International transfer disputes in ice hockey - Part 1: three key cases

Published 21 May 2014 By: Ryan Lake

Evgeni_Malkin

Further to the author’s article entitled “the effect of the NHL’s collective bargaining agreement on European players and international ice-hockey”, in this 3 Part series, the author examines the issues arising during contested player transfers in ice-hockey, and then considers potential methods for resolving such disputes.

 

Background to contested transfers

Traditionally, international hockey has not developed well-defined transfer procedures to govern player transfers between leagues. The issue of international transfers is further complicated in hockey since two of the most powerful leagues in the sport, the National Hockey League (NHL) and the Kontinental Hockey League (KHL), operate beyond the scope of the International Ice Hockey Federation (IIHF) regulations. This fact differentiates ice hockey from other popular international sports, such as basketball and soccer. In basketball and soccer the International Federation has been able to develop well-defined regulations to manage the interleague transfer of players. As a result of this unique structure of ice hockey, the sport has seen many contested player transfers between the NHL, KHL and the member leagues of the IIHF. 

Contested player transfers have plagued the hockey world for years. Some of the most notable recent cases deal with superstars of the game, such as Evgeni Malkin, Alexander Ovechkin and Alexander Radulov. Additionally, with the labor dispute between the NHL and the NHL Players Association in 2012, the European leagues have seen an unprecedented rate of player transfers from the NHL. The issues facing each player transfer are unique and differ on a case-by-case basis; therefore, it is essential to examine the most common issues that arise during a contested transfer. The Malkin, Ovechkin and Radulov cases provide useful insights into the world of disputed transfers.

Evgeni Malkin Case 

The 2004 NHL entry draft would introduce the western world to the pure hockey talents of Alexander Ovechkin and Evgeni Malkin.1 In the process, this draft created one of the largest disputes in international hockey history. It began with the second overall selection by the Pittsburgh Penguins, Evgeni Malkin. At the time of the draft Malkin was under contract with the Russian Superleague club Metallurg Magnitogorsk.2 (The Russian Superleague would eventually become the KHL.) Malkin’s contract was scheduled to last through the 2007-2008 season; however, Malkin had an international transfer clause that would, with the approval of Metallurg, allow the talented center to play for Pittsburgh.3

Malkin stayed in Russia for the 2005-2006 season and became the Superleague’s leading scorer.4 Upon completion of the season Malkin informed Metallurg of his desire to be transferred to the NHL.5 Metallurg was reluctant to allow Malkin to transfer, without receiving a substantial compensation in the form of a transfer fee.6 As a result, a contentious and drawn out legal struggle ensued.

The facts surrounding the transfer issue were further complicated in August of 2006. In the dead of night on August 7, Malkin signed a new one-year contract with Metallurg. This new contract removed his option to transfer until he became a free agent.7 The circumstances surrounding the execution of this new contract remain unclear,8 but, Malkin, contended that the Metallurg officials applied undue influence and pressured him to sign the deal against his will.9 Soon after the signing of the new contract, the Russian team seized Malkin's passport to ensure he would not leave the country and join the Penguins.10

In response to the actions of the Russian club, Malkin and his agents searched the Russian laws for a way to terminate his contract with Metallurg. The source they relied on, the Russian Labor Code, outlines the rights of employees in a labor dispute. According to Article 80 of this code, an employee can resign their position after providing the employer two weeks notice.11 After discovering this opportunity to terminate the contract with Metallurg, Malkin’s agents started the process of obtaining a United States work visa. On August 12, two hours after receiving a visa from the United States, Malkin left Russia.12 Days later on August 16, Malkin provided Metallurg with his two weeks notice.13 Once the two weeks were up, Malkin signed an entry level deal with the Pittsburgh Penguins of the NHL.14

This sequence of events infuriated Metallurg, the Russian Superleague, and the Russian Ice Hockey Federation. The Russians accused the NHL and the Penguins of committing an act of “sports terrorism” and of “stealing” Malkin from Russia.15 The heated words from the Russians soon turned to legal action. In October Metallurg along with Lokomotiv Yaroslavl, another Russian club involved in a separate disputed player transfer, filed suit against the NHL in the United States District Court for the Southern District of New York.16 The clubs sought an injunction to prevent the contested players from playing in the NHL.17 The Russian clubs claimed that the players were under valid contracts to Superleague clubs, and, therefore, prohibited from playing for another professional club without first being released from their contract.18 Further, the Metallurg suit asserted that the Penguins had tortiously interfered with the club’s contract with Malkin. 

