For the first time in over four years, the value of the Canadian dollar this week sank below .90 cents in value against the American dollar.
I won’t go into the reasons behind this decline. You can read about it here if you’d like. I’m more interested in the effect upon Canada’s seven NHL teams and upon league revenue.
This isn’t the first time I’ve touched on this subject. I noted the potential effects of a lowered “loonie” in February 2009, when its value plummeted to .77 cents US, which were realized when the cap only rose by $100K from $56.7 million in 2008-09 to $56.8 million in 2009-10. Following the relocation of the Atlanta Thrashers to Winnipeg I expressed concern of potential difficulty for the Jets if the “loonie” were to significantly decline for a prolonged period. In December I touched again on the subject and the possible consequences of a lower-valued Canadian dollar.
The value of the Canadian dollar is of significant importance to NHL revenue. Prior to the relocation of the Thrashers to Winnipeg, six Canadian teams accounted for 33 percent of NHL revenue. With now seven franchises that amount has been estimated closer to 36 percent.
CBC’s Elliotte Friedman recently spoke with a couple of NHL “capologists” who predict a “loonie” worth .90 cents or less could lower next year’s cap ceiling by between $1 million to $1.5 million. I’m assuming Friedman was referring to the cap ceiling for 2014-15, which was projected to reach $71.1 million, meaning it could instead come in between $69.6 million to $70.1 million. Still a significant increase over the current artificially-lowered $64.3 million, but not as high as expected.
Bear in mind the league is enjoying a significant increase in revenue this season from their plethora of outdoor games, all but one of which are based in American markets. They won’t have that many next season but it will still boost revenue, as well as the salary cap for 2015-16. A lowered “loonie” also won’t affect its new 12-year, $5.2 billion TV contract with Canadian sports network Sportsnet, as the league gets that money in American dollars regardless of the value of the Canadian dollar.
In the short term league revenue likely won’t be significantly affected, but it’ll be interesting to see what the long-term effect could be. The lower the “loonie”, the greater the impact upon the league’s revenues. Few financial experts expects the Canadian dollar to fall much further, let alone reach .77 cents as it did in early 2009 or to where it was in value (below .65 cents US) at the turn of this century. The declining value of the loonie should slow the rise of league revenue and thus the salary cap. By how much remains to be seen.
It’ll also be worth watching the effect it could have upon Canadian teams. Over a decade ago, when the “loonie” was considerably lower in value, the impact was significant for all Canadian teams except the Toronto Maple Leafs. There was fears smaller markets clubs like the Edmonton Oilers, Calgary Flames and Ottawa Senators faced relocation. The league was forced to implement a modest revenue-sharing scheme to assist those franchises. All but the mighty Maple Leafs couldn’t afford to keep pace with rising payrolls.
According to Forbes.com, last season the Maple Leafs pulled in the most revenue of all NHL franchises. The Canadiens and Canucks are among the top ten, the Flames were 11th , the Senators 13th , the Oilers 16th and the Jets 18th. In terms of operating income, the Leafs, Canadiens, Canucks, Flames and Oilers were in the top ten, while the Senators and Jets were 13th and 14th respectively. All but the Senators enjoyed full houses last season. The Leafs, Canadiens, Jets, Canucks and Oilers led the league in ticket prices.
A lower “loonie” will affect the revenue generated by those teams, though not to the disastrous degree it could if it were to fall to under .70 cents US. Should the Canadian dollar level out between .80 – .85 cents for a number of years the Canadian teams should be fine, though it could be worthwhile keeping an eye on the Jets, who play in the NHL’s smallest market in the league’s smallest arena. A lower-valued “loonie” over a number of years could either force the Jets to continue charging significantly higher ticket prices or consider the construction of a larger arena.
For now, a Canadian dollar worth between .85 – .90 cents US will slow the rise of NHL revenue but won’t stop it. Expect NHL headquarters and the owners of the seven Canadian teams to keep a close eye on the Canadian dollar in the coming weeks and months.