Signing new talent: How the entry draft system works in the National Hockey League

Published 01 June 2016 By: Ryan Lake

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Sport leagues around the world have instituted different processes to allow players to join member clubs. The largest sport leagues in the United States and North America including, National Football League ("NFL"), National Basketball Association ("NBA"), Major League Baseball ("MLB"), and the National Hockey League ("NHL"), all utilize an entry draft system to allocate young and eligible players to their respected clubs. This process and operates in a very different manner than European sports and in particular in European football. This blog explains the general concept of an entry draft, examines how it works in the NHL and outlines the rights of the teams and players.

 

General Concept of a Draft System

The entry draft systems used by each of the U.S. major leagues differs and is articulated in their respective collective bargaining agreement. While the entry draft processes differ, the general idea is the same. The goal of the entry draft is to provide the leagues with an organized and fair way to allocate young and eligible players equally among the member clubs of the leagues.

 

NHL-NHLPA Collective Bargaining

The NHL’s entry draft process is governed by the current NHL–NHL Players Association (“NHLPA”) Collective Bargaining Agreement (“CBA”). In 1935, the United States Congress passed the National Labor Relations Act (the “Act”), which guarantees basic rights of private sector employees to organize into trade unions, and engage in collective bargaining.1 Under the Act, the terms that are agreed to during the collective bargaining process are to be codified in a CBA. The terms that are subject to collective bargaining under the Act are those items that affect or relate to the wages, hours, and working conditions of the employees.

In the U.S. sports context, the entry draft dictates which team will hold exclusive rights to a player for a defined period of time. The player has very little power to control which team selects him during the entry draft. The labor law ramifications of such a process are clear, especially if you analyze the same process outside of the sports world.

Executive Directors of the sport unions have long opined2 on the concept of an entry draft and whether or not any other industry would stand for such a mechanism. Imagine if medical doctors were subject to an entry draft, upon graduation, which would dictate which hospital they work for and how much they are to make for their first few years in the profession. Doctors, would likely find the process very not attractive, however in the North American sport context, the concept of an entry draft is well accepted. Additionally, in the medical industry or any other industry other than sports, the concept of an entry draft would likely be found to be in violation of the Anti-Trust laws of the U.S.. The sports industry has traditionally been treated differently under the Anti-Trust laws, and in some situations the industry is exempt from the regulations altogether. Please see the Lawinsport.com article “Baseball’s Anti-Trust Exemption: Is it time for a change,” by Jonathan Gordon for more information on the history of the application of the Anti-Trust laws in the U.S. sports context.

While the sport leagues, have been able to institute some potentially anti-competitive processes the leagues must still comply with the labor laws. As discussed earlier, it is clear that the entry draft has a large impact on a player's wages, hours, and working conditions, and, therefore, is clearly an important aspect of each leagues CBA.

 

NHL Entry Draft

The NHL’s entry draft, in accordance with the NHL-NHLPA CBA, is an annual gathering of the 30 NHL clubs, where each club is provided the opportunity to select an eligible player, as defined within the CBA. The order in which the clubs make their respective selections in the draft is determined by a combination of the regular season standings, playoff results, and a weighted lottery.3 Generally, the best teams are not allowed to make their selection until later in each round; and the 14 teams that fail to make the playoffs are entered into a lottery to determine the draft order for the first 14 selections of the draft.4

During the draft, each club is allowed to select a player in each of the seven rounds, unless the club has traded away or acquired the rights for a particular draft selection, in agreement with another club.5 Under the NHL CBA, a club may transfer or trade the rights to a player, including any applicable playing contract, or draft choice, to another club. Trades are a very common event in the NHL, please see the complete list of trades that occurred during the 2015-16 season.

To illustrate how a trade works let’s examine one of the biggest trades that occurred during the 2015 entry draft. On June 26, 2015, the first day of the two-day draft, the Colorado Avalanche and the Buffalo Sabres agreed to a deal. The Avalanche traded two players, Ryan O’Reilly and Jamie McGinn, who were under contract, to Buffalo. In return, Colorado received three players, (Nikita Zadorov, Mikhail Grigorenko, and J.T. Compher) and a draft choice (Buffalos 2nd round pick in the 2015 draft). As this trade illustrates, teams are free to trade draft choices in exchange for current players or a combination of the two.

