The myth persists the salary cap “saved” Canadian NHL teams. So what did save those teams? Read on to find out!

Recently I was reading about the “Hockey Guilty Pleasures” of the Denver Post’s Adrian Dater, and under the question, “What’s the thing you secretly respect (NHL commissioner) Gary Bettman for the most?”, Dater replied:

The fact that he’s never once gone something like, “You know what folks, especially you Canadians here booing your lungs out here while I try to hand over the glorious Stanley Cup that you guys failed once again to win in a seventh game, your team would be playing in the AHL right now if I hadn’t held tough on the hard cap a few years ago, so stick a sock in it, eh?”

I realize Dater’s response was “tongue-in-cheek”, but he’s mistaken in his opinion any Canadian-based NHL team would be “playing in the AHL” if Bettman had held tough on a salary cap.

Occasionally I’ll read something by a pundit or blogger claiming the salary cap saved Canadian teams, compelling me to once again attempt to dispel this myth.

It wasn’t the salary cap which saved teams like the Edmonton Oilers, Calgary Flames and Ottawa Senators.

The salary cap didn’t make it easier for the Vancouver Canucks and Montreal Canadiens to spend like the Toronto Maple Leafs, or big market American-based teams.

Winnipeg didn’t get back an NHL franchise because of a salary cap.

It’s the value of the Canadian dollar which made it all possible.

Ten years ago, five of the then-six Canadian franchises were hurting to various degrees, depending on their market size, because the low value of the Canadian dollar at the time (worth .65 cents US) had an adverse impact upon their revenues. Only the Toronto Maple Leafs, given their huge market, were immune to this problem.

They made their money in Canadian dollars, but had to pay their players in American dollars, and the loss on exchange made it difficult for most Canadian clubs to retain their best players, let alone bid competitively for unrestricted free agents.

When the 2003-04 NHL season ended,which was the last season under the previous collective bargaining agreement, the Canadian dollar was worth .75 cents US. When the current CBA was implemented with the salary cap in August, 2005, the “loonie” had climbed to .82 cents US. Three years later, then-Oilers GM Kevin Lowe acknowledged the high value of the Canuck buck was paying dividends for his team, providing them opportunities to do things they couldn’t before when the dollar was much lower. “We’ll be able to hang on to players or potentially sign players in free agency that we never could’ve previously”, said Lowe.

For most of the past six years, the value of the Canadian dollar has been worth over .90 cents US. Over the course of the 2010-11 season, the “loonie” remained around par with the American dollar, ranging no lower than .97 cents, going as high as $1.05 US.

It was reported in 2008 the then-six Canadian franchises accounted for over 30 percent of league revenue, becoming a significant factor in the steady increase of the salary cap. With the addition of the Jets, and a “loonie” possibly remaining at par with the Yankee greenback for most of next season, the Canadian percentage of revenue will undoubtedly increase, perhaps over 35 percent.

League executives freely admit the increase in the Canadian dollar is a prime factor in the rapid escalation of league revenue and of the salary cap.

Perhaps no better example of this was the increase in the salary cap for 2009-10 and 2010-11.

The cap only rose by $100K for the ’09-’10 season, largely because the value of the Canadian dollar declined during the previous season, falling from .94 cents US at the start of October 2008 to as low as .77 cents US by mid-February 2009.

Over the course of the 2009-10 season, the value of the Canadian dollar rose again, from .92 cents US  when the season began in October 2009, to par with the US dollar by season’s end in April 2010. As a result, league revenue increased, resulting in a more significant increase of the cap to $59.4 million for 2010-11.

Had the Canadian dollar remained as low as it was in 2004, league revenues wouldn’t have risen as high as they did, and ultimately the salary cap wouldn’t have jumped as much as it did over the past six years, from $39.5 million in ’05-’06 to $64.3 million for the coming season.

The argument could be made that, had the value of the “loonie” remained low and the cap not risen as high as it did,  small market Canadian clubs still would’ve benefited from the salary cap . That’s unlikely, since they still would’ve been earning revenue in Canadian dollars, but paying their players in US dollars. The same problem would’ve existed, salary cap or not.

A 65 cent “loonie” wouldn’t have helped the Oilers, Flames, and Senators. The Canucks and Canadiens would have kept pace with the rising cap for a little while, but ultimately they too would begun feeling the pinch, perhaps not as bad as their smaller market cousins, but they still would’ve complained the loss of exchange was hurting their ability to ice a competitive roster.

Forget about Winnipeg getting back an NHL team under a .65 or .70 cent loonie. The loss on exchange would’ve made the return of the Jets an unachievable dream.

As long as the Canadian dollar remains at or near par with its American counterpart, Canadian-based NHL franchises should have few problems keeping pace with a rising salary cap.

But if the “loonie” should ever tumble again for a sustained period, most Canadian teams will again struggle to maintain competitive rosters, and there won’t be anything the current salary cap system could do to help them.

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6 Responses to The Salary Cap Didn’t Save Canadian Teams.

  1. GHT120 says:

    Totally correct that the Canadian dollar has revived the Canadian franchises but in fairness, if not for Bettman the teams in Edmonton and Ottawa, maybe even Calgary, could well have followed Winnipeg and Quebec south during the last (pre-2005) CBA when the Canadian dollar was pathetically weak. The NHL’s currency equalization plan was acritical part of keeping those teams in Canada.

  2. Absolutely, GHT120, and that’s something I bring up whenever I hear Canadian fans making baseless claims that Bettman doesn’t care about Canadian teams. But Dater’s claim was the salary cap saved Canadian teams, and that’s simply not true.

  3. Jim Vallillo says:

    Why don’t Canadian teams hedge there FX exposure?

  4. Fauxrumors says:

    1) You are dead on! I recall you mentioning this on several occations the past few years. You’d think a good writer like Dater would know better!
    2) Evern more amazing is that some still have this false sense that the salary cap has helped the smaller markets. It can be argued in its current configurement its hurting the smaller revenue teams. No doubt Mr Bettman will use that fact as a weapon during the next round of CBA negotiations.
    3) As with the last CBA, it won’t be so much the players-vs owners, but the small vs- big revenue owners really fighting and the players’ gread used as the scape goat for all that ails the NHL’s fiscal situation

  5. delvecchio says:

    lyle, great article

  6. Ranzeir says:

    I have to agree with all the other posters as well. It’s largely been the strong Canadian $ that has helped the teams north of the border however in Ottawa’s case it was also a case the organization getting a new owner (Eugene Melnyk) with deep pockets and a willingness to spend. The previous owner(s) simply didn’t have the kind of money necessary to run an NHL team, big market or small.
    As Faux alluded to it now seems as if the cap floor is causing greater problems for weaker teams in the league rather than the cap ceiling.

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