When seeking an injunction, the moving party must show that the “breach of the employee’s promise will cause injury for which money damages are not an adequate remedy.”19 This standard is difficult to prove in a traditional employer-employee relationship. However, when the employee is someone who possesses unique or superior skill, which is not easily replaced, the standard becomes substantially easier to prove.20 In an effort to show Malkin’s exceptional skill, Metallurg highlighted the fact that he was the top scorer in the Superleague the previous year. Further, while the litigation was ongoing, Malkin became the “first player in eighty-nine years to score a goal in each of his first six NHL games.21 This accomplishment helped to show that Malkin’s talents were truly elite worldwide and not just in the Russian league. 

United States District Court Judge Loretta Preska dismissed all of the Russian claims, and refused to issue an injunction against the NHL and the Pittsburgh Penguins.22 The court held that the damage suffered by Metallurg was not so severe that it could not be remedied with monetary damages.23 The court based this decision, in part, on the fact that emails from Metallurg to the Penguins were disclosed. These emails pertained to Metallurg’s request for one million dollars from Pittsburgh as a transfer fee for Malkin’s services.24 Therefore, the court reasoned that Metallurg’s injury could be remedied by monetary damages, and consequently the standard for an injunction was not met.25

In addition, the court dismissed the contract claims brought by Metallurg.26 Metallurg asserted that their contract with Malkin was valid, and, therefore, the NHL contract should be declared invalid. The court dismissed the claim, holding that the plaintiff, failed to show that they would be successful on the merits of the case.27 The issue turned on whether Article 80 of the Russian Labor Code was the controlling statute. To decide this issue, the court looked at proposed legislation that would create an athlete exemption to Article 80.28 The proposed exemption was introduced by the Russian Ice Hockey Federation before the Malkin saga began.29 The athlete exemption was not passed. The court reasoned that, by failing to enact the exemption, the Russian Legislature desired to have Article 80 apply to athlete contracts. 30 As a result, the court held that Metallurg’s breach of contract allegations were unfounded, and dismissed their claims. 

Malkin has since gone on to become the one of the most prolific offensive players the NHL has ever seen. Some of Malkin’s achievements include, being named the most valuable player for the playoffs on his way to winning the Stanley Cup (2009), and being named a four time all-star (2008, 2009, 2011, 2012). Additionally Malkin has won: the Calder Memorial Trophy (rookie of the year, 2007), Hart Memorial Trophy (league MVP, 2012), Ted Lindsay Award (most outstanding player, 2012), Kharlamov Trophy (best Russian player in the NHL, 2012), and the Art Ross Trophy (regular season scoring leader, 2009, 2012). Thus, it is no wonder why the Russian Superleague sought to retain the rights of such a dynamic player. 

Alexander Ovechkin 

The 2004 NHL draft also saw the Washington Capitals select Alexander Ovechkin with the first overall pick. At the time, Ovechkin was one of the most highly touted hockey prospects in the world. In 2004, the NHL was in the midst of a labor dispute which resulted in a season long work stoppage. During the lockout, Ovechkin played for Moscow Dynamo of the Russian Superleague.   

Upon completion of the 2004-2005 season, Dynamo sent a letter to Ovechkin offering him a new contract with a 30% pay increase.31  However, Ovechkin was seeking a deal that would allow him to transfer to the NHL if the lockout ended before the start of the season.32  Therefore, Ovechkin did not respond to Dynamo’s offer. Instead, he signed a contract with another KHL team, the Avangard Omsk hockey club.33  The Avangard contract had a provision that would allow Ovechkin to sign an NHL contract.34  Importantly, this provision required the NHL contract to be executed before July 21, 2005.35

Dynamo, contested the signing of this Avangard contract, claiming that the Dynamo letter acted as a qualifying offer,36 alleging that they retained the rights to Ovechkin.37 A team may extend a qualifying offer to a player when the player’s contract provides the team with the option of retaining the player’s rights for an extra year. The extension of this offer will obligate the player to play for the club for an additional year beyond the term of the original contract.  In the summer of 2005, the NHL lockout came to an end, and the Washington Capitals signed their prized draft pick to an entry-level contract.38  During this same period, Dynamo submitted their contract dispute with Avangard to an arbitration committee as required by the standard player contracts used in the Superleague.39

The Arbitration Committee agreed that Dynamo had provided Ovechkin with a qualifying offer,40 and declared that Dynamo retained the rights to Ovechkin.41 Thus, the arbitrators held that the contract with Avangard was invalid.42  Further, the arbitration award acknowledged that the contract with Dynamo would not allow Ovechkin to transfer to the NHL.43 After this victory, Dynamo sought to have Ovechkin’s contract with the Capitals declared invalid.44  In order to accomplish this, Dynamo needed to have the Russian arbitration award enforced in the United States. 

