Tuesday, January 27, 2015

Last Call For H-E-Double Hockey Sticks

The Canadian dollar isn't doing so well against its US cousin recently as the economy has stagnated and the Bank of Canada has cut interest rates.  Canada avoided the worst of the subprime housing crash seven years ago, but now the problem is oil prices in freefall, and that's causing a number of painful side effects.

Just ask Canada's NHL teams.

A low Canadian dollar hurts the NHL in a multitude of ways, and both the league and the seven Canadian teams keep an eye on its fluctuations daily. They engage in what’s known as currency hedging to protect themselves from drops, but dramatic falls such as those of late are difficult to protect against. Because player salaries are paid in U.S. dollars, every currency drop hurts those teams’ bottom line. For a wealthy franchise such as Montreal or Toronto, that simply means a lower profit margin. For a team closer to the break-even point, such as Ottawa or Winnipeg, an 80-cent dollar may well push them $5-million into the red and affect personnel decisions in the future. 
Spending to the cap may no longer be possible. 
The dollar’s shift is only one factor, but there’s evidence its movement translates to success on the ice. Between 1994 and 2000, the dollar sat around 70 cents and Canadian teams had an average of only 75 points a season – nearly 10 below U.S.-based ones. Meanwhile, Canadian teams’ most successful season, points-wise, came in 2005-06, when the dollar began to shoot back up to close to 90 cents.

 But it can actually get worse for Canad's small market teams like Winnipeg and Ottawa:

The biggest doomsday scenario for the cap would be if players themselves decide they don’t want it to rise. Every June, the NHL Players’ Association has to greenlight a 5-per-cent cap inflator that helps drive the league’s ceiling higher in anticipation of revenue growth. 
With players currently paying 14 per cent of their salaries into escrow, – a figure that could increase the rest of the season as the dollar falls – they may not want the cap to rise. 
A low or no-growth cap would create massive pain for successful-but-capped out franchises such as the Chicago Blackhawks, who have been signing players under the assumption the NHL’s ceiling will continue to rise. Already, some teams around the league are considering a “vulture” strategy, where they’ll purposely head into the summer with a lot of cap room in order to take advantage of distressed teams.

So yes, the biggest factor heading into the NHL's 2015 summer offseason may be where the Loonie is compared to the Greenback.  There's been talk of the NHL trying to expand to 32 teams as well. The fate of that may depend on currency traders more than anything else here in the next year or two.

Even if expansion is put off, the free agency period could be really interesting this year.

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