After a little alcohol, and a lot of Golden Tee, my friends convinced me to post a blog that further explains my comparison of the NHL’s collective bargaining agreement to the Condominium Act, specifically, how those-in-charge have found a way around the intended rules…
If you don’t watch NHL hockey, then you might not care about this blog post.
Although, if you don’t care about real estate, then you might not care about this blog post either.
But if you don’t care about real estate and you don’t care about NHL hockey, then I have to ask: how the hell did you find yourself reading a blog that compares NHL and real estate in the first place?
Last week, I made a rather quick and rather unexplained comparison of the National Hockey League (NHL) and their collective bargaining agreement to the Condominium Act (1998).
My general sentiment was this: the NHL general managers (ie. those in charge and responsible for running NHL hockey teams) spent two years learning the NHL’s new collective bargaining agreement, and eventually, learned how to turn it on its head, exploit it, and operate outside the rules as they were originally intended. I compared these actions to how condominium developers in Toronto have learned the Condominium Act inside and out, and have figured out how to exploit consumers, and essentially rule without interference.
Before we delve into the Condominium Act, allow me to explain the NHL’s CBA, and the problems that arose once general managers became wise to the game…
After the NHL’s lockout in 2004-05, the NHL Player’s Association (NHLPA) and the owners of the 30 NHL teams negotiated a new Collective Bargaining Agreement (CBA) that outlined how they would proceed, in a partnership, for the next six years, with the NHLPA having the option of extending the deal into a 7th year, which they did.
The CBA not only outlined the partnership between the NHL and the NHLPA, but also how the teams would govern themselves, and how they would conduct their actions. The CBA outlined all financial parameters, including a salary cap that every team would follow, and rules regarding contracts for individual players, in addition to the team’s overall salary.
The NHL and the NHLPA agreed that the player’s share of overall revenue would be 54% of the $2.2 Billion “‘pie,” and upwards of 57% if that pie increased to $2.7 Billion. That meant that the maximum salary allowed per team, ie. the salary cap, would be $39 Million to start the CBA in 2005.
However, the CBA specifically stated that no player shall receive a contract of more than 20% of a team’s overall payroll, in any given year.
That contract would be evaluated in terms of the “average” amount of any contract signed, aka the salary cap “hit.”
At the onset of the CBA in 2005-06, the league’s salary cap was $39 Million, meaning that the maximum that any NHL player could make was $7.8 Million on “average.”
For example, a player receiving a 5-year, $25-Million contract would have a “cap hit” of $5 Million, no matter how the payment was structured. If that player received $10 Million in the first year, and yet a paltry $1 Million in the last year (with the other $14 Million divided between years 2-4), the total “cap hit” would still be the average of $5 Million per year.
The rule was put in place for good, not evil.
But it didn’t take long for NHL general managers to learn the rules, examine them, and eventually – exploit them.
NHL general managers eventually realized that they could sign players to really, really long-term deals that neither party had any intention of honoring, and spread the money around over the course of those deals to minimize the overall “cap hit.”
If a player signed to a 5-year, $50 Million contract, his salary cap “hit” would be $10 Million. But if that player was signed to a 10-year, $60 Million contract, then the cap hit would only be $6 Million, and the team could pay the player as much as they wanted up front in the first few years.
For example, they could pay the player $12 Million of the $60 Million in the 1st year, and the league minimum – $550,000, in the 10th year. But overall, the average, or the “cap hit” would remain $6 Million, and that is the number that would count against the $39 Million salary cap in 2005-06, or the $64.3 Million that the number rose to in 2011-12.
General managers started to sign players to contracts that they knew the players had no intention of fulfilling. You don’t sign a 30-year-old player to a 15-year-contract when the oldest player in the NHL is 38-years-old. That signed-player has no hope in hell of playing in the NHL at age 45, but the GM’s who orchestrated the contracts knew this all along, and used it to their advantage.
GM’s knew that the players would retire before the end of their contracts, and they could “buy out” the remaining years of the contract, which were usually far less in amount than the previous years.
In July of 2010, the New Jersey Devils agreed to terms with star forward Ilya Kovalchuk on a contract worth $102 Million over 17-years.
