International transfer disputes in ice hockey - Part 2: the dispute resolution mechanism

Published 21 May 2014 By: Ryan Lake

Alex_Radulov

In Part 1 of this series, the author examined common issues arising during contested player transfer. In Parts 2 and 3 the author turns his head to consider potential ways of resolving such disputes.

 

Background to dispute resolution

The issue of player poaching is not unique to hockey. Contested disputes exist in every sport with international appeal. Each sport has taken a different approach to solving the problem, with hockey, in the author’s opinion, being the least successful in effectively addressing this issue. Recently, several individuals have proposed that hockey implement a transfer structure that is similar to other successful international sports. The suggested solutions are diverse and range widely in scope and structure. 

One potential solution, presented by Kate Zdroheski, entails the creation of a structure styled after the “Posting” model, which was previously implemented by Major League Baseball (MLB).1 Another suggested solution calls for an increase to the minimum transfer compensation required for a team to legally obtain a player whose rights currently belong to another interleague team. These models have proven to be successful in other sports; however, they are not without their flaws. Further, hockey is unique among international sports and may not thrive under a system engineered for another sport.

Posting Model 

In the article, “International Ice Hockey: Player Poaching and Contract Dispute,” Zdroheski, proposes implementing the MLB Posting system.2 Baseball is a sport that has gained international appeal throughout the years. As a result, many countries have developed top-tier players that desire to play in the United States.3 In an attempt to allow for the orderly transfer of players, MLB developed a model known as “Posting”.4

The Posting system is structured to allow each MLB team to have an opportunity to sign a foreign player. This system allowed a foreign player to be posted to a list of players that are interested in transferring to the MLB.5 The MLB teams then place bids for the right to negotiate exclusively with the player.6 The MLB team with the highest bid earns the exclusivity rights.7 If the player comes to terms with the MLB team, then the foreign club, who owns the rights of the player, retains the bid price. This bid price acted like the transfer fee for the player.8

Zdroheski, uses the example of Daisuke Matsuzaka to illustrate how this system worked.9 In 2006, the Boston Red Sox's placed a bid of $51.1 million for the right to negotiate with Matsuzaka.10 The Red Sox’s were the highest bidder, and won the right to negotiate with the skilled pitcher.11 The Red Sox eventually came to terms with Matsuzaka and signed him to a $52 million deal.12 Therefore, it cost the Red Sox’s a total of $103.1 million to acquire the services of Matsuzaka.13 This is an astronomically high number, and not one that the NHL would be able to duplicate. 

Since the publication of the article by Zdroheski, the MLB has amended the Posting procedures. The amendments now allow every team, which is willing to pay a maximum of $20 million as a transfer fee, the right to negotiate with the foreign player.14 This system is designed to allow for the transfer of players who were not subject to a draft process in the league they wish to transfer to. 

While this system has proven to be useful in regulating the international transfers of Japanese players to MLB, in the authors’ opinion, it may be difficult to utilize the same structure in ice hockey. Unlike the MLB, the NHL has instituted an international draft. Therefore, an NHL team has the ability to draft any eligible player, regardless of nationality. Therefore, while the issue for MLB teams is acquiring the rights to negotiate with a player, the issue for NHL teams is more nuanced and deals with a situation where two or more leagues claim to have the rights to a certain player. Additionally, unlike baseball ice hockey has a wide range of viable and competitive leagues for players to choose from. These leagues include, the NHL, KHL and IIHF member leagues, including Sweden’s Elitserien, Switzerland’s National League A, Germany’s Deutsche Eishockey Liga, the Czech Republic’s Extraliga, and Finland’s SM-Liiga. Therefore, a solution to the transfer issue in ice hockey must not only focus on the transferring of players from foreign leagues to the NHL but also address the issues that arise with player transfers occurring between foreign leagues and from the NHL to another league. 

In order for a Posting style model to be effective in ice hockey an agreement between the NHL, KHL, and IIHF member leagues would have to execute. This agreement would have to provide all players, currently under contract, the right to request to be released from their current contract to be allowed to enter into contract discussions with a team in another league. Further, the fee from the acquiring team would have to be set at a level so all of the interested teams would be able to pay the fee. This would require a lower fee to allow for the IIHF member leagues an opportunity to compete for the services of the player. 

