Canada’s hockey play­ers can’t out­skate the weak loonie

▶ The pro­nounced weak­ness of the Cana­dian dol­lar re­sults in less pay ▶ “There is def­i­nitely pain be­ing felt and more pain to be felt”

Bloomberg Businessweek (North America) - - Contents - - Eben Novy-wil­liams and Ger­rit De Vynck Edited by Christo­pher Power

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 its 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.

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