Friday, July 06, 2007


Hate the High Salary Cap? Blame Canada!

by Jes

With the NHL Salary Cap hitting an amazing $50mil+ for the next season, people are wondering how the figure got so high, especially considering the much-more-popular NBA has a cap of just $56mil.

Well, the answer lies in the stronger Canadian dollar (and weaker American dollar).

From Stephen Brunt of the Globe and Mail:
That first year postlockout, with the Canadian dollar up to about 84 cents (U.S.), the cap was set at $39-million (U.S.). Then two things happened: the Canadian teams rode a wave of pent-up demand for their product, filling their buildings, maxing out their revenues, and the Canadian dollar began to climb toward parity.

That swing was enough to push overall league revenues up, even as American television money dipped, and many U.S.-based franchises were struggling to reclaim even the modest fan bases they had maintained before the lockout.

This year, with the Canadian dollar closing in on 95 cents — up more than 27 per cent over the spring of 2004 — the new cap number is $50.3-million.

In layman's terms, Canadian ticket sales become worth more to the league, and then the total league revenues went up, simply because of a currency exchange issue.

So, the players benefit with increased salaries, all thanks to Canada.

The owners? Well, they asked for this 'cost certainty', and didn't predict/expect that the Canadian Dollar would get as strong as it did. It's their fault that they didn't have a plan in place for such an event, and now we see the rich teams able to spend just as foolishly as they did pre-lockout.

It's a double-edged sword, of course. The strong Canadian economy allows fans and business to buy pricey tickets, which in turns increases revenue, which increases the cap, etc etc...

Or, we can see Kevin Lowe be even more foolish than he ever was by signing Tommy Vanek to a $7mil+/season offer sheet. WTF?

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The Canadian currency issue is certainly a factor, but a bigger one is that many teams around the league raised ticket prices without adversely affecting attendance. For the Canadian teams, the strong loonie added fuel to the fire.

Heck, just imagine what would happen if they could ever land even a $100 million/year national TV contract in the US again?

People may be crying over some of these signings, but the boundary lines are quite clear, and I doubt spending will get out of control. I think the more likely scenario is that the gap between ceiling and floor is too small, and some teams may have difficulty turning a profit at the low end.
I heard Flames' president Ken King talking about this on some radio show or another yesterday. I thought he made a good point about the timing of the increase in the value of the Canadian dollar; the loonie may have increased in value, but most of the increase came at the end of the season and probably didn't have as big of an effect as some people think it did. Journalists like Brunt are making the assumption that the increase in the dollar happened gradually throughout the season. The increase in attendance/interest is the likelier suspect.

I'm no accountant, but this seems to make sense. The bad news for some owners will be the potential effect the strength of the CDN$ will have on the cap next year if it continues to remain high throughout the entirety of the season.
How could you blame Canada for making hockey the greatest sport on ice ?

You should blame USA for not havin' enough fans to fill all those arenas !

Empty USA arenas = No cash to pay the players
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