally and must avoid the $8.5 million cap recapture penalty at all costs. Fortunately, they have a few options for how they might go about doing so:

Buyout

The Canucks could re-acquire Luongo’s contract and buy him out. If the Canucks re-acquire and buy out Luongo’s contract this season, the cap hit will be roughly $4.7 million for three seasons, and then $402,000 for three more (according to CapFriendly). That’s obviously worse than just eating the cap recapture penalty. If they were to buy out Luongo next year, the team is still looking at a $4.6 million cap hit for two seasons, and two more at $333,333. Again, this is worse than simply taking the cap recapture hit.

The only scenario in which a buyout makes sense is if Luongo plays two more seasons and then wants to retire. In that scenario, a buyout would bring Luongo’s cap hit down from $8.5 million to $4.66 million for one season, with a negligible $333,333 hit the following season. That’s still far from ideal, but it’s a savings of almost $4 million in the 2021-2022 season, which is better than nothing.

Robidas Island

Steve Dangle coined the term “Robidas Island” several years ago to refer to teams skirting cap-recapture rules penalizing back-diving and age 35+ contracts by placing retiring players on the Long-Term Injured Reserve (LTIR). We’ve seen several players with similar back-diving contracts to Luongo’s take a trip to Robidas Island when their careers were winding down – in the past two seasons both Henrik Zetterberg and Marian Hossa have retired-without-retiring by claiming that medical conditions prevent them from continuing to play. In fact, the only player who ended his career in the midst of a back-diving contract who didn’t go on LTIR was Brad Richards, who was bought out.

There are disadvantages to Robidas Island. A team must be cap-compliant at the start of the season prior to the player being placed on the injured reserve, and that team (or their insurance company, depending on the situation) must continue to pay the player the real dollars owed to him.

In Luongo’s case, with a cap hit of $5.3 million and real dollars owed of only a million per season for the final years of his contract, Robidas Island makes a lot of sense for Vancouver. It may also make sense for Florida, if they have trouble reaching the cap floor; however, if they allow Luongo to retire they’ll still get a small cap hit without paying any real dollars, which likely makes more sense from the Panthers’ perspective. Vancouver simply cannot rely on the Panthers to place Luongo on LTIR and will have to be pro-active to avoid a cap recapture penalty.

Sue the League

There’s a more unorthodox, outside-the-box solution to the Luongo-recapture problem that the Canucks could try if they’re unable to re-acquire Luongo’s contract and place him on LTIR: Sue the league.

While I think suing the league is a long-shot for a number of reasons I’ll get into in a moment, it is a genuine option for Vancouver and could be an effective Hail Mary move to spare the team from cap hell. The Canucks potentially have a couple of arguments against the cap recapture penalty, if they chose to go this route. I will say right up front that this seems like far too disruptive and unconventional a move for a GM like Jim Benning to make, but it’s fun to speculate all the same.

There is a general presumption against retroactivity in law – that is, statutes passed by governments, and contracts entered into by private parties, are presumed only to be forward-looking, and not to govern behaviour that occurred prior to the passing of the law or the signing of the contract. This is only a hard rule when it comes to laws that carry a significant punitive element – criminal law, for example. In other areas, it’s merely a presumption.

A contract can be applied retroactively if all parties to the contract explicitly agree to that retroactivity, but will never be applied retroactively without such an agreement. There is a very general retroactivity provision in the 2013 CBA – Article 11 states that all Standard Player Contracts signed under the 2005 CBA are deemed “modified” by the 2013 CBA.

If the league were to attempt to impose the cap recapture penalty on the Canucks over Luongo’s contract, the Canucks could potentially argue that the recapture penalty did not exist when the Luongo contract was signed, and that the league cannot impose a penalty introduced in the 2013 CBA on a contract that was signed under the rules of the 2005 CBA. Such a penalty, the Canucks could argue, cannot be applied unless the team and the league explicitly agree to it, and this penalty wasn’t sufficiently contemplated by the broad retroactivity provision at Article 11.

It could potentially get even more complicated: Professional sports leagues are strange entities. Each of the 31 teams in the league is technically an independent, for-profit business that is in competition with every other team in the league. The NHL itself is a non-profit entity that exists to co-ordinate the activities of those businesses, set schedules, negotiate CBAs with the Players’ Union on behalf of the teams, etc. If that screams “anti-trust” and “unfair business practices”, to you, it should. Independent businesses are not typically allowed to collude to set the price of labour, tickets, merchandise, or do the myriad other things that pro sports leagues do on behalf of their teams. Professional leagues in North America, however, are specifically exempted from anti-trust legislation, which allows the NHL to operate the way it does.

