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Getting to Know the CBA Episode 18: Article 26

Stevie Roxelle - @stevieroxelle - Biscuit Fox

When we last did one of these, we got a two-fer, as we looked at articles 24 and 25. Today we're only going to go over one article and it's kind of an important one.

Let's get started

You can find the entire CBA here (PDF)

Article 26: No Circumvention

When putting together a CBA, it's important to remind people the stakes to make sure they take the rules and the spirit of the document seriously. That's where this article comes in, which lays out the punishments available to teams and players who try to dodge the rules.

I'm going to lay this out up-front because the question gets asked pretty often "what happens if a team simply chooses to disobey the Cap/Roster Limits?" - The answer is that it's deemed a circumvention and the punishment for doing so would be severe. If a team thinks they simply don't like the options available to them to become compliant, they're in for a world of hurt because they're going to like the punishment for refusing those requirements even less.

The article tries not to get too specific, but there are a lot of ways to try and cheat the system, so there are a lot of concepts it goes over. Let's go section-by-section (26.1 basically says what this paragraph did, so we'll start with 26.2)

26.2 - Undisclosed Terms & Revenues

Clubs, players, or anybody even tangentially related to the NHL may not enter into secret "side" agreements of any kind which trade goods and services for other goods and services. It's as simple as that. Players may only be compensated by clubs based on the language of the SPC and the CBA. Anything else is specifically prohibited.

26.3 - Circumventions

Nearly three full pages of text here to reiterate that defeating the CBA is not allowed. There's some great catch-all language in here which lays out that no Club, Club Actor, Player, or Player Actor can enter into any kind of transaction, take any action, or fail to take any specific action which is either intended to or has the effect of defeating/circumventing the provisions of the CBA. This section also lays out that Clubs and Players are responsible for the actions of those who have authority to act on their behalf. Any Club employee breaking the CBA would constitute that Club committing the act. Neither side may use an intermediary third party in an attempt to get around this either.

The only difference is that a player isn't specifically responsible for knowing that his perfectly legit contract is intended to circumvent the CBA unless there's good reason for him to know. There's a pretty narrow window for understandable ignorance there though.

Again, the article clarifies that players can make money outside of the CBA through endorsements or other work, but they may not be paid by a Club or Club Affiliated Entity for any purpose. Little Caesars may not pay Brendan Smith to sell Crazy Bread for them because it opens everybody up to questions about circumventions. He could appear in an Arby's commercial and sell fresh, delicious turnovers if he'd like, but Arby's can't be paid by the Wings to pay a player for anything because that's cheating.

There are some sensible ways for teams to give gifts to players, but each of those has to be cleared by the league first (for example, when Tomas Holmstrom was given a snowmobile for his long-standing service to the Wings, they got special permission to do that).

26.4 - Circumvention by NHL or NHLPA

If the NHL or NHLPA engages in any of the conduct prohibited by 26.3, it's a no-no. They are allowed however to advise their constituents as to whether an action they wish to take would comply with the CBA.

26.5 - Circumventing Activities of Individuals Who Subsequently Become Players

Boiling this down: you can't break the CBA to convince a guy to become an NHLer for your team and then pretend like it wasn't a circumvention.

26.6 - Prohibition Against Payments to Certified Agents

Obviously players are allowed to do this. Clubs/Club Actors may not.

26.7 - Disclosure of Agreements

Anybody who learns of a circumvention or information which reasonably leads to the inference of a circumvention has the "affirmative obligation" to reveal the facts to the league. Failure to do so counts as a circumvention in itself.

26.8 - Required Annual Certifications

Agents have to certify every year that they haven't violated the CBA and promise that they won't, also that they accept the system arbitrator's jurisdiction in terms of deciding on circumventions. The NHLPA is responsible for punishing agents found to have violated Article 26. The same certification requirement applies to club GMs, CFOs, Club Presidents, and Governors

26.9 - Violative Findings

If a club tries to register a contract that would take them over the cap, then regardless of whether it was otherwise a circumvention and regardless of whether the contract is registered, the club will be fined $25,000

26.10 - Investigations

The Commissioner and the Executive Director of the NHLPA may start an investigation into a circumvention of their own accord given they have reason. The investigation may not be limited by previous acceptance of facts (the registration of a contract or the issuance of an HRR report by independent accountants). The investigator can get permission by the System Arbitrator to gather necessary confidential records relating to his investigation (including tax returns, emails, phone records, etc.), provided that confidentiality remains.