According to the NHL CBA,6 a team, subject to certain restrictions, is free to trade any player currently under contract with the club or who is on the team’s reserve list,7 or a draft choice allocated to the club. All trades, after they are agreed to by the teams must be submitted to the League office for approval. While the NHL reserves the right to disallow a proposed trade, the teams have a great deal of freedom to set the terms and determine the value for the assets.

Since teams are free to trade their allocated draft choices, or draft selections that they have acquired from another club in a trade, it is not uncommon for clubs to have multiple draft selections in any one round of the draft.

Once a player is drafted, the player is added to the reserve list for the drafting club.8 The reserve list allows the drafting club to retain the exclusive rights to sign the player for a period of time that varies depending on several factors such as the age and playing experience of the player.9 The exclusive rights period and the effect that age and playing experience have on the time period are codified in Section 8 of the NHL CBA.

 

DRAFT ELIGIBILITY

In order to be eligible to be considered for the entry draft, a player must meet certain qualifications, as specified in the CBA. According to Section 8.4 of the CBA a player will be eligible for claim if:

the player is 18-years-old or older except if:

  1. A player on the Reserve List of a Club, other than as a tryout;
  2. A player who has been claimed in two prior Entry Drafts;
  3. A Player who previously played in the League and became a Free Agent pursuant to this Agreement;
  4. A Player 21 or older who: (A) has not been selected in a previous Entry Draft and (B) played hockey for at least one season in North America when he was age 18, 19, or 20 and shall be eligible to enter the League as an Unrestricted Free Agent pursuant to Article 10.1 (d); and
  5. A Player age 22 or older who has not been selected in a previous Entry Draft and shall be eligible to enter the League as an Unrestricted Free Agent pursuant to Article 10.1 (d).10

Exception (i) to Section 8.4 refers to a player being on the reserve list of an NHL club. Section 8.6 of the CBA provides clarification as to what the reserve list is and requirements for a player to be considered on the list of a particular team.

The 2016 entry draft is headlined by American Auston Matthews who plays for Zurich in the Swiss National League and Finnish player Patrik Laine who is currently playing for Tappara Tampere in SM-Liiga. Matthews and Laine are projected to be the first two selections in the 2016 draft. Please take a look at the NHL’s list of top prospects eligible for the 2016 entry draft for more information on the players who will be selected this June.

 

Reserve List and Club Exclusive Rights

The NHL CBA provides exclusive negotiating rights to clubs for the players that are properly registered on the team’s reserve list. The rights of the clubs depend on a variety of factors, including the age and playing history of the player registered on the list. The NHL CBA defines the reserve list as:

The list of all Players to whom a Club has rights including all Unsigned Draft Choices, all Players signed to a Standard Player Contract (“SPC”) (whether or not currently playing in the NHL), and all Players who have signed an SPC but who have subsequently been returned to Juniors. A Club may have on its Reserve List, at any one time, not more than 90 Players, which shall include the following: (a) Not more than 50 Players signed to an SPC and not less than 24 Players and 3 goalkeepers under an SPC. Age 18 and age 19 Players who were returned to Juniors, and who have not played 11 NHL Games in one season, shall be exempt from inclusion in the 50 Player limit. Any Club violating this provision shall be liable to loss of draft choices as determined by the Commissioner. (b) Unsigned Draft Choices11 (the “Reserve List”). 

A player will be considered registered on a club's Reserve List as an “Unsigned Draft Choice,” if the player is selected by the club in the NHL Entry Draft.12 When a player is placed on the Reserve List, the club will have the “exclusive right of negotiation for the services of each player selected and registered as against all other clubs up to and including June 1 of the next calendar year following the date of his selection [in the entry draft].13

If a player on the Reserve List does not receive a "Bona Fide" offer or an offer of an SPC, subject to certain requirements, the player will be eligible to become an unrestricted free agent or re-enter the draft, depending on a variety of factors, including age and playing history.14 However, if the club does tender a Bona Fide offer to the player on or prior to June 1 of the calendar year following the date of his selection in the NHL Entry Draft, the club will retain the exclusive negotiating rights for an additional year, provided that the player was not selected as a 22-year-old re-entry player in the draft.15

