As the Blue Jays president in charge of the largest pro sports payroll in the country, Mark Shapiro has estimated salaries for the ball club will in 2016 rise from last year’s $138 million U.S., while cautioning that any increase will likely be eaten up by the rising exchange rate.
That meter is ticking down, as the loonie dipped below 70 cents U.S. Tuesday, its lowest valuation in nearly 13 years, or about $1.43 to the U.S. dollar.
In 2015, the Jays locked in at a rate of $1.27 CDN per Benjamin to cover their U.S. dollar costs - player payroll, primarily. It’ll cost them more to “hedge” this time around, and it may not have hit bottom yet.
Hence, Shapiro’s warning, which goes pretty much across the board for Canadian pro teams, all of which appear to have some exposure. The NHL’s current CBA’s revenue sharing, for example, insulates Canadian teams some from the sort of buffeting that led to the Canadian Assistance Plan of the pre-cap era. But such a widening exchange-rate split, and over a length of time that goes back now a couple of years, will always affect decisions of the people who pay their players and American-based operations in U.S. dollars, while most revenues arrive in Canadian dollars (that Rogers-NHL broadcasting/digital deal is also in Canadian dollars).
Given continued conditions, salary-cap levels in the league will be one of the hot topics very soon, and a free-agency market that could well be hit by a recession.
“MLSE is going to be challenged by this,” says former MLSE president Richard Peddie. “Their existence is not going to be threatened, but the Winnipegs, the Ottawas, it does put a lot of extra pressure on them, and does it put a knife through that (proposed) Quebec franchise?”
As for the traditional, oft-cited strategy of hedging - it costs money, and it’s a gamble. Estimates, including the most pessimistic, aren’t always correct.
“In the late ‘90s, Labatt wanted us to wait, so we didn’t hedge,” recalls Bob Nicholson, the former COO of the Blue Jays. “The dollar took a nosedive, and we paid a lot more money out that year.
“It’s hard enough to forecast how team is going to do, let alone how the dollar will end up.”
The NBA has in the past waded into the dollar dilemma. The early Raptors (and Grizzlies, when they were in Vancouver), getting out from under a hefty expansion fee while the dollar fell into sickly territory, were granted “significant” relief from a 6 per cent ticketing levy, recalls former club executive Glen Grunwald.
“It amounted to millions of dollars and it made a difference,” says Grunwald, general manager from 1997-2004, a period in which the Canadian dollar to its historic low of 61 cents U.S. “I remember thinking at the time it was an impressive bit of partnership for the NBA to do that.”
Back to that Blue Jays’ player payroll, which last year, given Rogers' hedging, amounted to $175 million CDN. Now, just a few months later, that same payroll would be valued at $197 million CDN, indicating at least in the raw reckoning a profits hit in their case of over $2 million per penny’s drop in the rate, were this a mere apples to apples comparison (It isn't, and Rogers' media division, it should be said, made a nice $58 million profit thanks to the Jays’ run to the American League championship series, so don’t feel too bad for them - but as Shapiro has noted, such considerations will come into play this summer, when it’s budget time again).
For now, here’s the most recent published player payrolls of Canadian clubs, and their equivalent in CDN dollars at today’s rate:
MLB Blue Jays, $138 million US ($197.3M CDN)
NHL Maple Leafs, $74M US ($105.8M)
NHL Canucks, $72.2M US ($103.2M)
NBA Raptors, $71M US ($101.5M)
NHL Flames, $69.8M US ($99.8M)
NHL Canadiens, $69.5M US ($99.4M)
NHL Oilers, $65.8M US ($94.1M)
NHL Senators, $62.9M US ($89.9M)
NHL Jets, $61.5M US ($87.9M)