The NHL Collective Bargaining Agreement and prospect retention: Part I

By David A. Rainer

Although the current National Hockey League Collective Bargaining Agreement is expiring in September, there are some aspects of it that will likely be carried over into the next version strictly out of necessity. Foremost of these are the various clauses that regulate the distribution of new talent to the member franchises and provide a means to retain the players selected in the Entry Draft. Such clauses are absolutely essential to the financial stability of some organizations and are lobbied for and closely analyzed by these organizations.

While the debate rages over a possible salary cap in whatever form the new CBA will take, sections impacting the Entry Draft, entry-level compensation and the reserve system are in some respects just as important for the stability of the league. Although fans often discuss specific provisions and how they affects their favorite players or team, few understand the underlying reasons for these provisions and precisely how they work. Below is a crash course in the CBA as it relates to prospects.

Introduction

In 1890, Congress passed the Sherman Anti-Trust Act, designed to break up the monopolistic trusts that were choking competition during the 19th century. At its base, the Act makes illegal any combination or cooperation between two or more entities in an effort to reduce competition. Arguably intended only to apply to owners, the subsequent case law in the wake of the Act’s passage brought employees, in the form of labor unions, within the grasp of the Act and made labor strikes a violation. However, Congress could not ignore the practical need for labor organizations and passed the National Labor Relations Act (“NLRA”). The NLRA and its progeny opened up a whole new area of law – labor law – which exempted labor organizations from the Sherman Act and is used to regulate the interaction between employer and employee.

At the heart of this regulation, and central to labor law, are collective bargaining agreements – the “guidelines” for the employment relationship. These agreements detail everything in the relationship between employer and employee: wages, hours and/or working conditions. A CBA is the final agreed upon product of all the “wheeling and dealing” concerning the conditions of employment and will be enforced over anti-trust legislation because of the NLRA. Congress felt that there is a public need in allowing businesses and employees the freedom to work out employment issues on their own without Federal involvement so long as basic thresholds of fairness and good faith are met. From this, the NHL’s CBA is the basic framework for the employment relationship between the member franchises of the National Hockey League and the players. Let us take a closer look at these provisions and how they operate.

Entry Draft and Compensatory Picks

The NHL Entry Draft is the system by which the rights to new prospective players are assigned to the 30 organizations and is outlined in Article VIII of the current CBA. The order in which the teams select players is determined by the reverse order of regular season winning percentage with three caveats: (1) the Stanley Cup Champion makes the last selection in the first round; (2) a lottery drawing is held to move one non-playoff team up the list no more than four positions; and (3) various compensatory picks are awarded and inserted into the draft order starting with the second round. From this system of selection, an organization’s farm system and roster is stocked with new prospects.

The NHL draft lottery is held much like the NBA’s famed ping-pong ball lottery. Each non-playoff team is assigned a certain amount of chances to win the lottery based upon their record in the regular season. All the chances are pooled together and a single organization is drawn. The draft selection of the winning organization is moved up no more than four spots. The Washington Capitals are the most recent winners having leap-frogged the Pittsburgh Penguins into the No. 1 overall position for the 2004 Entry Draft.

In addition to an organization’s base number of selections are various compensatory picks awarded by the league or transferred from another organization (see “Restrictions on Free Agency” in Part II). In Article VIII, § 8.3, the league awards additional draft selections for the loss of unsigned first round draft choices and for the loss of Group III free agents. Each type of free agent is categorized into “groups” and subject to different guidelines depending upon the group of the player. The compensatory pick for an unsigned first round draft choice is a second round draft choice in the same position in the round. For instance, the loss of the 15th overall selection will result in a compensatory pick of the 15th selection in the second round. This is designed to ease the burden of losing top draft picks for whatever reason – from injury to the inability to sign. This also gives the drafting organization some leverage when trying to sign the first round pick as the compensatory pick can be used as a fall-back alternative to signing the prospect.

The league also awards picks for the loss of Group III free agents. At the conclusion of a season, the league assigns “points” to each Group III free agent from the prior season based upon several considerations including, but not limited to, whether the player was an Allstar, captain of his team, won the Stanley Cup, won an offseason award, and signing salary. Once all the points are awarded, the points are totaled up and each Group III free agent is ranked based upon his points and divided into tiers. There are two instances where an organization is awarded a compensatory pick: (1) the sum of the points of all Group III players lost by an organization exceeds the sum of the points of all Group III players gained during the offseason; or (2) a player from one tier is lost without gaining another player from an equal or greater tier. Based upon this formula, various compensatory picks are doled out to the franchises. This is designed to ease the burden of losing some of an organization’s top players, sometimes as a result of financial constraints.

Now that the Entry Draft and compensatory pick program has been outlined, how do these various clauses fit together and what purposes do they serve? As previously stated, the Entry Draft is the mechanism by which prospective players are assigned to NHL teams. The system is necessary to ensure a fair distribution of new talent. If new prospects were permitted to sign with any organization of their choosing, those organizations with the highest quantity of resources at their disposal would be able to out-bid all other organizations for their contractual rights. This would ultimately result in a self-perpetuating tier effect to the league – those organizations with the most resources can horde all the new, top talent and dynastically entrench themselves as the top NHL teams year after year. An Entry Draft system is the essential cog to league parity.

