How Much Have Revenues Grown Ignoring the Exchange Rate?

[Enstrom39]

I know a lot of people appear to be shocked at how high the salary cap maximum is this year but it is tied to league revenues. I also know that the Cdn currency is up roughly 22% over the last two years compared to the US $.

Can anyone give a rough estimate at how much revenues have increased without the currency effect? In other words if we assumed no change in the exchange rate how much real growth has there been within the US and Canada? I realize that this is probably though to answer and I'm only looking for rough estimate.

Basically I'm curious to know what % of the cap increase is driven by curreny rates and what % by non-currency growth.

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[Brent Burns Beard]

I know a lot of people appear to be shocked at how high the salary cap maximum is this year but it is tied to league revenues. I also know that the Cdn currency is up roughly 22% over the last two years compared to the US $.

Can anyone give a rough estimate at how much revenues have increased without the currency effect? In other words if we assumed no change in the exchange rate how much real growth has there been within the US and Canada? I realize that this is probably though to answer and I'm only looking for rough estimate.

Basically I'm curious to know what % of the cap increase is driven by curreny rates and what % by non-currency growth.

Ken King, President of the Flames did a radio interview a few days ago and was asked if the strong currency played a role in the cap increase and he said a very small part.

basically (and i am paraphrasing) he said there was a run up at the end of 2006, but for the most part the currency had less of an effect than most think.

the interview is in the archive at fan960.com, it was around 430pm on June 3rd if you want to hear it.

 

[Doc Scurlock]

I expect a good jump cap wise next as well with every team getting new jerseys and all. They'll be plenty of people buying those so once again the cap goes up. Also, whenever the NHL decides to expand and add two more teams the cap will go up once again as those teams will add more revenue.

I thought the cap would even itself out eventually and only have minimal jumps from season to season but with all these things happening it'll jump up a good portion once again.

 

[Enstrom39]

I expect a good jump cap wise next as well with every team getting new jerseys and all. They'll be plenty of people buying those so once again the cap goes up. Also, whenever the NHL decides to expand and add two more teams the cap will go up once again as those teams will add more revenue.

I thought the cap would even itself out eventually and only have minimal jumps from season to season but with all these things happening it'll jump up a good portion once again.

Owners get all the expansion team money and I'm pretty certain it doesn't go into revenues.

 

[SJeasy]

I would think there is some pressure on ticket prices and with the inclusion of the 5% escalator (where I believe the teams were aware of that likelihood). The Sharks went with an increase of over 10%. I have to believe it was in anticipation of a much higher cap. Previously teams were cautious enough with increases not to take a chance that attendance would drop. If they are a little less cautious, we could very well see another jump as teams challenge the price point. It would also follow that subsequent years would see a slowed acceleration in increases as teams had to readjust the price point downward after having overshot.

 

[Hawkscap]

Since TB raised the cup, the Canadian dollar has appreciated roughly 30% against the US dollar.

 

[Doc Scurlock]

Owners get all the expansion team money and I'm pretty certain it doesn't go into revenues.

But you still have ticket sales, merchandise etc. from those two teams and that's what I was referring to.

 

[kdb209]

But you still have ticket sales, merchandise etc. from those two teams and that's what I was referring to.

True, but those revenues would be divided by 32 teams, instead of 30: Cap Midpoint = Revenues * Players Share % - Benefits / # of teams & Upper Limit = Cap Midpoint + $8M (ignoring the optional 5% inflation factor)

If the two expansion teams have revenues below the pre-expansion league average, the net result will be the cap going down.

 

[SJeasy]

If the two expansion teams have revenues below the pre-expansion league average, the net result will be the cap going down.

Might the PA step in to ask that the league fix the cap temporarily (ignoring the percentages) to give the teams time to grow their revs? Or work some other angle to stabilize the cap in the event of expansion?

 

[GSC2k2*]

I know a lot of people appear to be shocked at how high the salary cap maximum is this year but it is tied to league revenues. I also know that the Cdn currency is up roughly 22% over the last two years compared to the US $.

Can anyone give a rough estimate at how much revenues have increased without the currency effect? In other words if we assumed no change in the exchange rate how much real growth has there been within the US and Canada? I realize that this is probably though to answer and I'm only looking for rough estimate.

Basically I'm curious to know what % of the cap increase is driven by curreny rates and what % by non-currency growth.

I think it is time to address this issue, and in the process debunk a few myths being propagated by some (not you, Falconer - I understand this is a neutral question) right here and now.

Regarding the bolded and underlined assertion above, that is based on a rather misleading (unintentional I assume) miscalculation. It is not relevant to take a number that is the low point in a given year and compare it to the high point in another year.

