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The Looming Loonie Problem for the NHL

Posted By Evan Weiner On January 15, 2014 @ 8:25 AM In Insider - Sports: Media and Money,main feature,News and Rumors,NHL,Sports Media | No Comments

When sports leagues do business in North America, particularly the United States and Canada, there is always a potential problem. The Canadian dollar and the American dollar are not always at par. This is a significantly lesser problem for Major League Baseball which has only one Canadian-based franchise, the Toronto Blue Jays, and the National Basketball Association which also has just one Canadian-based franchise, the Toronto Raptors. The National Football League has a very minor presence in Canada with just one franchise, the Buffalo Bills, playing an annual game in Toronto.

But seven of the 30 National Hockey League franchises are based in Canada.

The Canadian dollar has slipped as of January 14, 2014 to 91.34 cents to the US dollar. That separation in the US greenback and the Canadian loonie could cause some financial problems for some of the Canadian teams. Long time NHL executive Jimmy Devallano said if the Canadian dollar drops below 90 cents, then there may be some cause for worry.

The drop in the Canadian dollar may not be as much as a headache for Maple Leaf Sports and Entertainment, the entity that owns the Toronto Maple Leafs and the Toronto Raptors, but there could be some significant worries in Ottawa, Winnipeg, Calgary and Edmonton.

The Canadian dollar was on fire globally for quite a while but began to fall in October, 2013. The current rate is the lowest level the loonie has been since May 2010. The Canadian dollar matched the US dollar in value on September 20, 2007. It was the first time since November 25, 1976 that happened. The Canadian dollar was worth more than the American dollar in 2012 and rose to about $1.03 at one point.

Canadian sports franchises had money and could compete with American teams. Maybe not New York but certainly mid-sized US markets.

The Canadian dollars free fall probably wiped out the Quebec Nordiques and the Winnipeg Jets franchises in the mid-1990s. The Canadian dollar had fallen to 61.79 cents versus the US dollar on January 21, 2002.

In addition to the two NHL teams, the NBA approved the transfer of the Vancouver Grizzlies to Memphis and Major League Baseball seized the Montreal Expos and eventually would move the franchise to Washington, DC.

The Canadian dollar free fall almost forced Edmonton and Ottawa out of existence. The slide of the Canadian dollar in the 1990s is forgotten by hockey fans and others but if the loonie continues to go backwards, a look back at how teams survived in the 1990s may be a good guide to see what could happen in the future.

There are a few significant differences. The TV money in Canada should keep the seven Canadian franchises in relatively decent shape. The Canadian dollar is thought by analysts to be in much better shape with the bottom dropping to 88 cents not 62 cents. But the league operates in US dollars. A number of years ago, there was a formula that Canadian teams had. A drop of one cent in the loonie meant $250,000 drop in revenues for Canadian franchises.

In the late 1990s, the difference between the greenback and dollar had Canadian franchise owners scrambling.

By November 1999, the Canadian NHL franchises were in critical condition financially.

Rob Bryden had owned the Ottawa Senators franchise. Ottawa was and still remains a small market hockey team that has caused the National Hockey League problems since its inception in 1992. Somebody thought it was a good idea back in the early 1990s to put up $50 million and bring the Senators back to life.  Bryden complained every day that he could not continue to lose millions of dollars on his investment and wanted tax relief from various levels of the Canada government.

Bryden stepped in the original owner Bruce Firestone couldn’t make a go of it and by 1999 Bryden threatened to sell the team unless he got about $10 million a year in property tax cuts and other benefits.

At the time, Ottawa paid more in property taxes than the 22 NHL United States-based teams combined. The Senators franchise built an arena without government assistance and paid for a highway interchange that leads into the arena.

Bryden threatened that he would sell the team to United States interests if he didn’t get his tax breaks.

He never sold the team; instead Ottawa went bankrupt in the middle of the 2002-03 season. National Hockey League Commissioner Gary Bettman, who is constantly maligned by Canadian media for whatever reasons they have, found a buyer in Eugene Melnyk who kept the team in Canada’s capital.

Bettman has led the charge to save small market NHL Canadian franchises, something that is rarely acknowledged by the Canadian media who looks at him as a diminutive New York lawyer.

There were rumors that had Paul Allen buying the Vancouver Canucks and moving the team to Portland. Vancouver’s tax situation was similar to that of the Senators. Small market cities Calgary and Edmonton were struggling to keep pace and in the Montreal Canadiens ownership thought about putting up the then new arena for sale. Tickets were always available for Canadiens games, this in a city where once Canadiens season tickets were passed down through wills.

