Thursday, November 08, 2007

Canadian Dollar is Changing the NHL Landscape

I think the NHL Collective Bargaining Agreement is taking a beating as a result of the rising Canadian dollar. Negotiated just 2 years ago, the currency issue was never a consideration. But then why would you expect it to be.

For one thing, the salary cap is tied to league revenue. Everything is calculated in U.S dollars. So the 6 Canadian teams pay salaries and report revenue in U.S. dollars. With the Canadian dollar rising about 25% against its American counterpart, revenues have grown without any increase in attendance, new TV money, etc. I made this point before when the cap was increased to $50 million. And I understand that 40% of NHL revenue now comes from the 6 Canadian teams.

So you can count on another substantial cap increase for next season. So what does it all mean? Well what you would consider a small market and large market team is being redefined. Edmonton has always considered a small market and has had trouble competing with the big boys. Not any more. But as well, struggling U.S. markets are struggling even more. Salaries are being pushed up by the Canadian currency and they can't compete. This is the reverse of what was happening 10 years ago when Canadian teams couldn't compete because of the falling Canadian dollar.

Also, teams like the Nashville Predators, Florida Panthers and Phoenix Coyotes, which rely on revenue-sharing money, must generate a year-to-year revenue growth rate in excess of the league average revenue growth rate according to the CBA. But the rising Canadian dollar makes that impossible for these markets.

In the past Canadian teams survived partly because they always had strong fan bases but were just at a financial disadvantage. But small market American teams do not necessarily have that strong fan base. The answer may be to move some franchises to Canada. However, Commissioner Bettman has absolutely no interest in the Canadian market. Meanwhile he has his eye on expanding the NHL to Kansas City and Las Vegas. Owners will be convinced because they are eager potential owners who would provide at least $500 million for existing owners to stick into their pocket. Expansion revenue is not part of the CBA so there is no sharing with players/

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