The CBA provides (quite sensibly so) that the exchange rate for purposes of revenue calculation is based on the average excahnge rate for the League Year (a defined term in the CBA that runs from July 1 of a year to June 30 of the subsequent calendar year). That is how revenues are calculated, so that is what we use to compare the relative impact of exchange rates.

Using that measure, the exchange rate has been as follows:

2004-05 (strike year) - CDN$1 = US$0.8002

2005-06 - CDN$1 = US$0.8602

2006-07 - CDN$1 = US$0.8831

Now - what Canadian denominated revenues shall we plug in? As regular readers of this Board may know, I have substantial doubts about whether Canadian teams make up one third of NHL revenues, as reported by TSN a number of months ago. My own view is that Canadian teams make up one third of gate revenues, and it was simply lost in translation from player agents to hockey reporters.

HOWEVER, for purposes, I would accept that figure and use one third of revenues as an approximation. Accordingly, I will use US$750 million as a plug number for the calculation (to the extent that this number is too high, as I suspect, the impact of the exchange rate will be less).

Moving along, here are the calculations:

2005-06 - assume US$750 million in Canadian revenues (approximately one third of NHL revenues that year). Assuming all Canadian team revenues are in Canadian dollars (which is not correct, resulting in a further overstatement, but I will give it the benefit of the doubt), this equates to CDN$871.890 million ($750 million divided by .8602).

2006-07 - this same CDN$871.890 million, based on an exchange rate of .8831, is US$769.97 million.

The year-over-year impact is $19.97 million.

(Note: if Canadian revenues are US$700 million, the impact is only $18 million and change).

Note as well that this assumes (incorrectly) that all Canadian team revenues are received in Canadian dollars which must be exchanged. Given that Versus revenues are denominated in US$, this is incorrect for that reason alone. However, it may be that the Canadian national TV contracts are denominated in CDN$ (although that is far from a given) and that would require a counter-adjustment. I would expect that this would work out to a null effect, as Canadian TV revenues that are spread out league wide would be offset by certain revenues that Canadian teams would get in US$ (US TV revenue, certain sponsor contracts from US companies, etc.). Either way, as you can see, with an overall difference of two cents year over year, such differences are in all likelihood immaterial, as I have given Canadian revenues the benefit of the higher assumption as stated above.

I hope this helps. Comments are welcomed as always.

 

[kdb209]

If the two expansion teams have revenues below the pre-expansion league average, the net result will be the cap going down.

Might the PA step in to ask that the league fix the cap temporarily (ignoring the percentages) to give the teams time to grow their revs? Or work some other angle to stabilize the cap in the event of expansion?

Nope. The Cap is strictly defined in terms of revenues and I don't see the league agreeing to a CBA amendment on the issue. Besides, the NHLPA just picked up 46 new jobs - I don't think they would quibble with a slight reduction in the cap due to expansion.

 

[Fugu]

I hope this helps. Comments are welcomed as always.

The 2/3rds of revenues estimate refers to the 2006-07 league year. Therefore you'd have to work it backwards, instead of using the 2005-06 year as the base to measure the delta. Secondly, the exchange rate used at the time the 2/3rds of all revenues was alleged was 0.88 USD to 1 CAD. I believe you once told me that the figure that is used by the league is the average rate at the end of the league year, thus I don't know if the 0.88 rate still holds.

 

[GSC2k2*]

The 2/3rds of revenues estimate refers to the 2006-07 league year. Therefore you'd have to work it backwards, instead of using the 2005-06 year as the base to measure the delta. Secondly, the exchange rate used at the time the 2/3rds of all revenues was alleged was 0.88 USD to 1 CAD. I believe you once told me that the figure that is used by the league is the average rate at the end of the league year, thus I don't know if the 0.88 rate still holds.

It makes little difference, Fugu. At the end of the day, the exchange rate difference between the two years is 2.29 cents - not 22%, as suggested by some. What that means is that, for every $10 million in incremental revenue, the exchange rate differential contributes $200k.

If, for example, you use this year as the base year, what it means is that you are using approximately US$780 million (one third of this year's revenues) as the plug number, keeping in mind still that I view it as overstated and qualified as I have noted above. In either event, however, you are still using the same CDN$ number year to year. See below:

2006-07 - US$780 million divided by .8831 = CDN$883.251 million
2005-06 - CDN$883.251 million multiplied by .8602 = US$759.772 million.

The difference at those further (IMO) inflated numbers is US$20.228 million.

Incidentally, I think you are mistaken regarding what I told you. We cleared up some time ago that the CBA provides that the exchange rate is the average exchange rate for a League Year, which is July 1 to June 30. Article 49.1 clearly so provides.