When the investigation is over, the Investigator will issue a written determination as to whether a circumvention has actually occurred. This determination isn't binding, but will be relied upon by the System Arbitrator when it comes down to brass tacks.

There is no statute of limitations on investigating circumventions, nor will the failure to investigate be considered a circumvention.

26.11 (untitled)

The NHL and the NHLPA may each file a complaint directly with the System Arbitrator, subject only to the provision of Section 26.13

26.12 - Joint Discussions on Possible Circumventions

Once an investigation is complete, the side doing the investigating notifies the other side of the findings before filing his report. Both parties will meet and try to resolve the matter without involving the System Arbitrator. If no resolution is found, then the findings are filed and it moves forward to that step

26-13 - Enforcement by the System Arbitrator

If both sides can't agree on a resolution, the complaining side has two days to file with the System Arbitrator, at which point things move forward. The S.A. may use direct or circumstantial evidence to decide whether a circumvention has occurred; the prior findings of Investigators will be fully admissible in the arbitration. If the System Arbitrator finds that a circumvention happened, here's the list of punishment options available.

  • A fine up to $5M against a Club (and of no less than $1M in cases of an Article 50 violation). The fine amount is deducted from that team's payroll room for the next season as well.
  • A fine for a player of either $1M or 25% of his salary (whichever number is smaller). In no case may the fine be below the lower number of $250,000 or 25% of the Player's salary. Notwithstanding the fine, the player will also have to forfeit whatever kind of dirty, seedy money he received which created the circumvention.
  • The loss of draft picks for a club (although the number of picks, placement of picks, and year(s) of picks will be decided at the Commissioner's sole discretion).
  • A forfeiture of games deemed to have been affected by a circumvention.
  • A Club may be directed to disclose to the Independent Accountants all information required in this disagreement (an obvious direction in the case of a circumvention caused by a Club failing to disclose information).
  • The voiding of an SPC or contract extension when both the Club and Player were found to have acted in bad faith in respect to Article 26 (an example being the Kovalchuk contract which was canceled by the league under the last CBA).
  • The suspension of any player, club employee or agent for a period of time to be determined by the Commissioner, the System Arbitrator, or the NHLPA, respectively.
It's important to note that this is the list of potential decisions by the System Arbitrator. If both sides can agree to different punishments under section 26.12, they don't necessarily have to follow these guidelines.

26.14 - Fines

Fines levied pursuant to this article which are paid by Clubs/Club Actors go to the Emergency Assistance Fund while Player/Player Actor fines are paid to the National Hockey League Foundation.

26.15 - Examples of Circumvention

This section is a non-exhaustive list of examples of circumventions. There are 11 total, many are made obvious by previous discussion in this article. I'm going to lay out only the subtle ones, skipping over "a club exceeds the upper limit" stuff.

  • A Player sponsors/endorses a company that also does business with his club and is paid a disproportionate sum for such sponsorship/endorsement (beyond the fair market value of such an agreement).
  • A Club and Player agree to a payment made to that Player after he retires.
  • When a player can be compensated for helping the team through a promotional appearance, that player is either vastly overpaid or is paid for a job he didn't actually perform (a "no-show" job).
  • A Club receives money for the sale of tickets which were "complimentary" or doesn't report sales from a ticket window.
  • A Club has an agreement with a Club Affiliated Entity to broadcast or otherwise present footage of NHL games which pays below market value

26.16 (Untitled)

If a government entity imposes a payroll tax on Player income, which tax proceeds are transferred, by statutory mandate, directly to the employing Club, the amounts so directly transferred to the Club shall be returned by the Club to the taxed Players.

- - -

That's it for this week. Next time we'll tackle the mysteriously absent Article 27 and probably Article 28, which wasn't intentionally omitted from the CBA.