NHL general managers count on an increase in the salary cap every year. But what if, as some fear, it doesn’t increase next season?
The defending champion Los Angeles Kings may not have the space to hold off Justin Williams, who scored more points in Game 7 than anyone in league history. The Boston Bruins may have to part ways with Dougie Hamilton, Torey Krug or another of their future defensemen. The Rangers are expected to make tough decisions regarding Martin St. Louis, Derek Stepan, Mats Zuccarello, Carl Hagelin and Marc Staal, all of whom will become free agents next summer.
The reason for all this apprehension? The fall of the Canadian dollar. But league officials say the speculation is overblown.
“I expect a good increase in the salary cap for next season,” Bill Daly, the deputy commissioner, said last week. “The Canadian dollar would have to continue to fall significantly for this to change.”
For the NHL, a strong Canadian dollar means strong business growth. But with the Canadian dollar plummeting, speculation is rife that the league’s bottom line could suffer, triggering a cascade of side effects, including a stagnant salary cap for the 2015-16 season.
Next season’s salary cap is sure to be a major topic of discussion when the NHL Board of Governors meets Dec. 8-9 in Boca Raton, Florida.
The salary cap is tied to league revenue. When the Canadian dollar falls, so does the share of league revenue generated by the NHL’s seven Canadian teams. This affects the salary cap.
“It’s like throwing a dart at a dart board: you make your best guess,” said Cyril Leeder, president of the Ottawa Senators. “We will develop contingency plans if the cap goes up, if the cap stays the same, or if the cap goes down. The league will advise us throughout the year.
The salary cap has increased steadily every year without a lockout since its inception in 2005-06, and general managers have come to rely on that increase when recruiting players. This season, the cap is $69 million per team. Early projections predicted that amount would increase to $74 million for next season, but that could prove optimistic.
The Canadian dollar, which was equal to the US dollar in February 2013, is now trading at just over 88 cents. A report from the Canadian Imperial Bank of Commerce released in September estimates that the loonie (so called because it is engraved with an image of a loonie) will fall below 85 cents.
How can the state of the Canadian dollar affect the financial health of American hockey clubs?
“Canadian teams earn in Canadian dollars but pay their players in American dollars, so in American dollars they have lost more than 10 percent of their revenue compared to a year and a half ago,” said Glen Hodgson, economist. head of the research group. THE Conference Board of Canada.
Although Canadian teams represent only 23 percent of the NHL’s revenue, by most estimates they contribute about 35 percent of revenue.
“So clearly there has to be an effect on overall league revenue, on the salary cap, on revenue sharing,” Hodgson said.
Last season, the commissioner Gary Bettman conceded that the fall of the loonie slightly lowered the financial performance of the league. It also reduced this season’s salary cap growth by about $2 million (to $69 million, down from $64.3 million in 2013-14).
Even most of the league’s television dollars come from Canada. But Rogers Communications’ broadcast contract, worth $5.2 billion over 12 years, is paid in Canadian dollars. So even though this contract was worth $4.9 billion in U.S. dollars when it was signed a year ago, it is worth $4.6 billion today.
A weaker Canadian dollar could have other side effects. If the league expands or existing teams in Florida or Arizona move, a faltering loonie could hurt Quebec’s attempt to acquire a franchise since, as a small Canadian city, it would contribute less to NHL revenues . If Quebec’s chances decrease, the chances improve. for Seattle and Las Vegas.
Still, an 88-cent dollar is a far cry from the mid-1990s, when it traded below 75 cents and was a major factor in the former team’s trips to the United States. Quebec, the Nordiques, and the first Winnipeg Jets. The currency continued to plunge, reaching a low of 62 cents in 2002.
This period, from the mid-1990s to the mid-2000s, was not good for NHL franchise changes. Negligible television revenue and diminishing visibility in the United States were among the biggest problems facing the league.
After 2005, the the league has rebounded financially — a period which coincided with a rise in the Canadian dollar.
This was only one factor, others being the creation of the Winter Classic; Stanley Cups in Detroit, Pittsburgh, Chicago and Boston; NHL participation in the Winter Olympics; cost certainty for owners after two lockouts; and lucrative television contracts on both sides of the border.
But the influence of a stronger Canadian dollar is undeniable. This is reflected in Annual estimates from Forbes magazine values of NHL franchises.
In 2002, the average Canadian team ranked 21st in value out of the league’s 30 franchises.
By 2013, Canada’s average team value had risen to ninth. Despite the recent decline in the loonie, the Forbes list published last Tuesday still places the average value of Canadian teams at 10th place.
Daly agrees that a stronger Canadian dollar helps the NHL as a whole.
“The league is obviously healthier when the dollars are closer to parity,” he said. “But I think the commercial success of the league and the clubs over the last few years is down to itself.”
Hodgson and other Canadian economists say the loonie would need to fall well below 85 cents to have a significant impact on the NHL’s nearly $4 billion-a-year business.
But, as Bettman pointed out, the league monitors exchange rates daily. His financial health depends on it.
