The NHL’s seven teams north of the border aren’t feeling the effects of the dropping Canadian dollar yet, but they are hoping it’s not 2001 all over again.
Wacky, diving Canadian dollar could have impact on 2014-15 NHL salary capThere was a time when NHL teams north of the border would have been thrilled with a 90-cent dollar. That, of course, was back in 2001 when the dollar bottomed out at just over 63 cents compared to its American counterpart. But now that Canada has been on par or, in some cases, trading higher for the better part of seven years now, it’s not such pleasant news.
Since the Canadian dollar drew even in the fall of 2007, it has been great news for the NHL and its (now) seven Canadian teams. But the dollar has been in a free fall according to analysts and isn’t about to rebound back to par any time soon. When the puck dropped to open the season in October, the Canadian loonie was worth 97 cents American. By early February, it had dropped to 90 cents, with it dipping ever so slightly below the 90-cent threshold on occasion.
According to Edmonton Oilers president and chief operating officer Patrick LaForge, each time the loonie drops one cent, it translates into about $700,000 in extra costs for teams that are close to the $64.3-million salary cap over the course of a full season. But the full effect of a weaker dollar won’t be felt for a while. That’s because when the dollar was at or near par, there’s a good chance the Canadian teams purchased a reserve of American currency. Many Canadians do their banking through Scotiabank, which is a sponsor and partner of the NHL, meaning teams likely would have been able to cover their salary commitments for 12 to 24 months.
“You’re taking a gamble, though, and there are no guarantees,” LaForge said. “It costs a lot of money to buy that security at the front end and you may be buying at 97 or 98 cents and by the time you realize that commitment, it could be up to $1.01 or $1.02. It’s called hedging for a reason.”
It’s similar to a variable mortgage. Teams lock into what they call “forward contracts” that give them certainty for a period of time, but locking in at the wrong time can prove costly. And now that the dollar has dipped, Canadian teams will again have to hedge their bets on the value of the dollar. If they buy now, they could protect themselves against further dips in the value of the loonie, but would regret doing it if the dollar rebounded.
“We’ve locked in at rates better than it is right now,” said Ian Clarke, the Toronto Maple Leafs chief financial officer. “But 2016 and ’17 are unhedged and you’re going to be watching that and you hope the dollar recovers.”
Another area where a lower dollar comes into effect is in overall league revenue, since the seven Canadian teams produce about 35 percent of it through Canadian currency. Again, though, the impact might not be as dramatic as you’d think. When the league calculates its revenue for purposes of the salary cap, it does so on what the average value of the Canadian dollar was that season. So instead of it being calculated at 90 cents, it might be at 93 or 94 cents.
So let’s say the drop in the dollar ends up costing the league $75 million. With overall league revenue expected to be about $3.4 billion this season, that would represent a drop of about 2.2 percent. If based on those projected revenues the cap for next season was expected to be at $71 million, it might drop down to about $69.4 million to reflect the 2.2 percent loss of revenue.
So the effect is minimal, for the time being. But if this trend continues for any extended period of time, the NHL in general and the Canadian teams in particular are going to feel the effects. For his part, LaForge looks at the fluctuation of the Canadian dollar the same way he looks at injuries. They’re part of the reality of doing business, but it’s not something over which the team has a huge amount of control.
Most speculators think the Canadian dollar will stay about where it is for the next couple months and the hope is that the dip is temporary. Clarke expects the Canadian dollar to be in the 94- or 95-cent range in the next year, but cautioned, “I’m always wrong, so that’s just one view.”
Added LaForge: “We’re not whining or complaining about it. We can deal with it as long as it doesn’t last forever.”
This feature originally appeared in the March 3 issue of The Hockey News magazine. Get in-depth features like this one, and much more, by subscribing now.