Canada's pro sports franchises are preparing for some pretty crazy times; loonie times, one might say.
With the loonie barely keeping its head above water compared with the U.S. dollar, Canadian franchises are battening down the hatches in hopes of preventing a repeat of what happened two decades ago. No one is saying that the Canadian dollar -- now threatening to sink below 80 cents U.S. -- is destined for the 61-cent depths it reached in the `90s, but there is some concern.
After all, the loonie has lost almost 20 per cent of its value in the past year, something that is already affecting teams whose business models are based on the worst possible scenario: the majority of costs in expensive U.S. dollars with revenue almost exclusively in weakening Canadian bucks. That would include Canada's NHL teams, the Toronto Blue Jays, the Toronto Raptors and this country's Major League Soccer franchises.
And even though the Canadian Football League deals strictly in Canadian funds, the dollar's drop has team executives sleeping a little less easy these days.
We're not talking chump change here. The Blue Jays' 2014 payroll of $137 million translates to $152 million today. Whatever teams were laying out last year in salaries will cost them 20 per cent more in 2015 -- even without a payroll increase. For example, the Ottawa Senators were paying star defenceman Erik Karlsson $6.5 million U.S. last year. Today, that translates to $8 million CDN.
Glen Hodgson, chief economist at the Conference Board of Canada and co-auther of Power Play: The Business Economics of Pro Sports, says the dollar's drop is something to worry about.
“It’s a real issue now,” Hodgson told the Ottawa Citizen. “You can deal with a 90-cent dollar, but now you’re talking about adding 23-25 per cent to player payroll.”
No one is worried, at least not yet, about the dark days of the `90s when the devalued Canadian dollar played a big role in the departure of the Quebec Nordiques and Winnipeg Jets. First off, the dollar is nowhere near those depths and leagues have learned a few things since then.
For one, the NHL's new revenue-sharing plan should be able to insulate Canadian franchises from the pain of a low dollar. Secondly, teams in all sports have learned to hedge their bets when the dollar is riding high.
Maple Leaf Sports and Entertainment chief financial officer Ian Clarke says his company hedges about $100 million U.S. each year.
“Our approach has been that it’s better to have certainty over how much things are going to cost. Win or lose your bet, you know what it’s going to cost you,” Clarke told the Toronto Star.
However, buying U.S. dollars at 90 cents allows you to weather the 80-cent storm. But that money eventually runs out and you're forced to pay the going rate.
As is always the case in the world of currency, one man's drop is another man's rise. The weakening loonie could actually help teams attract free agents. That $10 million U.S. contract will buy an awful lot in Canada. The Blue Jays could even use that as a bargaining chip: Come north and everything you buy will be a lot cheaper than it used to be.
On the other hand, the lower the dollar goes the harder it will be for CFL teams to attract talent. That $50,000 CDN minimum salary now translates into a $40,000 U.S. pay cheque for American players, who might be less interested in heading north now.
CFL Players’ Association president Scott Flory told the National Post that the union is planning to educate its American members on what this all means for them.
But no matter how you look at it, the dollar's slide is bad news for Canadian pro sports.