TORONTO – Professional sports teams in Canada are facing the prospect of being priced out of the competition as the Canadian dollar flirts with values not seen in more than half a decade.
Canada’s NHL, NBA and Major League Baseball franchises pay their players in American dollars but collect most of their revenue in Canadian currency, so the loonie’s drop on Thursday to 77.10 cents U.S. puts a strain on their bottom line.
Economist Glen Hodgson wrote a book on the business of professional sports, and he says the exchange rate is one of the biggest concerns for professional sports teams in Canada.
“It’s going to cost them more and more,” he said.
In the mid-1990s, when the Canadian dollar was worth less than 75 cents U.S., the country lost multiple franchises as the Quebec Nordiques, Montreal Expos and Winnipeg Jets all moved south.
The reasons behind each move varied, Hodgson said, but the exchange rate was a factor and expedited each franchise’s exit.
“Even if the Nordiques were selling out, they had to make $1.40 for every U.S. dollar of salary,” he said. “That added a huge cost burden to those franchises to the point where it just wasn’t sustainable.”
Although the relationship between payroll and performance isn’t perfect, Hodgson said, teams have to pay their best players and attract high-value free agents if they want to remain competitive and retain the interest of fans.
Professional teams in big cities with broad support such as the Toronto Raptors or the Montreal Canadiens will be able to weather the storm, Hodgson said, but those in smaller markets such as the Ottawa Senators or the resurrected Winnipeg Jets could have a harder time.
“The danger is if you don’t draw, you can’t pay, you can’t attract the good players,” he said. “It can become a negative feedback loop.”
Richard Peddie, the former president of Maple Leaf Sports and Entertainment, said the gap in exchange rates can add up to millions in losses for a team. Coaches and general managers are often paid in U.S. dollars too, he added.
Still, Peddie said the poor exchange rate for the Canadian dollar won’t prevent teams from pursuing players or coaches if they really feel the additions are necessary.
“The owners are not going to like what it does to the bottom line, but they want to win,” he said.
Winnipeg Jets spokesman Scott Brown says that while the dollar’s slide hurts the team’s business, it’s not as important as it’s made out to be.
“While it’s not great on the overall business as you could imagine, it’s not as bad as people might think,” he said.
The team hedges itself against the risk from falling exchange rates, Brown said, although he did not elaborate. He said such measures are routine.
“It’s something that we’ve done in the past and we’ve done this time,” he said. “It’s protected us in this situation.”
Hodgson said while the exchange rate may be of greater concern to teams now than it was two years ago, they can survive.
“Most franchises can find a way through this,” he said. “They just have to be clever.”