Why does all this matter? Well, the NHL and the teams are separate legal entities, and the NHL negotiates on behalf of the teams with the Players’ Union. This creates a duty on behalf of the NHL to negotiate in the best interests of the teams.

Rumour has it that Gary Bettman was livid about back-diving contracts and that he was responsible for the inclusion of the cap recapture penalty to penalize the Canucks, Red Wings, Devils, Wild, and Blackhawks for figuring out a clever way around the salary cap. This is a problem for the league, though, because in negotiating with the Players’ Union, the NHL has a duty to represent the interests of the teams. By introducing a clause in the CBA explicitly designed to penalize a few teams, the Canucks could argue that the NHL breached its duty to those teams to act in their best interests and that they should not be held to a provision of the CBA that was negotiated contrary to their interests.

So does this mean the Canucks could win a lawsuit against the league? Not necessarily – a lot of this depends on information the public doesn’t have, like whether the Canucks were aware of and consented to the recapture penalty, and whether they consented to it applying retroactively to Luongo’s contract. However, the Canucks could consider this a “nuclear option” – the openness of these questions means that if the Canucks did pursue a lawsuit, the league and the team could be tied up in costly, high-profile litigation for years. The NHL would want to avoid that outcome at all costs. In fact, I believe that this is precisely the reason the league has, so far, turned a blind eye to the existence of Robidas Island. By allowing teams to place ageing players on the injured reserve, they can avoid fighting about whether the recapture penalty applies to pre-2013 contracts while making it clear that such contracts will not be tolerated going forward.

What does it all mean?

Luongo’s impending retirement has the potential to cause the Canucks some serious problems over the next few seasons. It doesn’t have to, though, if the Canucks are pro-active and take steps to avoid the cap recapture penalty. The best-case scenario for the team is to re-acquire Luongo’s contract when they confirm that he’s done playing, and to put him on the injured reserve until 2021-2022. Jim Benning needs to be placing regular calls to Luongo and Dale Tallon to avoid an inconvenience over the next few seasons if Luongo plans to retire soon, or an outright disaster if he plays for another year or two.

When Luongo does retire, we should take a moment to appreciate how lucky we were to get to watch one of the all-time great goalies in hockey history in a Canucks uniform in his prime. Luongo sits second all-time in games played among goalies, third all-time in wins, fourth all-time in save percentage (among retired goalies) and ninth all-time in shutouts. Remarkably, Roberto Luongo and Henrik Lundqvist will not only go down as the two greatest goaltenders of their era but will likely be the two greatest goaltenders to never win a Stanley Cup. At least we got to watch Lou get within one win.

  • Killer Marmot

    How about a hybrid approach? Suppose that (1) Luongo announces he wants to retire, (2) Panthers trade him to Vancouver, and (3) Vancouver places him on their LTIR?

    The Panthers should be happy to do this, especially if Vancouver threw in a late-round draft pick. Vancouver would have to make sure they have $5 million in cap space at the start of each season. Luongo’s actual salary would not be a burden as it’s under $1.7 million in his last few years . He should be glad to accept that for doing nothing unless he has a real hate-on for Vancouver.

    • Matthew_D

      I think 2 and 3 are the most likely outcome. I’m not sure how the league would react if Luongo announced his intention to retire, rather than announcing that he cannot continue to play due to hip and groin problems. It may seem like splitting hairs but actually announcing a retirement and then being put on LTIR might force the league’s hand when it comes to attempting to enforce a cap recapture penalty.

      • Killer Marmot

        I can see an unpublicized agreement that the league won’t question such machinations over contracts signed prior to the introduction of the cap recapture rule, and the teams won’t sue the league.

  • Jabs

    Just wondering, how easy is it for a team to place a player on LTIR?
    Would the league be looking for medical reports from doctors or are these fairly easy for a team to get whatever they need to make this work?

    • Sedin33

      I recall that there was some investigation done by the league for Hossa. Given, Luongo’s age and injury history, I don’t believe there would be a significant issue.

