What happens when your economic engine begins to sputter?
By some estimates, roughly one third of hockey-related revenue is generated by the NHL’s seven Canadian teams. For several years, one of the reasons the League’s been fat and happy was the thriving Canadian dollar; but some claim that it could drop to $0.85 against the American dollar by next year.
Pat Hickey of the Montreal Gazette asks what the impact might be on the NHL as oil prices and the value of the Canadian dollar continue to plummet:
Because NHL salaries are paid in U.S. dollars, all the Canadian teams will feel a pinch, but there may be an unusual burden placed on well-heeled teams like the Canadiens and the Maple Leafs, who have the wherewithal to spend up to the cap. The Canadiens have already committed $56 million in salaries for next season and they have to negotiate second contracts for Alex Galchenyuk, Brendan Gallagher, Jarred Tinordi and Nathan Beaulieu.
A decline in revenues and the dip in the Canadian dollar will hurt Ottawa, where cash-strapped Senators owner Eugene Melnyk is already losing money, and it will be tough on Winnipeg, which has the smallest arena in the NHL. And you have to remember that this problem with the dollar is tied to a drop in oil prices, which means less demand for Alberta oil — which means less money for people to spend on hockey in Calgary and Edmonton.
Hickey also wonders if the NHL’s expansion affinity for Quebec City might be affected, or if an increase in asking price to balance the Canadian dollar’s value might give potential owners pause (doubt that).
As the Cylons say, "all of this has happened before and will happen again."
For all the attention Gary Bettman’s received for propping up struggling American franchises in recent years, he did the heavy lifting for Canada when those franchises were facing the “Armageddon” (according to Brian Burke) of a devalued loonie and heavy taxation from the government.
The dollar then was down to about 78 cents. It was just over 81 cents during the 2005 lockout that shuttered a season so cash-strapped franchises like Ottawa didn’t have to resort to bankruptcy filings again.
And that’s part of the difference between now and then: “Cost certainty,” as Bettman puts it, attempts to inject some fiscal sanity into the cerebral cortexes of NHL owners with the salary cap. How effectively it accomplishes this is another debate ...
I don’t think we’ll need to see another “Canadian Assistance Plan” enacted if the loonie falls; as was noted on this 2008 blog by Mirtle, these drops in value can be more hype than impact on a league whose cap is linked to revenue.
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.
And that’s what we’ll likely end up seeing: Lower dollar, higher ticket prices and more posturing from Canadian owners about how their financial challenges should exempt them from a higher percentage of revenue sharing.
Like we said: All of this has happened before …