Incidentally, as I noted above, there was a much more substantial increase in the Canadian dollar from the lockout year to the first post-lockout year (exactly six cents). This difference would have contributed more significantly to the fact that the lockout hit was much less than the League and NHLPA had anticipated. Even in that case, however, the exchange rate contribution ($40-50 million, I would estimate) is still dwarfed by the other contributions (which overall resulted in an increase beyond expectations of US$350 million+).

To the extent that some still may be experiencing a disconnect, I suggest it is the result of the application of a single point where the CDN$ is/was at its lowest as a comparison to the single point where it is at its highest. The CBA formula corrects that deficiency, as it properly should, by using averages (which makes sense, since monies are collected at varying rates throughout the year).

 

[Fugu]

This still misses the point entirely, GC. Two-thirds of 2006-07 revenues are from non-Canadian sources (all qualifiers noted). That means that after all the adjustments (currency, price rises, etc.) have been taken into account, you are left with 1/3rd share that is subject to - among other things - currency gains, and this applies ONLY to the current year.

Or are you suggesting that Canadian teams have always made up one-third of NHL revenues? I know that you are not, so it is only a result of whatever growth AND currency appreciation has come out of Canada that has resulted in this new apportionment.

If one were truly interested in finding out the effect of currency swings on NHL revenues, you and I both know you have to actually look at a significant enough period of time-- including the time frame immediately preceding the lockout when the fluctuation was greatest. I actually have stated here before that the majority of the gains made from currency happened before this season. The bump has already happened. The next bump is the multiplier effect on the real growth in Canada (organic or price hikes) due to an appreciating currency simultaneous to this growth.

The second necessity is to isolate the Canadian revenues. If anyone is REALLY interested in getting to the bottom of this, please find revenue estimates for the 6 Canadian teams in CA$, for preferably the past 5 seasons (the more the better). The US teams and Canadian team revenues should be treated separately to determine what organic growth is happening, how much of a role pricing adjustments are having, etc. THEN, and only then, can you start using annual averages (or a range) to determine what percent is due to currency gains alone.

 

[GSC2k2*]

This still misses the point entirely, GC. Two-thirds of 2006-07 revenues are from non-Canadian sources (all qualifiers noted). That means that after all the adjustments (currency, price rises, etc.) have been taken into account, you are left with 1/3rd share that is subject to - among other things - currency gains, and this applies ONLY to the current year.

Or are you suggesting that Canadian teams have always made up one-third of NHL revenues? I know that you are not, so it is only a result of whatever growth AND currency appreciation has come out of Canada that has resulted in this new apportionment.

If one were truly interested in finding out the effect of currency swings on NHL revenues, you and I both know you have to actually look at a significant enough period of time-- including the time frame immediately preceding the lockout when the fluctuation was greatest. I actually have stated here before that the majority of the gains made from currency happened before this season. The bump has already happened. The next bump is the multiplier effect on the real growth in Canada (organic or price hikes) due to an appreciating currency simultaneous to this growth.

The second necessity is to isolate the Canadian revenues. If anyone is REALLY interested in getting to the bottom of this, please find revenue estimates for the 6 Canadian teams in CA$, for preferably the past 5 seasons (the more the better). The US teams and Canadian team revenues should be treated separately to determine what organic growth is happening, how much of a role pricing adjustments are having, etc. THEN, and only then, can you start using annual averages (or a range) to determine what percent is due to currency gains alone.

I underrstand, fugu. I am focussing on the impact that fluctuations have had on the cap itself (which is more recent by definition), because that has particularly been a topic of the mathematically challenged mainstream media (in these parts, at least) ever since the new cap was announced. Bob McCown of the FAN590 has suggested that the surge in the cap is almost entirely th result of the exchange rate differential, but then again he has "calculated" the NHL's revenue to be about $2.6-2.7 billion. To be honest, he has gone completely off the deep end. However, in Canada (including on this board) people are making the same mistake all over the place. Accordingly, I am doing my best to combat it.

I understand that your wish is to determine the longer term exchange rate impact on the Canadian portion of NHL revenue. It is an interesting question, but I am not sure we have sufficient data points. The only 5 year revenue data points that I have are the Forbes revenue numbers. While they do add up (more or less), one must have an obvious hesitancy about using them, since they did not get them from the teams. Arguably, however, they may be onyl a few percentage points off. However, if you want me to do the exercise using those numbers, I am game. Are you?

I would forewarn you that, if we do use those numbers, they certainly do not add up to Canadian teams generating 1/3 of revenues.