    • From page 290 of the NHL CBA (bold emphasis my add): “(d) Bona-Fide Long-Term Injury/Illness Exception to the Upper Limit. In the event that a Player on a Club becomes unfit to play (i.e., is injured, ill or disabled and unable to perform his duties as a hockey Player) such that the Club’s physician believes, in his or her opinion, that the Player, owing to either an injury or an illness, will be unfit to play for at least (i) twenty-four (24) calendar days and (ii) ten (10) NHL Regular Season games, and such Club desires to replace such Player, the Club may add an additional Player or Players to its Active Roster, and the replacement Player Salary and Bonuses of such additional Player(s) may increase the Club’s Averaged Club Salary to an amount up to and exceeding the Upper Limit, solely as, and to the extent and for the duration, set forth below. If, however, the League wishes to challenge the determination of a Club physician that a Player is unfit to play for purposes of the Bona-Fide Long-Term Injury/Illness Exception, the League and the NHLPA shall promptly confer and jointly select a neutral physician, who shall review the Club physician’s determination regarding the Player’s fitness to play.

      It sounds like the league takes the club physician’s word. But if they have reason to suspend something fishy, the league and players’ union (note, not the club) will get a second opinion from a third party physician. Hossa was a bit suspect in that his skin condition coincided with the team’s need for cap space. With Luongo, cap space isn’t an issue and he has a history of hip issues so as Sedin33 says, it shouldn’t be a significant issue.

    • Dirty30

      The article clearly states a belief that the league is looking the other way to avoid triggering a potential lawsuit when it comes to dealing with these contracts.

      It’s likely a carrot-stick thing where the league has imposed the huge penalties but left an out if teams play nice and don’t look for loopholes that make Bettman look bad.

  • Mike Bossy

    Great article, thanks!

    As a non-lawyer, regular guy, when I first heard about this retroactive rule that the NHL put in, I thought it was totally unfair. I can’t understand how this is even legal (again, not a lawyer) 🙂

    • Matthew_D

      If you’re wondering how retroactivity in contracts is legal generally, in common law countries the court will generally respect the rights of contracting parties to contract for whatever terms they want, so long as those terms aren’t illegal or contrary to public policy.

      In practice, a court will not void a term of a contract that two sophisticated parties (two independent businesses, for example), entered into knowingly. So if you want to agree with the person you’re contracting with for something to apply retroactively, a court is not going to tell you you’re not allowed to do that – they’re going to respect your right to contract for whatever you like.

      • kermit

        So the contract is between the NHL and the NHLPA. Presumably the NHL board of directors, which includes all the owners, voted on a consent resolution authorizing the NHL to sign the new contract. So did the Aqualini’s dissent to this resolution? If they didn’t, could it be considered that they approved the wording to this amendment? It sounds like a legal quagmire that both sides would want to avoid.

        Great right up. I was hoping to find a definitive article explaining this issue, this one does it nicely.

  • TheRealPB

    Great article — it’s hard to imagine some kind of deal won’t be worked out given the relationships between the Canucks and Luongo and the Canucks and Panthers don’t seem at all toxic. And with the machinations regarding the contracts of Zetterberg, Datsyuk, Savard, Clarkson, Horton and even Pronger, it’s hard to see the league cracking down on the Canucks in the way that they might have if Gillis was still the GM. I still think the whole penalizing of the cap-circumvention had to do with how much Bettman and the rest of the GMs hated Gillis.

    • Matthew_D

      I’m not sure that’s very fair to Mike Gillis. He wasn’t the first to sign one of these back-diving contracts, he wasn’t the last, and his wasn’t the most egregious – I think the Kovalchuk deal that the league rejected, and the Suter and Parise deals that were signed on the eve of the 2012-2013 lockout, were what really forced the league’s hand.

      I know that Gillis is not very popular among the old boys’ club that GM’s most of the teams in the league; however, I don’t think he and Bettman have any particular beef. I can confirm he’s on good terms with Deputy Commissioner Bill Daly as I’ve actually been in the room with them together.

      • TheRealPB

        I should clarify that I don’t think it’s that Gillis created the situation — he didn’t. Many other teams were doing what they could to get a competitive advantage. I think it’s one thing to close a loophole, however, and another to penalize teams that played by the existing rules after the fact. The reality is that there are all kinds of ways that the spirit of rules get contravened — I’d say that Robidas Island is a good example of that in fact.

        I wouldn’t be surprised if Gillis had a few good relationships with others in the NHL but he clearly isn’t and wasn’t part of the Old Boys Club. Whatever mistakes Gillis made — especially on the development side of things — there is no way he is anywhere near as bad as a whole lot of others who’ve had multiple kicks at the can of being either a GM or coach. Maybe it’s that he doesn’t want a job again but his lack of opportunity after leaving here makes me think that there’s something to the rumors that he wasn’t well liked in the league.