The contract was set to pay Kovalchuk the following:
2010 – $6 M
2011 – $6 M
2012 – $11.5 M
2013 – $11.5 M
2014 – $11.5 M
2015 – $11.5 M
2016 – $11.5 M
2017 – $10.5 M
2018 – $8.5 M
2019 – $6.5 M
2020 – $3.5 M
2021 – $750,000
2022 – $550,000
2023 – $550,000
2024 – $550,000
2025 – $550,000
2026 – $550,000
The average salary per season would be $6 Million, which is what the “salary cap hit” would be in this contract.
Ilya Kovalchuk would be 43-years-old in 2026, and likely not anywhere close to playing hockey. He could have retired in 2020 with six years left on his contract, at the age of 37, and made all but $3.5 Million of his $102 Million contract.
The New Jersey Devils did not sign this contract in good faith, nor did Kovalchuk himself. The Devils knew that Kovalchuk would likely retire in his late-30’s, and they would reap the rewards of his modest $6 Million “cap hit” for as long as he played, and they could work around the salary cap as it was intended.
In the end, and after the involvement of lawyers, mediators, and arbitrators, the NHL voided this contract, but not before many other players had been signed to similar deals.
New York Islanders’ goalie, Rick DiPietro was the first player to take advantage of the CBA’s exploitation in 2006, when he signed a 15-year, $67.5 Million contract with a tiny annual cap hit of $4.5 Million. unfortunately, Rick DiPietro turned into a pumpkin, and his team will be paying him a decade into his forced retirement.
Roberto Luongo was signed to a 12-year, $64 Million contract with a cap-hit of only $5.33 Million per year, but he would be 43-years-old in 2022 when the contract expires and he’s being paid the league minimum.
Jeff Carter, Vincent Lecavalier, and many others have cashed in on this ridiculous circumvention of the NHL’s intended salary cap.
Boston Bruins’ forward Marc Savard will be forced to retire due to concussion issues, but will be paid $20 Million++ as he sits at home, and his remaining salary will NOT count against the salary cap.
So what is the point of this story?
Why am I writing 1,200 words about the NHL on my real estate blog?
Because I think the comparison between the NHL general managers working around the CBA and Toronto condo developers working around the Condominium Act is a fantastic comparison, and I think it shows the need for reform.
The National Hockey League renegotiates its CBA every 5-6 years, and for good reason: times change. The league changes, the economy changes, and the sport changes.
The same goes for the condominium industry in Toronto.
The Condominium Act is 15-years-old now, and it needs reform.
Developers in Toronto, as I have argued time-and-time again, have run-amuck and essentially taken charge of the entire industry as they rule completely unchallenged. Any rules and regulations put in place in 1998 to that were intended to protect consumers have been worked around, and picked apart.
A condominium developer in Toronto, under the Condominium Act, can set up shop and begin to sell and take deposits on an “idea” of a condominium that could be built, regardless of whether or not he has approval from the City of Toronto, and regardless of whether or not he has financing for the project.
A condominium developer in Toronto could conceivably delay construction for hundreds of years, so long as the developer continually serves the purchasers with the appropriate documentation to extend all the dates that are outlined in the original agreement.
A condominium developer in Toronto could change almost any concept, amenity, or feature of a condominium building or individual unit, according to the original contract that contains the phrases “subject to change without notice” and/or “more or less.”
The Condominium Act is out of date, and has been exploited by every developer in Toronto.
It’s time that the Act is updated, but I don’t know how we, as consumers, can facilitate this change.
As I mentioned last week, Rosario Marchese is trying to enact legislation in Ontario that will protect consumers, and re-open the Condominium Act. The Condominium Owners Protection Act would help to protect condominium buyers – specifically, those naive first-time-buyers who are most often hurt by the industry’s practices, but it would also help to create a tribunal that would hear disputes between owners and developers, which would presumably be in session 24/7, 365, for the rest of time…
Are we really at the point where the condominium industry is so bad that it’s taking a provincial politician to enact “consumer protection” legislation?
Yes. Yes, we are.
If you’re a hockey fan, then I think I just totally convinced you that the Condominium Act needs to be reformed.
And if you’re a condominium fan, then perhaps you should take an interest in the business of hockey…