Canadian dollar crash should have NHL teams in panic (Trending Topics)

Over the last several years, the NHL's salary cap has been increasingly very steadily, about 8.5 percent per season on average. This was a result of a number of conditions coming together at once.

The league started doing more marquee events like outdoor games that brought in a lot of money from sponsors, and it also signed new television deals that likewise significantly increased revenues. Further, lots more people started going to games, especially because cornerstone franchises spent the last several years improving.

But most important of all was the fact that the Canadian dollar spent a lot of the time from 2006 to present doing pretty well in comparison with its American counterpart.

Apart from a pretty steep crash toward the end of the recession (when everyone was doing badly), the value of a Canadian dollar typically spent the last several years in the 95 U.S. cents range or so, and even occasionally cleared $1 U.S. dollar. This has been very, very good for the league, its teams, and its players. Everyone is getting paid, to the point that even a lockout didn't really do much to close tap that dispenses the hot and cold running hockey-related revenue.

But earlier this season, Gary Bettman came out and said that the cap might only rise to as much as $73 million — up 5.8 percent from the current $69 million — and that would constitute the smallest cap increase seen since 2010. Moreover, it should be noted that the $69 million salary cap seen this season was actually up a little bit from what the revenues actually dictated (closer to $68 million) and what the NHLPA therefore wanted. This was due to concerns over the amount of escrow they've had to pay.

The problem with the league's $73 million estimate was also a best-case scenario:

"Our best guess, and it’s got some variation in it, is that if the Canadian stays where it is now for the rest of the season, which is about 88 cents, that the cap for next season would be approximately $73 million," Bettman said in announcing the league's expectation. "That’s a guess, it’s subject to variation, and it also assumes that the Canadian dollar stays where it is now."

A lot of projections from economists, even at the time, were that the NHL was being overly optimistic with that 88 cents valuation. And the Canadian dollar definitively did not “stay where it [was then].” It has, in fact, crashed. Earlier this week, the Bank of Canada cut interest rates, and, well, here's the result. It crashed from a little less than 83 cents to the U.S. dollar — already well below the NHL's hopeful projections — to a little more than 81 cents. This may not seem like a huge decline, but when you're raking in millions and millions of dollars in revenues every month in Canadian dollars, the deficit adds up quickly. That's a lot of money lost because the league does business in U.S. dollars even as close to a quarter of the league collects money in Canadian ones.

How closely tied are cap increases to the value of the Canadian dollar? Have a look (but please keep in mind the NHLPA used to use its 5 percent cap escalator regularly):

*using the $70.2 million prorated cap for lockout year

**using the actual $60 million cap for lockout year

Things haven't been this bad in terms of the value of the Canadian dollar since early 2009, and the cap increased just $100,000 the next season. The only other time it was less than 92 cents on the U.S. dollar was when the cap was at just $39 million (remember those days?), so any increase was going to be huge.

(It should be noted here that the minuscule increase seen in 2009-10, which I'd imagine was driven by the use of the player's elective cap escalator, came because the Canadian dollar started the season in the 85 cents range before plummeting as low as 79 cents late in the regular season. In this way, the league is actually kind of lucky to have caught the decline now, a little after the midway point of the regular season, rather than, say, a few months ago. That would have caused Road Warrior-type havoc; only those brutal enough to pillage would survive, and ordinary men would be battered and smashed.)

There's also the chance that the NHLPA could bail teams out and use its escalator once again to raise the cap by five percent, though the likelihood of their doing so seems remote because of how much they've paid in escrow of late.

And here's the real issue: They might need that five percent just to get to $71 million.

This time around, that should be enough to cause significant panic.

Teams have just started giving out really rich contracts, with more cap hits than just Alex Ovechkin's creeping into the $9 million range and beyond (Jonathan Toews and Patrick Kane, you'll recall, are on $10.5 million apiece). And while there probably won't be many more this summer, you can count on a lot of middle-class guy getting big pay bumps. What, for instance, does Johnny Boychuk or Christian Ehrhoff command on the open market if Marc Staal can pull $5.7 million for 2015-16? What about Jonathan Huberdeau, Nazem Kadri, or Derek Stepan — all restricted free agents this summer — when Tyler Bozak is worth $4.2 million?

And for teams that are already close to the cap for next season with guys to re-sign, the issue becomes an increasing cause for anxiety. Again, teams were arguing for a cap of $70 million this year because they were worried about squeezing guys in under the wire; Boston and Chicago ended up having to make transactions they otherwise wouldn't have and were worse off for it (well, Chicago less so). Now, the good news for these teams is that the cap is indeed going to go up in all likelihood.

Sportsnet's Chris Johnston imparted the other day that the league is saying the cap couldn't possibly do anything less than rise to $71 million — an increase of just 2.9 percent over this season — thanks to the TV money it's raking in this season, and the fact that a lot of the business already done this season was prior to the point at which the Canadian dollar's value dropped so precipitously.

Before Capgeek shut down, it projected that three teams — Philadelphia, Tampa, and Chicago — would already have cap payrolls in excess of $63 million, and seven more — Colorado, Boston, Detroit, Minnesota, Los Angeles, St. Louis, and Vancouver — would be north of $55 million. All but Detroit and Colorado needed at least four or five guys to fill out their rosters; some as many as eight or nine. Those teams might have to start making some very uncomfortable decisions about personnel this summer if things go sideways.

And I've said this before, but it's obviously the teams deeper down the payroll scale that stand to benefit. Buffalo, for instance, had just $35.89 million committed to 13 players for next season, and cornucopia of picks and prospects with which they can dupe desperate teams into giving them useful NHL veterans. Teams like Dallas, Arizona, the Islanders, the Flames, and so on are in much the same boat. That could serve to significantly speed up any rebuilding efforts being made in those cities.

Regardless, this is certainly something for fans and teams alike to monitor obsessively over the next several months, because a variation of just four of five cents on the U.S. dollar could be the difference between high-payroll teams losing and keeping a key contributor. And thriftier ones benefiting significantly.

Ryan Lambert is a Puck Daddy columnist. His email is here and his Twitter is here.

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