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As the value of the Canadian dollar continues to slide, it could have significant consequences next season for the NHL. (more…)
As the Canadian dollar (or “loonie”, as it’s affectionately known in Canada) continues to tumble, it could have potentially serious consequences for the NHL, especially the seven Canadian teams.
The “loonie” is currently worth .84 cents against the American dollar. The last time it was this low was in late-October, 2008, when the global economy was plunged into recession. It eventually bottomed out at .77 cents, taking months to regain its lost value. The value of the Canadian dollar is tied to oil prices, and as the latter keeps dropping it’s dragging down the former.
That decline in the value of the loonie stalled the increase of the NHL salary cap for 2009-10, rising by only $100K US from $56.7 million to $56.8 million. That’s because the then-six Canadian NHL teams accounted for 33 percent of NHL revenue. With seven Canadian teams, it’s believed they could account for as much as 37 percent. With just seven teams accounting for over one-third of the revenue in the 30-team NHL, it has a significant effect upon league revenue and its salary cap.
The decline of 2008-09 was short-lived, and over the next several years the loonie was around par with the US dollar. Since mid-February 2013, however, it’s been on a slow but steady decline. It had little impact upon the salary cap ceiling for 2013-14, which was artificially lowered from $70 million to $64.3 million to compensate for lost revenue during the half-season lockout of 2012-13. The bite was felt this season, when the cap came in $2.1 million less from the original projection of $71.1 million.
As the value of the “loonie” continued, the league last month offered up a more cautious cap projection of $73 million for 2015-16. That announcement, however, came with the Canadian dollar worth .88 cents US. As of this writing, it’s lost four more cents against the American dollar.
If the decline continues the Canadian dollar could be worth less than .80 cents US when the current NHL season comes to a close. Despite the revenue made from US and Canadian broadcasting deals and the American-based Winter Classic and Stadium series, the lower value of the “loonie” could make it difficult to reach its projected $73 million.
The Canadian teams will certainly feel the effects of the lower “loonie.” Payroll will feel it first. The Canadian teams earn their revenue in Canadian dollars, but they must pay their players in US dollars.
When the Canadian dollar was worth under .70 cents US during the 1990s and into the early years of the previous decade, it had a significant impact upon the Canadian teams. The lower-valued dollar was partially blamed for the departure of the Quebec Nordiques to Colorado and the original Winnipeg Jets to Arizona. Whispers of relocation haunted the Calgary Flames and Edmonton Oilers. Then-Vancouver Canucks GM Brian Burke claimed it adversely affected his efforts to maintain a competitive roster. It hurt the Montreal Canadiens efforts to find new ownership. Only the Toronto Maple Leafs seemed unaffected
During the dark days of the global recession through the 2008-09 NHL season, Montreal Canadiens then-president Pierre Boivin sounded the warning over the potential impact of a low Canadian dollar on Canadian NHL teams. Boivin noted the Canadian teams had to pay into the league’s revenue-sharing plan to prop up its weaker US teams. Despite the salary cap system, Boivin warned Canadian teams could end up struggling as they did prior to the season-killing lockout of 2004-05. Boivin’s concerns were echoed by Oilers president Patrick LaForge and then-Canucks president Chris Zimmerman.
When the salary cap was introduced in 2005 there was a belief that it saved smaller-market franchises like Ottawa, Edmonton and Calgary. It’s also cited among the reasons for an NHL franchise returning to Winnipeg and why another NHL team could return to Quebec City. The salary cap, however, plays no part in that. It’s the value of the Canadian dollar. As long as it was .90 cents or more again the American greenback, everything was hunky-dory.
It’s believed the NHL’s revenue-sharing system “softens the blow” of a sinking Canadian dollar, as the league will reportedly compensate Canadian NHL teams for losses incurred by the declining value of the Canuck buck. The system, introduced in the previous collective bargaining agreement, was supposedly improved under the current CBA.
What happens, however, if the Canadian dollar remains low for longer than one or two years? Can the league help Canadian teams offset their losses if the “loonie” falls well below .80 cents US for a protracted period?
The smaller-market Canadian franchises will feel the pinch first. In October, the Montreal Gazette’s Pat Hickey reported a falling loonie could hurt the Ottawa Senators and Winnipeg Jets, who play in two of the NHL’s smallest markets. It could also effect how much hockey fans in oil-rich Alberta are willing to spend to watch the Calgary Flames and Edmonton Oilers.
Even though the NHL is in the first year of its 12-year. $5.2 billion TV contract with Rogers Communications, that’s in Canadian dollars and will be worth less with each drop in the value of the “loonie.”
Last November, The New York Times’ Jeff Z. Klein interviewed Glen Hodgson, chief economist of the research group The Conference Board of Canada, about the potential effects of a sinking “loonie” upon the NHL. He and other Canadian economists told Klein the Canadian dollar will have to drop to well below .85 cents US to have a significant impact on the NHL’s business.
It’s been under .85 cents for several weeks now and showing no signs of leveling out.
It’s a safe bet the NHL and the owners of its Canadian franchises are keeping a close eye on the “loonie.” While they might not be worrying yet, there could be real concern if the Canadian dollar slides into the .70-cent levels. Those mechanisms for assisting Canadian NHL clubs could soon be put to the test.