Tuesday, October 14, 2008

All eyes on the dollar


The Canadian dollar has been going cuckoo lately, along with a lot of other things, and at one point on Friday afternoon was below 83 cents — its lowest point since the spring of 2005 when the NHL was still locked out.

In the past two weeks, the dollar has dropped more than 10 cents. Heck, on Friday, it fell by 4.5 cents at one point, the first time in 47 years that it had decreased by more than three cents in one day.

Yesterday, it was back up to about 88 cents again.

Commissioner Gary Bettman on the issue:
"This has been a fascinating journey. When the Canadian dollars was in the 60s, it was a disaster. When the Canadian dollar was at $1.09 (US) it was a disaster because it meant everything else was out of sync. Our system is designed to account for the fluctuations of the Canadian dollar. It would make everybody's life easier if it would stabilize, but it's not a concern."
Even if the loonie sits where it is currently, it should be a concern. A report in The Globe and Mail on Saturday highlighted just how much of the league's revenue-sharing plan hinged on Canadian teams' input last season, with $50-million of the handouts coming from the six franchises north of the border.

Toronto and Montreal forked out about $12-million apiece in regular-season funds, while Vancouver paid $10-million and Calgary paid $6-million. Ottawa and Edmonton lagged behind, but still chipped in about $1-million each.

All six were, again, among the NHL's 10 highest revenue generators.

The dollar teetered around par almost all of last season, and a 10- to 20-per-cent dip in the currency could represent some serious rejigging of the league's givers and receivers. The Leafs and Habs can easily withstand a 15-per-cent haircut, and would remain league leaders in revenue, but Vancouver would likely fall into the 10-15 range and Calgary, Edmonton and Ottawa would likely be 15-20.

Outside of the "givers" range, anyway.

It's going to be an incredibly interesting year from a revenue standpoint. Bettman is still smelling all roses, but the increasingly ugly situation in the U.S. combined with the dollar drop could seriously weaken what's become a huge part of the league's financial backbone.

If there's any good news for some of the franchises struggling on the low end, it's that the cap will finally slow its climb next year. Where it stops, however, is anyone's guess at this point.
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16 Comments:

At 7:58 AM, October 14, 2008, Anonymous Anonymous said...

Even if Canadian teams take in same amount of Canadian dollars as last season it will generate 100-115 million US less league revenue and that combined to economic crises in US I just can't see anything but cap going lower next season.
Not staying where it is right now but going down. Period. Listening to Bettman is like listening to Obama and McCain bullshitting voters. Unbearable.

 
At 8:26 AM, October 14, 2008, Anonymous Kevin Forbes said...

and this is probably one of the more damning reasons why another franchise in Canada is not a viable idea anytime soon.
The roller coaster ride that the Canadian dollar has taken in comparison to the US would make it extremely difficult for a new Canadian franchise to have a solid economic plan.

 
At 9:11 AM, October 14, 2008, Anonymous Anonymous said...

You didn't really just type that in did you?
Another Canadian franchise wouldn't be viable. As compared to what? Those economic titans the Phoenix Coyotes? The Nashville Predators? The Florida Panthers? The Atlanta Thrashers?
Sure, pal. Whatever.
There's no way in hell Canada could support another team. You are absolutely correct. If you make a comment like that how can we even believe anything you post on your own website? Give your head a shake.

 
At 9:32 AM, October 14, 2008, Blogger The Forechecker said...

As crazy as the last couple weeks have been, I wouldn't be surprised to see more of a roller coaster over the next fortnight, as the G8 countries start to implement their financial rescue packages. Combine that with the US election coming up and the implications that could bring, and I think you'll see some wild swings (in both directions) over the next few months.

 
At 9:32 AM, October 14, 2008, Blogger pete said...

Even if the loonie sits where it is currently, it should be a concern.

The Canadian dollar settling in a range between 70 and 90 cents U.S. is great news for everyone in Canada who doesn't own an NHL team

 
At 9:44 AM, October 14, 2008, Anonymous Kevin Forbes said...

I said nothing of the financial picture of other franchises in the league.

As James mentioned, the drop of the dollar from par to 80-85 cents places half of the teams in Canada in the bottom half of the league revenue wise.

My comment was meant to highlight this: starting a new franchise (or moving a franchise to a new location) is difficult no matter where it is. Currently Canada has NHL franchises in their top six urban centres. Interestingly enough, the profit of those teams goes along hand in hand with the population numbers of those urban centres. Extrapolating that information out to any new franchise in Canada potentially means a profit slightly lower then Edmonton/Ottawa and likely in the bottom third of the league.

These six teams are all established franchises, all have been in the league for at a minimum of 15 years. They all have established market presence and season ticket holder bases. It is not unreasonable to expect that, yes, even in Canada, it would take a few years for a franchise in Quebec or Hamilton or Winnipeg to establish itself. That idea, coupled with the loss of money from a weaker Canadian dollar represents a bad investment.

The league still operates in American funds and as a result, Canadian teams lose significant quantities of revenue when stacked against the teams south of the border. A seventh Canadian team would face those same challenges, all the while doing it in a smaller market and starting from scratch in terms of season ticket sales and marketing. The cap may provide some relief, but only if it drops, as the commentator ahead of me suggested.

On a side note, if you have an issue with the work I provide for Hockey's Future, please contact me away from the comment forms on a blog not associated with myself or my work.

 
At 10:34 AM, October 14, 2008, Blogger Big Picture Guy said...

