Artist rendering of the Videotron Centre in Quebec City
With only three more sleeps before applications for NHL expansion are due, there’s one factor that could very well scuttle possible bids for Toronto and Quebec City. In case you haven’t noticed lately, the Canadian dollar is tanking and not only are there no signs of recovery, the future looks dire. Like 65-cent dire.
The Canadian dollar was trading Friday at 76.9 cents in U.S. funds. It fell again after the Bank of Canada cut its prime lending rate one-quarter of a percent to 0.5 per cent. It can’t get much lower without banks giving people money in exchange for borrowing it.
The weakness of the Canadian dollar, and subsequent rise of the U.S. dollar, will absolutely embolden the chances of Las Vegas and Seattle getting franchises in this round of expansion for a couple of reasons. The first is that American owners have to be getting nervous about where the Canadian dollar is heading. The second is the bloom is off the rose when it comes to Canadian teams with such a weak dollar. Because with a weaker dollar, Canadian teams will contribute far less to overall league revenues. Suddenly, Canadian teams are not the revenue-producing machines they once were. And instead of Canadian teams propping up their American counterparts, owners are worried it could go back to the bad old days when it was the other way around.
Which brings us to Quebec City and the Toronto area, the two Canadian markets most mentioned. A weak Canadian dollar isn’t good for either of them, but Quebec City at least built its arena when the Canadian dollar was at or near par. That gives it a big advantage over Toronto. But even if the dollar were to stay at 77 cents and not go down, a $400 million expansion fee in U.S. funds becomes $517.6 million in Canadian dollars. And every time the Canadian dollar loses its value, that total goes up.
Things in Toronto are much worse. And that’s because in December of 2013, the town council in Markham decided to turn down the opportunity to have the GTA Center built in their jurisdiction. Those elected to council in Markham had the right to do that and it was completely democratic, but it may look back to December, 2013 as an opportunity lost.
That’s because, at the time, the Canadian dollar was trading at 94 cents. Things were looking good. But council and many of the good people of Markham were convinced the deal brought forth by venture capitalist Graeme Roustan would end up being a boondoggle for the taxpayer and the city would be left with a white elephant and a trail of unpaid bills.
Their fears were not exactly grounded in reality. The final proposal to council had Roustan raising half of the $325 million himself, with the other half coming from local developers, with no shovels going in the ground until all the money had been raised. Roustan had letters of credit for the developers and a price guarantee from the construction company that the arena would not go over budget. It also had a guarantee from Global Spectrum, the arena’s operator, that operating costs would be covered. Roustan and supporters argued that the building, either in construction or operation, would not cost taxpayers anything. But those words fell on deaf ears and Markham council voted it down. Which was its right and, if it was opposed to the deal, its responsibility.
It’s possible that the deal could be revived, but since that deal was turned down, the $325 million has gone up substantially because of the weak Canadian dollar and the increased cost for materials such as concrete and drywall, which have increased 15 percent since then. You’d have to think that in this current economy, an NHL arena would cost a minimum of $400 million to build.
Had the Toronto suburb passed Roustan’s plan for an arena, there was a provision in the contract that a building would have been completed within 19 months. Guess where that takes us? Pretty much to today. Think about how much better Toronto’s chances would be if it had a ready-made building for an NHL team to occupy. When the Toronto area laments the possible loss of an expansion team, it might want to consider how much better its chances would have been had it entered the sweepstakes with a building that had been completed and paid for under a much more robust Canadian dollar. And it might think about the opportunity that was lost.
Las Vegas and Seattle are looking better and better all the time.