The NHL has a loonie problem. The Canadian dollar fell to 68¢ last month against the U.S. dollar, a 13-year low, and analysts think it could drop an additional 13 percent in 2016. The weakened state of the currency may cost the NHL hundreds of millions of dollars in lost revenue.
The NHL does all its business in U.S. dollars, and all players are paid in greenbacks. The league also computes its total annual revenue in U.S. currency. Revenue for the league’s seven Canadian teams comes in the form of Canadian dollars, which is then converted into U.S. dollars. This season it’s going to take many more of the weak loonies to help the league reach its revenue target, estimated to be $4 billion. Chances are growing slim that the league will hit its mark.
That has implications for more than team owners. The teams and players split revenue 50-50. Money is withheld from each NHL player’s paycheck and kept in escrow. If league revenue at the end of the season doesn’t meet its target, money is taken from escrow to ensure an even split with the owners.
For the 2011-12 season, the players’ haircut was 0.5 percent of their annual salaries. At the start of this season, the players’ escrow accounts withheld 16 percent of salaries: That number just rose to 18 percent, as the Canadian dollar declined. Representatives are warning the players not to expect much back. “No one is happy about it,” says NHL players agent Allain Roy.
About 33 percent, or $1.2 billion, of the league’s $4 billion is expected to come in Canadian dollars. That includes sponsorships and ticket sales from the Canadian franchises, plus the league’s monster CA$5.2 billion, 12-year television deal with Rogers Communications, a media and telecommunications company based in Toronto, which pays in loonies. The Canadian dollar has dropped 10 percent since the league’s fiscal year began on July 1. That suggests the weakened currency could cost the league about $120 million in revenue.
While everyone in hockey is used to currency fluctuations, severe ones have had real consequences. In the mid- to late-1990s, when the loonie never went above 75¢, the Winnipeg Jets and the Quebec Nordiques moved to Phoenix and Denver, respectively.
“There is definitely pain being felt and more pain to be felt,” says Ian Clarke, chief financial officer of Maple Leaf Sports & Entertainment, owner of the Toronto Maple Leafs, the NBA’s Toronto Raptors, and Major League Soccer’s Toronto FC. Although the Maple Leafs and other Canadian teams have hedged against their exposure to the loonie, their hedge contracts have started to expire.
When financial adviser Stew Gavin used to lay out the finances for NHL players who were his clients, he’d factor the escrow cost at 10 percent, which he says was “overly conservative.” That model has been thrown out. “The reality is that, for your $4 million contract, your gross may be 15 to 18 to 20 percent less than that,” says Gavin, a former NHL player and president of the Gavin Management Group. Future contracts may also contain less money—the salary cap is tied to league revenue, so as profits slow, so does the overall amount being paid to players.
The NHL and the players union have yet to finalize last season’s budget, but two agents say they expect players to lose about 13 percent of their salaries to escrow rebalancing. This year may be worse, barring a rebound in oil prices, which would buoy the Canadian dollar. An exciting Stanley Cup series in some of the U.S.’s strongest hockey markets could also help the league make up some of the difference. (None of the Canadian teams are on track for the playoffs.) “At the end of the day, the league is healthy,” NHL agent Roy says. “We just have to find a way to ride out this Canadian dollar issue.”
The bottom line: With the weak Canadian dollar making it hard for the NHL to reach its target revenue, players have to make their teams whole.