"Our system is designed to account for the fluctuations of the Canadian dollar" Gary Bettman

The Globe and Mail article says that most Canadian franchises hedge against currency fluctuations and the league must (should) be hedging that portion of league-wide revenues from marketing, television contracts, etc that it returns to Canadian teams. The true cost or benefit to Canadian teams is the cost of the "insurance" purchased (probably currency forward contracts but possibly options or futures contracts) and how successful and extensive those hedging efforts are. Costs can be quite high when exchange rates are volatile but they are not the same as the simple percentage changes in exchange rates.

 
At 10:42 AM, October 14, 2008, Blogger Adam C said...

Kevin: Canada does have teams in each of its six largest markets, but if Toronto is double the size of Vancouver (triple the size of Nashville) wouldn't it stand to reason it could support a second team?

There would still be problems with currency fluctuations (unlike the old days when Canadian teams paid Canadian currency) but there are vanishingly few untapped American markets as attractive as 1/2 of Toronto (which would essentially be what Hamilton would get).

 
At 12:06 PM, October 14, 2008, Anonymous Anonymous said...

The Canadian dollar settling in a range between 70 and 90 cents U.S. is great news for everyone in Canada who doesn't own an NHL team.

You must be an auto worker.

The Northern Peso sitting at 70-90 is bad for importers (and ultimately consumers) and Canadians who travel abroad, among others.

If a weak dollar is the path to prosperity, why not print a few trillion more, set the overnight lending rate at 0%, watch FOREX clients flee the dollar as it plummets, and we'll all be rich together.

 
At 12:33 PM, October 14, 2008, Blogger toqueboy said...

@anonymous (the last one)

you have a pretty small view of the importance of a decent dollar range vis a vis import/export. canadian's travelling abroad is a pretty small concern to our policy/banking maker. our dollar is linked very heavily to fluctuations in the world's oil prices. ie, a huge drop in our dollar now that oil is affordable again.

the drop in the dollar is actually just a repositioning of itself, after this 'golden oil bubble'...bam, now we're back to being Canadian...hopefully you enjoyed being Canada Plus for awhile and hopefully everyone took advantage, 'cause oil's not going up anytime soon.

 
At 12:40 PM, October 14, 2008, Anonymous Anonymous said...

I live in Canada and get paid in USD and Euro so here's hoping for 60 cent Canadian peso. After that I have enough money to go see NHL hockey live. It all works out in the end. Perfect.

 
At 12:48 PM, October 14, 2008, Blogger saskhab said...

hopefully you enjoyed being Canada Plus for awhile and hopefully everyone took advantage, 'cause oil's not going up anytime soon.

Wow, where did this huge new supply of oil come from to drop the prices permanently? Or did we just stop consuming oil all of a sudden?

Once this financial silliness is behind us, the price of oil will go back up, because try as we might, we can't get enough of the stuff. And with a limited supply of oil globally, most of which are in the hands of "unfriendly" regimes, the Canadian dollar will remain strong.

The past six years of the CDN dollar climbing was not the abnormality, the past month of a decline due to a global credit collapse is.

 
At 1:36 PM, October 14, 2008, Blogger James Mirtle said...

They all have established market presence and season ticket holder bases. It is not unreasonable to expect that, yes, even in Canada, it would take a few years for a franchise in Quebec or Hamilton or Winnipeg to establish itself.

Hamilton would simply be an extension of the Toronto market, which is horribly underserved. There wouldn't be a problem selling tickets.

 
At 3:25 PM, October 14, 2008, Blogger The Falconer said...

James writes:
"All six were, again, among the NHL's 10 highest revenue generators. The dollar teetered around par almost all of last season, and a 10- to 20-per-cent dip in the currency could represent some serious rejigging of the league's givers and receivers. The Leafs and Habs can easily withstand a 15-per-cent haircut, and would remain league leaders in revenue, but Vancouver would likely fall into the 10-15 range and Calgary, Edmonton and Ottawa would likely be 15-20."

What probably needs to be added to that is some context I think. The 6 Canadian markets are in the top 10 in revenue BECAUSE of a post-lockout currency shift .

If the currency shifts back OTT and EDM and CGY might drop out and be replaced by US markets such as COL, NJD, CHI.

If the currency exchange rate returns to status quo ante, then I would expect the top revenue clubs would look much as they did pre-lockout: NYR, PHI, DET, TOR, MON, COL, BOS, DAL, with perhaps CHI now joining that club.

Revenue sharing is not going to collapse if CHI replaces EDM as one of the teams paying into the system.

If the loonie declines the revenue sharing program will continue along, what could change dramatically is the cap could either cease growing or even decline. That is probably a more consequential change for clubs that handed out long term contracts with the assumption that the cap would always be rising.

 
At 5:57 PM, October 14, 2008, Blogger Doogie2K said...

Wow, where did this huge new supply of oil come from to drop the prices permanently? Or did we just stop consuming oil all of a sudden?

The impression I was given is that the $130 oil price was the inflation, and that the $100 oil was the market correction, not the other way around.

 
At 1:19 PM, October 16, 2008, Blogger Tom L said...

We're experiencing price deflation and economic contraction. During phases like that commodities will fall in price. The worse the short-term data, the more the speculators in the future's markets will push the price down.

That explains oil.

The Loonie is under pressure b/c of the extreme demand for USD's to preserve cash during a contraction of credit, especially credit denominated in USD. This is not a fundamental move in the USD, but merely a short-term reaction to market uncertainties. Fundamentally, nothing the US Gov't or the FED have done is good for the USD and it will resume it's death spiral. Whether the Canadian Central Bank intends to follow the FED's lead is anyone's guess.

All of this is bad for the NHL in the medium and long term in terms of revenues. Short term, though, this season's tickets have already been bought and mostly paid for.

Ta,

 

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