Canada's soaring dollar changes NHL's economics
Canada's soaring dollar changes NHL's economics
OTTAWA - As Brian Burke was preparing to become general manager of the Vancouver Canucks in the spring of 1998, many NHL executives urged him to wait for a more stable opening.
The nay-sayers had nothing against the Canucks as an organization. Rather, the concerns centered on Vancouver being one of the league's six Canadian franchises economically handcuffed and competitively stifled by an ever-sinking Canadian dollar.
"There were guys - NHL GMs - that told me don't take that job because the team is going to move," Burke recalled at the NHL draft in Ottawa last week. "The Canadian dollar was the first thing they cited."
Much has changed in 10 years. Burke stayed in Vancouver through 2004, and is now the Anaheim Ducks' general manager.
More significant is what's happened to Canada's dollar, the gold-colored coin affectionally called "the loonie" because it has a picture of a loon on one side. And loony might be one way to describe the effect the substantially strengthened Canadian dollar has had on the North American sports landscape over the past few years.
Since bottoming out at 61.79 cents in January 2002, the loonie reached par with its U.S. counterpart last September - the first time since 1976 - and climbed as high as $1.07 in November. Currently, it's hovering a penny below the U.S. dollar, where it's expected to stay based in part on the oil boom taking place in Alberta.
The loonie's rise means that Canadian NHL teams, which once petitioned their governments for bailouts to stay afloat, suddenly find themselves on equal economic footing. And they're using their newfound resources to flex their competitive muscles by offering lucrative contracts that previously would've been considered financially crippling.
The first sign came last summer, when the once-poor Edmonton Oilers attempted to sign Buffalo forward Thomas Vanek by offering him a whopping seven-year, $50 million contract, which the Sabres were forced to match to retain their young star. Undeterred, the Oilers pried loose Anaheim forward Dustin Penner, signing him to a five-year, $21.25 million offer sheet the Ducks did not match.
"It's nice for us because we can think about things now that we couldn't previously," Oilers general manager Kevin Lowe said. "As things stay this way, it'll pay dividends. We'll be able to hang on to players or potentially sign players in free agency that we never could've previously."
The loonie effect is not limited to the NHL. Major League Baseball's Toronto Blue Jays and the NBA's Toronto Raptors are also reaping the benefits, though they're less affected because they receive most of their TV and marketing revenue in American dollars.
Still, the impact is there.
Blue Jays president Paul Godfrey said his team profits about $750,000 every time the Canadian dollar rises a penny against its U.S. counterpart.
"Every time the dollar goes up a penny, I do a victory lap of the stadium," he said.
The $750,000 figure holds true for the Raptors, said Ian Clarke, chief financial officer of Maple Leaf Sports and Entertainment, which also operates the NHL's Maple Leafs.
By comparison, Burke said the Canucks lost $400,000 every time the Canadian dollar dropped a penny against the U.S. dollar.
Unlike in baseball and the NBA, NHL teams are more dependent on local revenue because of considerably smaller broadcasting contracts. That left Canadian franchises, which pay salaries and most travel costs in U.S. dollars, vulnerable as the loonie lost value, and led to the relocation of two teams, Quebec, which moved to Colorado, and Winnipeg, which moved to Phoenix.
Last year, there was an attempt to reverse the trend when Canadian billionaire Jim Balsillie tried to buy the Nashville Predators and relocate them to Hamilton, Ontario.
"I don't think the six Canadian teams have ever been in a better condition financially than they are now," Burke said. "I think it's a great story."
The changes are evident in Forbes Magazine, which publishes an annual list of NHL team values and revenue.
In 1998, when the NHL had only 26 teams, Montreal had estimated revenues of $62 million to rank eighth on the Forbes' list - the only Canadian team to break the top 13.
Last year, of the NHL's 30 teams, four of the top six revenue-generating franchises on the list were Canadian-based, led by Toronto at No. 1. The other three were Montreal in fourth, Vancouver in fifth and Ottawa in sixth, while the New York Rangers and Detroit ranked second and third respectively.
"It's a totally different situation. The devaluation of the Canadian dollar back in the late '90s was one of a number of factors affecting the Canadian clubs," NHL deputy commissioner Bill Daly said. "The fact that their businesses have turned around over a 10-year period is fantastic for them and it's good for the league ultimately."
The change is reflected in the NHL salary cap, put in place following the lockout that wiped out the 2004-05 season. Starting at $39 million in the 2005-06 season, the cap, which rises with the league's revenues, is projected to hit to $56 million this season in part because of the loonie.
Daly said NHL revenues grew by about 12 per cent this past season, with the loonie's rise contributing to about 25 per cent of that growth.
The cap's rise has left some teams concerned, because it has hiked payrolls to unexpected levels and contributed to the number of lucrative contracts signed in free agency last July. Besides the Sabres being forced to match the Oilers' offer to Vanek, Buffalo lost two key players, co-captains Daniel Briere and Chris Drury, who signed expensive deals in free agency.
Sabres managing partner Larry Quinn acknowledged his team was among many that failed to project how the Canadian dollar would influence the dramatic rise in the cap. As a result, the Sabres are attempting to lock up core players well before they're eligible to become free agents.
"It's a very fluid situation," Quinn said. "I don't think we would have ever thought we'd be sitting here looking at a $56 million cap three years into the process."
Daly said the NHL didn't foresee the jump in the cap coming, either.
Not that it's a problem.
"The cap's always going to go up, and that's always a good thing because it's a reflection of the business," Daly said. "Business is doing well. And that's a good thing."