Typically arbitration awards are enforced in other jurisdictions through the use of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (CREFAA).45 Moreover, CREFFAA is only applicable if both, the jurisdiction that issued an arbitral award and the jurisdiction where enforcement of the award is being sought are signatories of the Convention.46 In the present case, both Russia and the United States are signatories of the Convention.47  However, in order to enforce the arbitration award, the jurisdiction where enforcement is sought, must find that subject matter jurisdiction is proper.48  One way for a court to find proper subject matter jurisdiction is when both parties have, in writing, agreed to arbitration.49  Therefore, Ovechkin’s future in the NHL depended on whether there was an arbitration clause in his contract with Dynamo. 

This issue was addressed by the United States District Court for the District of Columbia.50  Dynamo submitted a claim to the court seeking to have their arbitration award enforced. Ovechkin answered by stating that the court lacked subject matter jurisdiction, claiming that he never signed a written agreement agreeing to arbitration.51

The crux of this case came down to whether there had been an “exchange of letters” between Dynamo and Ovechkin that contained an agreement to arbitrate.52 Dynamo argued that three documents, when taken together, constitute an “exchange of letters.” These documents include (1) the 2004-2005 Dynamo contract, (2) the letter from Dynamo to Ovechkin offering to increase his salary for the 2005-2006 season, and (3) the Avangard contract.53  An “exchange of letters” was defined by the court in Standard Bent Glass Corp. v. Glassrobots Oy54 which found that there must be written correspondence between both parties, where each party either expressly or impliedly agree to arbitration.55

The court in the Ovechkin case held that no evidence of such an exchange of correspondence existed. The court stated “the unilateral conduct of Dynamo pales in comparison with the factual exchange of correspondence between the parties in Standard Bent Glass.56 The court found; 

Dynamo asks the Court to infer Ovechkin’s agreement to arbitrate based on nothing more than an expired agreement to do so, a unilateral matching offer from Dynamo, and Ovechkin’s agreement to play for Avangard for the 2005-2006 season, which was subject to a null and void clause. The Avangard contract is not a letter from Ovechkin to Moscow Dynamo, let alone an agreement to arbitrate with Moscow Dynamo.57

The court determined that Dynamo failed to demonstrate that there was a written agreement between Ovechkin and Dynamo agreeing to arbitrate. Therefore, the court held that the proper subject matter jurisdiction was not present and dismissed Dynamo’s petition with prejudice.58

Consequently, Ovechkin remained in the NHL and has since become a marquee player for the league. Since 2004 Ovechkin has won multiple awards, including the Calder memorial Trophy (Rookie of the year); NHL player of the Year in 2008 and 2009; Kharlamov Trophy (Best Russian in the NHL) in 2006, 2007, 2008, 2009, 2010; Maurice Richard Trophy (most goals) 2008, 2009; Art Ross Trophy (scoring leader) 2008, Ted Lindsay Award (most outstanding player in the regular season as judged by the NHLPA) in 2008, 2009, 2010; and The Hart Memorial Trophy (MVP) 2008, 2009. Moreover, Ovechkin has been named to 5 NHL All-Star games. With such impressive accolades, it is not surprising that Moscow Dynamo fought so vehemently to retain the rights of such a dominate player. 

