The initial 400k is what goes on the salary cap (whatever contract he nominated), regardless if you pay him less.
Can't remember how they got away with Ball, but I have a feeling it was something like him putting a large contract on his head for one year, which Collingwood had the cap space for and therefore paid him it. But he said he would only re-sign further if he was with Collingwood, and did so at a reduced price to make up for the large contract they originally paid him.
It's basically draft tampering, but you the AFL isn't going to do anything to Collingwood, in fact Andy D probably congratulated Eddie for them coming up with the plan.
Refused medical examinations with other clubs too so there was the possibility of him not actually being able to play on. Also, didn't they use the main draft not the pre season one?