The posting fee issue could disproportionately benefit the NHL and the KHL. These leagues would reap the largest benefits from the model since they have the wealthiest owners in the hockey world. Additionally, the KHL could see the biggest dividends from instituting such a model since the KHL, unlike the NHL, has not placed financial restrictions on their clubs. Therefore, with wealthy owners and a lack of regulations, the KHL could end up acquiring much of the top foreign talent. Evidence of the KHL’s ability to acquire top talent can be seen by examining Alexander Radulov’s new contract. The CSKA Moscow team signed Radulov to a four-year deal worth 300 million rubles per year, which is around $9.2 million annually.15 This shows that the KHL is capable of signing a player for more than the salary cap limit in the NHL, which limits the annual salary of a player to $7 million.16

Also, in order for a system like this to work, the NHL would have to concede power the IIHF. It is highly unlikely that the NHL would agree to relinquish power to IIHF, especially when the transfer model may not provide the NHL the greatest benefit. While the posting model enjoys success in the world of baseball there are many cultural, financial, and structural obstacles that would hinder the successful implementation of the posting model in hockey. 

Increase Transfer Fee 

Many have asserted that transfer disputes could be eliminated by increasing the transfer fees for foreign players. While the means with which to increase the transfer fees varies, the general concept is straightforward. For years, scholars and industry leaders have recognized the merits of increasing transfer fees, with the KHL backing such a move. In fact the Russians, who frequently admonish the lack of adequate compensation for player transfers, pioneered the proposal. However, in spite of these strong proponents, the author puts forward the argument that the concept is flawed. 

First of all, this concept was articulated by Jeffrey Gleason in his comment, “From Russia with Love: The Legal Repercussions of the Recruitment and Contracting of Foreign Players in The National Hockey League”.17 In his comment, Gleason, suggests the creation of a “stratified fee schedule” that would place a different minimum transfer fee on the player.18 This fee would differentiate depending on the level of league the player is coming out of.19 Further, this comment, suggests that the clubs in the top level leagues in Europe would be allowed to place a “transition player” tag on one of their players.20 This tag would require a much higher transfer fee if the player were to sign with the NHL.21 There are many potential benefits to this system as outlined in the comment; however, this system has some drawbacks. 

The foundation of the “stratified fee schedule” is based on the concept that the top players will be in the top-level league for each country. However, the open league system, which is in place in many European countries, could cause difficulties within the structure. An open league model allows for movement of clubs between leagues of different tiers.22 At the completion of each season, the lowest ranked club in the top-tier league is relegated down one tier. Moreover, the top ranked club in the second-tier league is promoted up one level to the top-tier league. In Finland, for example, the top-tier league is SM-liiga, and the second-tier league is Mestis. Each year, the lowest ranked team in SM-liiga faces the champion of Mestis in a best of seven game series.23 The victor of the series is promoted to SM-liiga while the loser is relegated to Mestis.24 Therefore, it is possible to have a top ranked player, playing on a team that was relegated to a second tier league. In this situation, the player “stratified fee schedule” would not properly compensate the team for the top ranked player if he were to transfer. However, it is possible to structure the fee schedule based on the league the club belongs to at the time of the execution of the player contract. 

Another potential issue arises when looking at the proposal from the perspective of an NHL club who has a player league for another league. The transfer of NHL players to the KHL is becoming more common and was highlighted by the Alexander Radulov case. In a situation similar to the Radulov case, a large transfer fee would not necessarily benefit an NHL club. This is due to the financial restrictions that NHL clubs must operate under. For example, with the salary cap in place, the influx of money from a transfer fee may not benefit the club. This is due to the fact that NHL clubs must comply with the salary cap, regardless of the financial capabilities of the individual club. Therefore, the club might not be able to use the money generated from the transfer to procure another top-level player. Moreover, since the owners in the KHL are wealthy and not burdened by a salary cap, the top-level players could find the Russian league more appealing than the NHL. Currently, the NHL is considered the top league in the world, and therefore, the top players want to play there; but, if the KHL is able to purchase the rights to NHL players, the KHL could become the most talented league. 

Like the Posting model, the primary issue with the “stratified fee schedule” is enforcement. In order for the proposals to be successful would require, either unprecedented cooperation between and among the top-tier leagues, or the relinquishing of power by the NHL and KHL to the IIHF to regulate all international transfers.

Both of the proposed solutions, the posting model and the stratified fee schedule, provide an insight into the complexities of international hockey. While both models would provide benefits to the hockey world, by creating a more structured system in which transfers can occur, there are, however, obstacles that would make these systems difficult to implement. Therefore, any solution to the transfer issue, must take into consideration all of the different moving parts that affect the hockey world.  

In Part 3, the author will propose a three part solution to the problem of transfer disputes in hockey.

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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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