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:

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?

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:

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.

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.

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.

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.