The NHL’s new 12-year, $5.2 billion multimedia deal with Rogers Communication has many NHL observers (myself included) predicting it could contribute to a significant increase in the salary cap over the remainder of the current CBA.  The value of the Canadian dollar, however, could slow that growth. 

QMI Agency’s Chris Stevenson recently observed the American dollar this week reached $1.07 cents Canadian, marking the first time in over three years it’s reached that mark. He also pointed out the Canadian dollar hasn’t been on par with the American dollar in 10 months, prompting some economists to project a further decline in its value in the New Year. Goldman Sachs predicts the “loonie” could fall to .88 cents US.

Considering how the seven Canadian franchises account for around 35 percent of NHL revenues, a significant and sustained decline in the value of the “loonie” will  affect the growth of league revenue and the salary cap.

A declining Canadian dollar will affect NHL revenue and the salary cap.

A declining Canadian dollar will affect NHL revenue and the salary cap.

One need only look back to the salary cap increase for 2009-10 to see the impact of a declining Canadian dollar upon league revenues. During the 2008-09 season the Canadian dollar plunged from .94 cents US on October 1, 2008 to as low as .77 cents through February 2009 before slowly climbing back to .82 cents by the end of the regular season. As a result, the salary cap for 2009-10 only rose by $100K (from $56.7 million to $56.8 million), having previous risen from $39.5 million to $56.7 million in only four short seasons. It should be remembered there were six Canadian franchises at that time, as the Atlanta Thrashers had yet to relocate to Winnipeg.

Fortunately, the value of the Canadian dollar rose from mid-2009 back up to par with its American counterpart, resulting in healthy increases in the cap. It rose from $56.8 million in 2009-10 to last season’s $70 million, until the NHL and NHLPA’s mutually agreed-upon decrease to $64.3 million entering the first full season under this new CBA. That decrease, of course, was based on projected losses from playing only a half-season, not the value of the Canadian dollar.

A decline to .88 cents US won’t have the same affect as the decline to .77 cents, plus there’s now a seventh Canadian franchise contributing to the coffers. The extra outdoor games this season could also result in a significant increase in revenue for next season, prompting predictions of the cap returning to $70 million next season.

This recent decline could be short-lived, but if it last for a prolonged period the effects will certainly be felt, even with that new TV contract with Rogers.If the “loonie” remains well below par in the coming years, it will act as a drag upon revenue and the cap.

At the turn of this century, the “loonie” reached a value of of .64 cents US, which cast the future of the Calgary Flames, Edmonton Oilers and Ottawa Senators into doubt, and affected efforts to attract buyers for the Montreal Canadiens. Things got so bad back then for most Canadian teams, the league was forced to engage in a revenue-sharing scheme to keep them afloat.

As Stevenson noted, no one expects the “loonie” to decline to the turn-of-this-century values. If it levels out at .88 cents and remains around .90 cents US for a lengthy period, the Canadian teams won’t make as much revenue as before, but it shouldn’t threaten their long-term futures. League revenue and the salary cap will keep increasing, just not as quickly as when the “loonie’ was at par.

However, if the Canadian dollar sinks below .88 cents for months or years, it will  have a significant effect upon upon the revenues of those Canadian clubs – particularly smaller markets like Winnipeg, Ottawa, Edmonton and Calgary – and upon the overall league revenue and the cap itself.