While a player is on a team's Reserve List, the player will continue to play and develop their skills. The drafted player will likely play for a minor league affiliate of the drafting NHL team unless the player was playing in the Major Juniors, as defined herein, when he was drafted and is still eligible to play for his Major Junior team. Players of the Reserve List are able to play in several leagues around the world, however, if the player is skilled enough, the drafting NHL team will typically prefer to have them play for their minor league affiliate team. According to the NHL CBA the “Minors” or “Minor League” “means the American Hockey League.16

The clubs are also granted additional rights to extend the exclusive negotiating period, depending on the player's age and playing experience. For example, the clubs are allowed to, subject to certain qualifications, extend the exclusive negotiating period up to four years for drafted players who left the Major Junior leagues prior to age 20.17 The CBA defines Major Junior leagues as “the Canadian Hockey League, including the Western Hockey League, Ontario Hockey League and the Quebec Major Junior Hockey League.

Players playing in the Major Juniors range between the ages of 16 and 20 and are often considered some of the most skilled players in that age group. Additionally, Major Junior players are considered by many to be professional players, and according to the National Collegiate Athletic Association (“NCAA”) rules, the player is not eligible to participate in college at the varsity level. Therefore, once a player has committed to play in the Major Juniors, their North American playing options, outside of the Major Junior leagues, become limited, and if they wish to play in a non-Major Junior league they will likely have to play in a lower level league. Since a player who leaves the Major Juniors may need more time to develop, due to a lack of high-end competition, the NHL has granted the clubs an extended exclusive negotiating rights period.

Similarly, players who are bona fide college players, may, subject to certain criteria, remain on the Reserve List of a club until August 15th in the year of the players scheduled graduation year in college.18 Again the NHL recognized that many players who play NCAA hockey either need more time to develop or wish to obtain their undergraduate degrees before signing an SPC. To account for this, the NHL has provided the club’s an extended exclusive negotiating rights period.

Further, the CBA provides certain rights to clubs who have registered a player on their Reserve List, and who was drafted from a club outside of North America. In general, and subject to certain requirements, the club’s shall have exclusive negotiating rights with the player for four years following the player’s selection in the entry draft, without tendering a bona fide offer. Please see the LawInSport article The effect of the NHL’s CBA on European players and International ice-hockey for more information on the rights of clubs in this situation.19

 

Comment

The entry draft instituted by the NHL and NHLPA is one that is a key aspect of the CBA and has a tremendous impact on the career of all of the players wishing to play at the highest level in the world. While the draft process was negotiated and agreed to in accordance with U.S. law, the process could prove to be a large obstacle to any potential expansion of the league in Europe. Since the very nature of the entry draft limits the free movement of workers, concerns have been voiced that the process risks breaching European Union laws that protect this fundamental freedom, including Article 39 of the European Community Treaty.20

Whether or not European expansion would require changes to all aspects of the NHL CBA that limit the free movement of players, such as the draft, Reserve List and trade procedures, is yet to be determined. However, it is difficult to see the NHL vastly changing the current system since it allows the league to maintain parity among the teams and uniformity among the policies.

Other professional hockey leagues have adopted the European football system of acquiring players, and the adoption of this process has had the same results that are seen in European football. Many of these leagues have developed a few top level teams that can afford to buy the best players during the transfer window, while other teams are left to try to compete with homegrown talent. The NHL draft system, along with the Salary Cap which will be addressed in a later blog post, strive to ensure that each team has comparable talent. The goal behind this is to try to raise the level of competition between the teams and interest among fans. The results of these policies can be seen by the sheer amount of upsets that have occurred in this year’s NHL Stanley Cup Playoffs.

Ultimately, the NHL may be faced with the hard choice of amending the current policies and bringing the league to Europe, which would help grow the game globally, or to maintain the current level of control and maintain the league as a North American league. However, any changes to the policies will have to be agreed to by the NHLPA and the NHL and incorporated into the CBA. The Current CBA is set to expire in 2022, however these changes can be made prior to that date. It will certainly be interesting to watch how the NHL navigates any potential expansion to Europe.

 

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Author

Ryan Lake

Ryan Lake

Ryan is an American attorney at Lake Law Group, LLC and a sports consultant at Beyond the Playbook. He works extensively on ice hockey, soccer, baseball, basketball and Olympic movement issues. Ryan is also an Adjunct Professor at St. John’s University School of Law.

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