        • Matthew_D

          I got a chance to know Mike Gillis a little bit a couple of years ago and I have an incredible amount of respect for the man. He’s one of the most thoughtful and intelligent people I’ve ever met. It also doesn’t surprise me at all that he hasn’t worked in the NHL since the Canucks. He doesn’t have any time at all for the Old Boys’ Club and he can be… abrasive.

          • wojohowitz

            What`s not mentioned here is that Gillis, as a player agent, had a reputation for leaking information to media favourites (like Tony G) whenever it suited his purposes and GMs with memories of unwanted pressures to sign players kept those opinions of Gillis after he joined their club.

          • TheRealPB

            Gillis was exactly the GM we needed at that particular time — it was taking an excellent core and adding to it and improving all kinds of things on the pro side. It wasn’t coincidental that this became a destination for a lot of good free agents. The problem became too much overreaction to the SCF loss in terms of what kind of team this should be coupled with an inability to bring in much in the way of reinforcements through the draft and poor pro evaluations for trades. If poor drafting was the hallmark of the Canucks throughout the 80s, dysfunction in the 90s after our SCF run, the story of the last decade has been an inability by first Gillis and now Benning to properly evaluate mid-late career pros (Ballard, Booth, Sutter, Gudbranson, Eriksson). They both made some good signings but too often paid too much (either in cap dollars or NMCs) to actually achieve competitiveness.

            All that said, I’m still really surprised that Gillis hasn’t gotten another crack at it. Again, there is no way that he is even a tenth as bad as a Chiarelli or a number of the GMs in the league

    • Personally, I think the whole recapture penalty is totally fair because it forces GM’s and players to sign legitimate contracts. The only teams that are punished are the ones that tried to engineer a front-loaded, long-term contract that had no intention of completing for the purpose of circumventing the salary cap.

      If both the player and team truly believed that they would fulfilled the contract, there is no penalty. This should be the case with every contract. If the player cannot complete the contract due to injury, the player goes on LTIR and there is no penalty. It’s only if the player retires at a certain point before the end of the contract (e.g. when the salary mysteriously drops to $1M per year) does the recapture penalty kick in to offset the obvious benefits of failing to complete the contract. I highly doubt a player will try to incur a career-ending injury to help a team avoid the recapture penalty. Moreover, the use of a neutral physician for a second opinion eliminates the possibility of faking an injury.

      At the end of the day, the only teams that get burnt are the ones that thought they could cheat and circumvent the salary cap by which all of their competitors were abiding.

      • Killer Marmot

        The Canucks were not cheating when they signed the Luongo contract. They were following the rules as laid out at the time. If there were loopholes in the 2005 Collective Bargaining Agreement that teams took advantage of, that’s the fault of the league, not the teams.

        • Whether one thinks Gillis and Gilman were cheating is subjective. I wasn’t implying anything.
          What I was saying is that any team that offered a long-term contract in good faith has nothing to worry about, whether it be Vancouver, Chicago, New Jersey, NYI, Minnesota, Nashville, Detroit, NYR, etc. Early-retirement on a long-term contract is clearly a loophole that the league denied/penalized with Kovalchuk and shutdown with the current CBA.

          Looking at Kovalchuk’s contract, it was pretty suspicious/obvious why New Jersey was offering to pay sub-$1M through the age of 38-44. One can see how the AAV dropped from $6M from $8.95M. Contrast that with DiPietro’s 15 year deal that was $4.5M per year from start to end.

          • Killer Marmot

            It’s not subjective. They weren’t cheating, plain and simple. Gillis and Gilman broke no rule.

            Some might have found it distasteful, but that’s not the same thing.

          • It depends on one’s definition of “cheating”. If an action does not violate a rule but violates the spirit of a rule (i.e. exploiting a loophole), is it cheating? Look at the Oxford and Cambridge definitions of “cheating”:

            Oxford: “Act dishonestly or unfairly in order to gain an advantage.” or “Gain an advantage over or deprive of something by using unfair or deceitful methods; defraud.”

            Cambridge: “To behave in a dishonest way in order to get what you want:”

            Neither Oxford or Cambridge reference a violation of rules but focus on “dishonesty”.

            Cambridge defines “dishonesty” as “not honest” which leads to the definition of “honesty”: “Telling the truth or able to be trusted and not likely to steal, cheat, or lie.” (Ok, that was a bit of a circular argument.)

            Oxford defines “dishonesty” as “Deceitfulness shown in someone’s character or behaviour.” or “A fraudulent or deceitful act.”

