Loony Loonies

 I wonder when the Canadiens’ Centennial loonie comes out, whether it’ll be worth the metal it’s stamped on?

I’m thinking about falling currency today. It’s not necessarily the thing that first comes to mind when I think about hockey, but today they’re both in the news and it’s becoming more apparent that one is going to have a serious impact on the other.  

The Canadian dollar sits at about 80 cents US right now. It’s the lowest the loonie has been since mid-2005…not coincidentally the year of the NHL lockout. While this is great news for Canadian manufacturers who produce in Canadian currency and sell in US, it’s not good for Canadian hockey franchise owners who make their money in loonies and have to pay their players in greenbacks.

And it’s probably not as low as it’ll go yet, either. Falling commodity prices translate to a drop in the value of the loonie, as does the increasing likelihood of a global recession. Neither of those factors looks primed for an immediate turnaround. George Gillett says he’s not too worried about his hockey income yet, but will be monitoring the situation. It looks to me like he won’t enjoy what he sees on the monitor, and neither will the rest of the NHL. An expert who’s better at math than I am tells me the Canadiens’ payroll has already jumped 21% since September 25th.

Last year, a leaked league document revealed the six Canadian franchises were responsible for 31% of the NHL’s total hockey revenue..that’s the mixed bag of sources of teams’ income cited in the CBA, and on which the salary cap is based. And the biggest reason that only twenty percent of the teams in the league were able to supply more than thirty percent of all the money the league raked in was because they were generating income in a currency worth ten percent more than the dollars in which they paid their employees. Of course, the sold-out arenas, strong advertising and broadcast deals and massive merchandise sales in Canada helped too…but it helped more that all those sales were made in Canadian dollars.

That disproportionate amount of league revenue generated by Canadian teams enabled them to pay millions into a revenue-sharing pot to benefit American-based teams who didn’t have the luxury of sold-out rinks, rabid fan interest and Canadian dollars to pad their bottom lines. Now, with the dollar falling faster than Mike Ribeiro in the playoffs, that nice cushy exchange-based boost to league revenue is drying up. The teams who need the wealthy teams’ transfer payments to stay afloat are going to feel the pinch.

So will the Canadian teams themselves. In D’Arcy Jenish’s new book, "The Montreal Canadiens," commemorating the team’s Centennial, he cites a conversation he had with Habs’ president, Pierre Boivin. Boivin told Jenish that before the lockout in 2005, the Canadiens were in very serious danger of folding. In fact, Jenish quotes him as saying, "We had no hope of surviving." The team couldn’t keep up with the salaries, the taxes and other expenses with the Canadian dollar at such a low exchange rate. Now it looks like we’re heading back there again, and the cap hasn’t done quite as much as we would have hoped to control team spending and huge contracts.

As for the cap itself, well, it’s based on total combined hockey-generated revenue from all the teams in the league. If the Canadian teams see a precipitous drop in the amount of money they’re making, that pot of hockey-generated revenue is going to shrink markedly. That will likely translate to at least a freeze on the salary cap, and possibly a reduction of it. So, teams that spend to the cap every year, and lock themselves into big, long-term contracts in the process are going to be in a quandry. How are they going to pay their young players fair wages, if a lower cap is completely absorbed by highly-paid, untradeable veterans? I predict a lot of waiving of players we’ll be surprised to see on the waiver-wire, and a lot of teams stuck with players they don’t really want and can’t move.

The trick to this is that it’s not necessarily going to be apparent in next year’s cap number. A recent conversation I had with Julien BriseBois, Bob Gainey’s cap expert, revealed that it’s the year AFTER next that’s of concern. That’s because next year’s cap is based on the money teams make this year, and a lot of the tickets were already sold, and advertising and broadcast deals signed before the world financial markets went into the dumper. What’s going to be a problem is the year after, when the dollar isn’t performing and fans find they just don’t have the money to buy hockey tickets, or RBK sweaters or ten-dollar beers.

As a result, Bob Gainey and the other smart GMs in the league are going to have to look a bunch of UFAs in the eye this summer and say, "Yeah, I know it looks like there’s lots of money there, but it’s going to disappear next year," and convince them to sign for sensible, manageable deals under a potentially shrinking cap.

All I can say is, good luck with that. And I don’t mean lucky loonies.

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