Compensatory picks work in a similar fashion. There often is a balance struck between the loss of free agents on the one hand and the acquisition of draft picks on the other. The acquisition of picks is often the trade-off or alternative to signing expensive free agents. In an effort to balance the competitive scales between those who can and those who cannot afford the top players, draft picks are used as a sort of currency. As explained in an earlier article, there are numerous economic advantages to drafting and developing an organization’s own draft picks. The more picks an organization can acquire, the more of an economic advantage it might be able to derive. As such, picks are awarded by the league to help maintain league parity if only for economic considerations.

The Reserve System

Workers in general are free to contract with whomever they desire so long as it does not violate other public policy. However, as explained above, allowing NHL prospects to freely contract with any organization will have a severe adverse effect on the competitiveness between organizations of the league. As a result, one issue that has been collectively bargained for is the reservation of exclusive negotiating rights to an organization over drafted prospects for a period of time. That is, any player that is listed on an organization’s reserve list is prohibited from negotiating a player contract with any other organization. Their rights have been assigned to that organization and that organization only. But the reserve system is not absolute and is subject to limitations on the length of time an organization can keep the exclusive rights to the player. The system and limitations are outlined in Article VIII, § 8.6 of the CBA.

Basically, the reserve system divides draftees into three groups – those drafted out of major junior hockey, those drafted out of the NCAA, and all others who don’t fit into either of the other two categories. There are different rules for each group and should be looked at separately.

Junior Players
For players that are drafted out of the junior hockey league system, an organization has the exclusive negotiating rights over the draftee for a minimum of one year, expiring on June 1, two years after selection. This is outlined in § 8.6(a). If the organization makes a “qualifying” offer to the draftee within that one year and is rejected by the draftee, the organization still retains the draftee’s rights for an additional year. A “qualifying” offer is one that meets the requirements of Article IX as explained in Part II in the section on Entry Level Compensation.

NCAA Players
For players that are drafted out of the U.S. college hockey system, an organization has the exclusive negotiating rights over the draftee for as long as the draftee remains in college. This is outlined in § 8.6(b). There are two instances where a player will cease being considered a college hockey player – he graduates from college or he leaves college early. Each instance is handled differently.

A college hockey player that graduates is still assigned to the organization for at least 180 days plus the remainder of time until the next June 1 following his graduation. That is, following graduation, an organization has exclusive rights to the player for at least 180 days and will continue until the next June 1. In illustration, if a player graduates on December 1, 2003, his exclusive rights are assigned until June 1, 2004 (180 days plus the remaining days until the next June 1). However, if a player graduates on February 1, 2004, his exclusive rights are assigned until June 1, 2005 (180 after February 1 will put him past June 1, so his rights carry over until the next June 1). After that time, if a player remains unsigned, he becomes an unrestricted free agent.

”Van Ryn Loophole”
The real confusion occurs where a college player leaves college early to join a junior hockey team or sign with his NHL drafting organization. Which set of rules apply to players in this state of flux? In fact, the rules are so incongruent that Mike Van Ryn has infamously carved out a loop-hole that grants free agency to some players shortly after leaving college early.

Again, a college player is subject to the reserve list rules of § 8.6(b) for as long as he remains a college player. Once he leaves college hockey prior to graduation, he is no longer subject to the requirements of § 8.6(b)(i). When a college hockey player leaves college early, he has two options: request a contract from his drafting team or wait until the June 1 where he is no longer on the reserve list. If he requests a contract from his drafting team, the team has 30 days to tender a “bona fide” offer (one that meets the requirements of Article IX) to the player or lose his rights altogether. If a bona fide offer is made, the team retains the player’s rights until the second June 1 after the year he was drafted in.

However, often a college hockey player is more than two June 1’s removed from his draft year. If a team can retain his rights, at the most until the second June 1 after his draft year, what happens when a college player leaves college three or more years removed from his draft? On the one hand, he is no longer subject to the guidelines for college hockey players because he left college early. On the other hand, he has passed the number of years a team can retain junior hockey players’ rights. This is now called the Mike Van Ryn loop-hole. A college player who leaves early but does not accept an offer from his drafting team is free to sign with anyone after the next June 1. Often, a player would leave college, join a junior hockey club and wait for his time to expire, making him a free agent. The OHL has tried to close this loop-hole by not allowing such players into the league. However, the defecting college player can still hold out, not play at all until June 1 and become a free agent.

Summary

These, often complex, guidelines for the retention of exclusive negotiating rights with drafted players are essential to the Entry Draft system and provide NHL organizations with a little more leverage when bargaining with their prospects. To effectuate the policy of league parity through the Entry Draft, the Reserve System is essential. Organizations need a guarantee that they will have the opportunity to sign their drafted players or there is no need to even hold an Entry Draft. The Reserve System assigns the exclusive negotiating rights of a drafted player to the drafting organization for a delimited time.

Both sides have interest in this system being maintained – organizations have a competitive need for a system of assigning players to the member franchises and players have in interest in ensuring the financial viability of the league as a whole. Therefore, players are willing to concede some of their freedom to contract in exchange for a limited assignment to member franchises.

In short, while the Entry Draft is the procedure by which talent is distributed to the organizations, the Reserve System is the manner in which the equitable distribution is enforced. Without the Reserve System, the Entry Draft is a bark without a bite.


Copyright 2004 Hockey’s Future. Do not duplicate without written permission of the editorial staff.