Sinking loonie threatens teams’ bottom lines

A sinking Canadian dollar would affect the bottom line of sports teams across the country.
February 5, 2014, 12:22 PM

Canada’s cross-border sports discount shopping spree may finally be coming to an end.

It’s been a good run. For nearly a decade participation in US-based sports has been at marked down prices for Canadian clubs — at least according to historic trends — thanks to the robust health of the Canadian dollar compared with its US counterpart.

That’s changing. For the first time in five years the dollar is hovering around 90 cents and some economists are predicting we will see an 85-cent dollar by the end of 2014. Where it goes from there only Nostradamus knows, but it’s seems the currency parity-party could be over.

It’s a prospect that owners and executives fear and has been the mover behind seismic shifts in the Canadian sports landscape in the recent past and yet is the easiest to overlook.

“It’s not good, it’s trending the wrong way,” said retired Maple Leafs Sports and Entertainment executive Richard Peddie, who joined MLSE when the dollar was trading at 70 cents and was helped in his efforts to turn the company that owns the Toronto Maple Leafs, Toronto Raptors, Toronto FC and the Air Canada Centre into a $2-billion business, in part because the dollar had surged to $1.04 by the summer of 2011 when he announced he was retiring. “We used to say every penny the dollar went down cost us about $1.1-million in profit.”

The reason isn’t complicated: the single greatest expense for all Canada’s NHL teams, the three MLS teams, the Toronto Blue Jays of MLB and the NBA’s Raptors is player salaries, which are paid in US dollars. As the Canadian currency slides, expenses rise.

“It won’t affect our plans for this year, we’re already locked and loaded (with regard to payroll),” says Blue Jays president Paul Beeston. “But it will affect our bottom line, that’s for sure.”

There is no operation more vulnerable to a weakened dollar than the NHL. There are just seven Canadian-based franchises but the industry is so robust north of the border that it’s estimated between 25 and 40 per cent of league-wide revenues flow south from Canada.

As the Canadian dollars rose, the league’s hockey related revenue (HRR) swelled and the salary cap figures – particularly the floor – jumped at a rate faster than local revenues in many US markets. It’s no surprise then that the league’s overall financial health traces the path taken by the Canadian dollar.

A decade ago or more the NHL was a league widely considered in disarray, with runaway salaries – $11-million for Keith Tkachuk, anyone? – and Canadian markets under siege: Quebec City and Winnipeg were long gone but Ottawa and Edmonton were under threat as they tried to cope with a 62-cent dollar and no salary cap.

When the Vancouver Grizzlies of the NBA moved to Memphis at the end of the 2000-01 season, currency woes were cited as the prime factor.

In the NHL tools like a salary cap that ties revenues to wages, greater revenue sharing and a general sense of fiscal health permeates the second-half of commissioner Gary Bettman’s 21-year reign, but the league’s ebbs and flows can just as easily be tied to the strength of the Canadian dollar relative to its American cousin.

When Quebec and later Winnipeg left for Denver and Phoenix, respectively, their trips south were greased by a dollar that hovered in the 70-cent range. When Winnipeg made its triumphant return (thanks to the Atlanta Thrashers) for the 2011-12 season, the Canadian dollar was trading close to historic highs.

Today the NHL seems incredibly robust, with record revenues expected to top $4-billion in the next year or two.

That picture seems even rosier when the ground-breaking, 12-year, $5.2-billion Cdn television deal the league signed with Rogers, owners of Sportsnet, kicks in for the 2014-15 season. But a sliding dollar could slow that growth. That $5.2-billion Canadian broadcast deal was worth about $4.94 billion US the day it was announced, but would be worth just $4.42-billion if the dollar slides to 85 cents by the end of the year.

The NHL is better positioned to sustain a weakened dollar that it has been in the past. The share the Canadian clubs get from the league’s 10-year, $2-billion US television contract will be more meaningful and big pays generated by the Winter Classic and the Stadium Series will help further.

Still, there seems to be some confusion about whether or not the NHL’s new CBA has provisions to soften the effect of currency fluctuations.

“The falling Canadian dollar has had no impact on us at all due to currency mitigation laid out in the CBA,” said Winnipeg Jets spokesman Scott Brown, via email. “Generally speaking, the clause allows that for any revenue lost due to the low Canadian dollar, that team is equally compensated through increased revenue sharing in the CBA.”

But both deputy NHL commissioner Bill Daly and the NHLPA told Sportsnet there is no specific clause to deal with a falling dollar, just a recognition that all league revenues used to calculate HRR are converted to US dollars and that revenue sharing payments will be made in US dollars. But that doesn’t offset the reality for Canadian clubs: local revenues will need to grow considerably to make up for ground lost by a weakened Canadian dollar.

The impact may be felt differently by small and big markets. How will a team like the Jets, in the league’s smallest city and playing in its smallest arena fare if the dollar slides? Will Quebec City remain a viable landing spot for an NHL team if the dollar remains well below 90 cents?

For a team like the Leafs a falling dollar would mean a lower salary cap and therefore less leeway to flex their financial muscle.

The reality is there are too many variables to predict. A strengthening US dollar suggests a stronger overall economy south of the border, which the NHL could translate into new business to the benefit of Canadian clubs. Similarly a dollar trading at 90 cents would have benefits for Canadian exports which could help the economies around Canadian clubs.

But after a decade where Canadian teams were benefitted from the currency divide, the balance may be shifting.

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