 

Alexander Radulov Case 

Another Russian born player burst onto the NHL scene in 2004. The talented player, Alexander Radulov is a prime example of a contested player transfer from the NHL to the KHL. In the 2004 NHL entry draft, the Nashville Predators used their first round draft pick (15th overall) on the promising young Russian.59 During the 2004-2005 season, Radulov played Canadian Major Junior hockey, in the Quebec Major Junior Hockey League (QMJHL).60 During this season Radulov played in 65 games and finished with 75 points (goals and assists).61  He eclipsed this performance the next year when he led his QMJHL club, Quebec Ramparts, to the Memorial Cup finals.62 While the Ramparts fell short of the league championship, Radulov set a franchise record for points scored, with 152 points (61 goals and 91 assists).63 Throughout his time in the QMJHL, the Nashville Predators retained the rights to Radulov. After the impressive 2005-2006 campaign the Predators signed their top prospect to a three-year entry level deal.64

The entry-level deal was a two-way contract. A two-way contract is one that will allow an NHL team to call up and send a player down to their farm team without having to go through the wavier process.65 A player under this type of contract will receive the NHL salary, outlined in their contract if they play in a total of 10 NHL games throughout the season.66

Alexander Radulov started the 2006-2007 season as a member of the Nashville Predators farm team, the Milwaukee Admirals.67 However, less than a month into the NHL season Radulov was called up to the Predators.68  Radulov remained with the NHL club for the rest of the season. Consequently Radulov was entitled to the entry-level contract that paid him a salary of $984,200 for his rookie season.69  Radulov had a strong rookie campaign for the Predators, scoring 37 points in 64 games.70 The next year Radulov received a salary of $688,900, in accordance with his entry-level contract.71 In this season, Radulov finished with 58 points in 81 games.72

In the offseason, after Radulov’s second NHL season, he was approached by Salavat Yulaev Ufa of the KHL. The Russian club offered the young star a three-year $13 million deal. Radulov accepted the deal, despite the fact he was still under contract with the Predators for one more season.73 Upon signing the new deal, Radulov left the United States for his homeland.74

The Nashville Predators immediately protested the KHL contract, and called for the IIHF to invalidate it.75 After a thorough investigation, the IIHF declared the contract invalid. However, the IIHF also stated that since the NHL and KHL did not have a player transfer agreement in force at the time, there was nothing that could be done to force Radulov to play in the NHL.76 But the IIHF did suspend Radulov from international play.77

While the IIHF, the NHL and the Nashville Predators all issued Radulov a suspension, this sanction had very little effect.78 After all, Radulov could return to the NHL at any time and have the ban lifted. Even though, the Nashville Predators were relieved of any obligation to pay Radulov the remainder of his contract, the cub attempted79 to compel Radulov to return, and contemplated brining an action for injunctive relief in the Russian Courts.80  However, the NHL club ultimately determined that the court would not grant such relief.81  Thus, Radulov stayed in the KHL and played for Salavat Yulaev Ufa for the entire three-year contract.82 Radulov was named the KHL MVP (Golden Stick Award) each year he played in the league.83  Radulov also led Salavat Yulaev Ufa to the KHL league championship, the Gagarin Cup, in 2011.84

In 2012 after his club was eliminated from the KHL playoffs, Radulov returned to the Nashville Predators. Radulov played a total of nine regular season games for the Predators,85 and helped the team reach the Western Conference Semi Finals of the NHL Playoffs.86 However, during this series Radulov broke team rules and was suspended in a pivotal Game 3.87 After the Predators lost the series, the team decided to part ways with Radulov, who would have been a restricted free agent. However, since the Predators terminated the contract, Radulov became an unrestricted free agent and was able to sign with any team.88

Soon after the start of free agency,89 July 1st 2012, Radulov signed a blockbuster contract with CSKA of the KHL. Radulov’s new KHL deal was for four years and will pay him $9.2 million per year, or 300 million rubles per year.90  This far exceeds any amount that he could have made in the NHL.  At the time, the CBA prohibited any contract from exceeding $7 million per year. 

Therefore, the Alexander Radulov saga highlights many issues that may arise in a disputed transfer of a player from the NHL to the KHL. In this situation, the NHL was faced with many of the same obstacles that challenged the KHL teams in the Malkin and Ovechkin cases.

 

Summary 

The world of international hockey has been inflicted with the chronic problem of player poaching. The current regulations designed to prevent contested player transfers are limited in their ability to influence the actions of players and clubs. Due to the current regulations the IIHF finds its self in a weak position to influence the actions of players and clubs. The Evgeni Malkin, Alexander Ovechkin and Alexander Radulov cases highlight many of the issues that currently face international hockey.  In order for the sport to grow and prosper, a long-term solution to these issues must be developed.  

In Part 2 and Part 3 of this series, the author continues to analyse the dispute resolution mechanism in hockey and considers the  potential ways of resolving such disputes.

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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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