            I do not agree with the Urban Dictionary’s definition of “creative problem solving”.

      • Matthew_D

        There are a few issues with this approach.

        First is with your assessment that these contracts were “cheating”. While I think it was perfectly reasonable to close the back-diving loophole in the 2013 CBA, such contracts were permissible under the 2005-2006 CBA. They broke no rules. Punishing people, or corporations, or sports teams, retroactively for doing things that were permissible under the an agreement, just because it exposed flaws in that agreement, isn’t good policy and can end in a lawsuit, as I discussed above.

        Regarding punishing teams that signed contracts in bad faith, without intending the player to complete the contract – if I were representing the team, all I’d say in response is: Prove it. The league had the ability to reject bad-faith contracts, and did so with New Jersey’s first attempt to sign Kovalchuk. They approved other back-diving contracts, including Luongo’s. This would make it extremely difficult for the league to then argue, after the fact, that the contract was signed in bad faith and that it should not have been approved, since the league already vetted the contract and signed off on it.

        Further, there’s a difference between recognizing that a player may not play out the full contract, and intending a player not to. This was, I believe, part of the league’s rationale in rejecting the initial Kovalchuk contract. In Luongo’s case, or in the case of Zetterberg, for a similar contract signed at a similar time, it’s possible that either player could have stopped playing after a year, or two years, or three, either for injury, or as Kovalchuk did, because he absconded to the KHL, or just because he got bored of hockey and decided to pursue other interests. The longer a contract extends, the more likely it is that a player doesn’t play it out. That doesn’t prove that neither side intends to play out the contract. The Canucks would likely argue that Luongo’s contract back-dives because of his expected decline in play and shifting role with the team, as he moves from starter to backup over his late-30s and early-40s, but that they intended to play him for as long as he was able to play. Luongo would likely say the same thing – he’s a highly competitive guy who loves hockey, and from the interview he gave a few weeks ago on 31 Thoughts, it sure sounds like he wants to play out his contract, he just might not be physically able.

        • For the contracts that we’re signed prior to the current CBA, yes, there is an issue of having the league prove that there is bad faith. Given how incredibly inconsistent and/or ineffective the league is at dealing with serious issues, good luck. That’s a whole other can of worms.

          Hossa’s contract was not quite as extreme as Kovalchuk but it is arguable that New Jersey was singled out despite the number of copycat-lite contracts that came out afterwards. It’s arguable that Luongo’s contract was more reasonable because good goaltenders can play longer. Just look at a guy like Hasek, Roloson, Brodeur, Burke, Thomas, Joseph, Khabibulan, or Belfour, they easily played until they were 40+.

          But the point that I’m getting at is that the recapture penalty eliminates the need to prove anything, bad faith included. If the player simply stops playing without good reason (i.e. injury), the recapture kicks in. After all, if the contract was in good faith, the player wouldn’t stop playing if healthy.

    • I agree with Matthew_D. The recapture penalty is all because of New Jersey and Kovalchuk. There was no controversy when DiPietro signed his 15 year deal several years before Kovalchuk. It was just a matter of time to wait for the existing CBA to expire. If the league really hated Gillis, they could have stripped us of draft picks, demoted our draft picks, or fined us but they didn’t.

  • El Kabong

    If memory serves me the first Luongo contract was rejected by the league. The Canucks modified it slightly, I think they dropped a couple years at the end off, which brought the AAV up a little. They were within league rules but I think Bettman felt butthurt and told the Canucks to redo the contract. They only did slight changes to length of term so Gary knew he’d get them later and may have even told them.

  • KGR

    Another well written article Mr Biech. Have often wondered if the Canucks consented to the language around back diving contracts or fought it. I suspect the league will be looking for a solution to this as well. It doesn’t look good taking punitive action against one team.

  • IF

    Great article. Considering how Bettman and the league have treated the Canadian markets as second class citizens, I would enjoy seeing them looking at a law suit from the canucks on the recapture rule.

  • Kanuckhotep

    Absolutely the best and most informative article I’ve read to date on CA. The whole Luongo situation is no simple thing but damned interesting with much room for debate, discussion and theorizing. It’s far beyond what Gillis or Benning could have done or can do with Bobby Lu’s impending next move. But like everything else in this modern world you lawyer up and see where the chips may fall.

  • argoleas

    If Luongo looks like he’s done, and Florida is not interested in incurring any headaches associated with LTIR, then I could see his contract headed to another cap floor team, like Ottawa. But in any case, Luongo will “retire” on LTIR, somewhere.