The province of Alberta stepped up to keep the Calgary and Edmonton franchises from moving.

“Alberta has an existing program for the two teams,” said then Edmonton President and General Manager Glen Sather. “Both of us have a relatively low rent base. We don’t own the buildings, so we don’t pay property or building tax.

‘“The biggest problem we have to deal with is currency between the two countries (the Canadian dollar is worth about 65 US cents). I don’t know if that’s all the Alberta government can do. At this stage, that’s all they said they will do.

“If the Federal Government does something as far as easing the tax burdens of the other four Canadian teams that are paying huge building tax, I think that plan on doing something for the two Alberta teams.”

Sather’s last sentence is the crux of the problem. The Federal Government has no plans on doing anything until the “stakeholders” enact a plan that would put a halter on runaway player salaries.

Canada Industry Minister John Manley in late 1999 said without a consensus between the league, the players association, British Columbia, Alberta, Ontario and Quebec, there would be no need for the Federal Government to get involved. Quebec has already signaled that they would take care of the Montreal Canadiens, which wasn’t a surprise because the Parti Quebecois-controlled government is looking to break away from the country.

The NHL and the Players Association were locked into a contract until 2004 and didn’t amend the document. The Players Association challenged the league’s Canadian Assistance Program for small Canada market teams such as Ottawa, Calgary and Edmonton.

Those three teams got league subsidies when they hit certain levels in season tickets and sponsorship. The Players Association challenged the legality of the subsidies because it felt the monies should not be redirected. They lost the challenge.

The Ottawa Senators franchise wasn’t paying the 10 percent Ontario Amusement Tax to the provincial government in an effort to keep the franchise going. The franchise raised the money, but keeping it for themselves. The club has its charity as the Ottawa Senators Foundation sponsor home games. Ontario law gives tax exemptions to charity organizations for “events.”

Bryden, who kept the $3.5 million annually, created a thorny question for Ontario. Is a hockey game an event? Is the hockey season a series of events? Can hockey be exempted from taxation?

Sather placed part of the blame on the players’ association and it’s Executive Director Bob Goodenow. In fact, Sather said (1999) that Goodenow told him at the Mills Commission hearings at the Canadian Parliament that the players didn’t have to do anything. The Mills Commission was studying the financial problems of the six NHL Canadian teams and recommended various mechanisms to help the teams. None were implemented.

“I think if he was faced with the reality of some more of these teams leaving Canada after Quebec and Winnipeg, that it might speed up his ship a little bit. Right now it’s in dry-dock. He’s never been one to initiate anything. Sooner or later he will have to do something.”

But Goodenow’s players dashed hopes of helping out. The Senators defenseman Wade Redden said at the time, the players won’t take pay cuts to help Bryden. In fact, Redden pointed out most players do better financially in the US.

NHL owners resisted a revenue sharing plan and consequently there is a huge chasm between the New York Rangers, Philadelphia Flyers, the Toronto Maple Leafs and the bottom rung teams. The 1994 lockout was designed to even out the playing field. That did not happen and two Canadian moved and Pittsburgh declared bankruptcy. Still, that could change in 2004.

“As far as sharing revenue, I think that day may come,” says Sather. “But I don’t think that’s in place right now. But the Canadian teams aren’t the only ones losing money. A lot of teams are losing money because they spend more than they earn. We (Canadians) are losing money because we have $14 million in currency difference between the two countries. That’s every team in Canada that deals with that.

“With proper management tools in place and your goals in the right place and your spending controlled, I think you can compete. Right now, in order to compete you have to deal with the collective bargaining agreement.

“The way that’s gone out of whack, I think it’s going to be very difficult to compete unless you a pulling in $80-90 million a year. I think Toronto is doing very well. They have a brand new building, it is sold out, the boxes are sold out. They are doing well, and doing well as far as spending is concerned. I think their top ticket is about $150. Our top ticket is $31 US right now and we can’t go much higher.

“You can’t keep passing the cost to the fans because sooner or later they will revolt. They have in Calgary and they have only 8,500 season tickets.”

Sather was wrong, prices skyrocketed. The loonie came back and the NHL was so confident in the future of Canada that the league approved the transfer of the Atlanta franchise to Winnipeg on June 21, 2011.

The NHL now has a revenue sharing plan. There is a solid TV deal in place. There seems to be some control of salaries.

There is a movement to get Major League Baseball back to Montreal, Quebec City financial and political leaders are pushing for a return of the NHL to the city. There are those pushing for a second NHL in the Toronto area and some people are wondering whether Vancouver could regain an NBA franchise. But with the Canadian dollar falling rapidly, all of those plans could be on the shelf.

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