Incidentally, my overarching point is that, at this stage in the NHL's growth, the excahnge rate only makes an impact of $8.5 million for every penny difference in the exchange rate, which equates to 0.03% of NHL revenues. Going forward, that has an immaterial impact on the cap. Even if the dollar were to incredibly go to par as an average for next season (which would require that it go above par by either a fair bit or for an extended period of time, since we have started the next League Year), that is about a 3.5% impact on league revenues. Since the league revenue grew by about 5-6% in ways not attributable to the exchange rate, it might then be playing a significant role in league revenue growth in that extreme situation (which exchange rate increase has never happened in a single year).

 

[mouser]

BTW, what is the source that the Canadian teams contributed 1/3 of the NHL revenue for 06-07? I've seen that statement made in many posts but don't recall ever seeing a cited source for it.

 

[GSC2k2*]

BTW, what is the source that the Canadian teams contributed 1/3 of the NHL revenue for 06-07? I've seen that statement made in many posts but don't recall ever seeing a cited source for it.

Darren Dreger was the first guy to speak of it (citing that an agent had told him that he had seen numbers in NHLPA discussions about halfway through the season), and the papers subsequently wrote that it had been "reported". You know, the usual way that myths take hold.

 

[Fugu]

BTW, what is the source that the Canadian teams contributed 1/3 of the NHL revenue for 06-07? I've seen that statement made in many posts but don't recall ever seeing a cited source for it.

I believe it first came from Darren Dreger in a TSN broadcast. I didn't see the piece, but there was a huge discussion here with Bob McKenzie personally coming to the defense of Mr. Dreger, who was lambasted for daring to make such brazen lies on TV!!!!

Shortly after that, both the National Post and the Globe & Mail ran stories on the same topic; also the PDF Chart from G&M. The National Post provided some revenue comparisons for the Canadian teams; the Globe and Mail printed a [apparently] leaked data on NHL gate receipts for all NHL teams through 31 January of the past year. This information showed that the 6 Canadian teams were generating one-third of all NHL Gate Receipts.

If one adds in all the revenue coming from Canada exclusively (Canadian TV like the CBC's HNIC, TSN, RDS, Leafs TV, and the PPV that apparently Canuck and other fans have to pay) and merchandise, in-arena sales........ does it add up to one-third of all NHL revenues? That is where the ambiguity lies since the Post and G&M data [from the leaked document] only provides data on gate receipts. The data only includes regular season receipts, thus adjustments would be needed for pre-season and playoff revenues. Without the adjustments, regular season gate receipts are perhaps ~50% of NHL revenues (assuming the same trends held for the remainder of the season*); my guess would be that pre-season and playoff revenues push that figure to 55-60%. Remaining then are the in-arena sales, TV/media, and other (merchandising, suites?, sponsorships, etc.).

How much of that is generated in Canada and how much in the US?


*The league generally does better in the second half of the season so these numbers are probably on the low side since they are through 31 January; also assumes the same average price held for the remainder of the regular season.

 

[Fugu]

I underrstand, fugu. I am focussing on the impact that fluctuations have had on the cap itself (which is more recent by definition), because that has particularly been a topic of the mathematically challenged mainstream media (in these parts, at least) ever since the new cap was announced. Bob McCown of the FAN590 has suggested that the surge in the cap is almost entirely th result of the exchange rate differential, but then again he has "calculated" the NHL's revenue to be about $2.6-2.7 billion. To be honest, he has gone completely off the deep end. However, in Canada (including on this board) people are making the same mistake all over the place. Accordingly, I am doing my best to combat it.

You've given yourself a heavy cross to bear, GC!

To be honest, people aren't being as accurate as you would like. Months roll into years. The overarching question really is, How have NHL revenues increased from those days when the alarm was raised-- resulting in the infamous lockout? So while you are being exceedingly accurate in limiting the time frame, it doesn't answer that overarching question: distinguishing between organic and core growth for the past several years when CAD fluctuation has been the greatest.

I understand that your wish is to determine the longer term exchange rate impact on the Canadian portion of NHL revenue. It is an interesting question, but I am not sure we have sufficient data points. The only 5 year revenue data points that I have are the Forbes revenue numbers. While they do add up (more or less), one must have an obvious hesitancy about using them, since they did not get them from the teams. Arguably, however, they may be onyl a few percentage points off. However, if you want me to do the exercise using those numbers, I am game. Are you?

No, these numbers are also provided in USD, and as you mention are estimates outside the NHL. I'll hunt around for Canadian team revenues as I have seen some for teams like Edmonton at least.... what else is there to talk about during the off-season?
Secondly, you would need both the team revenues and NHL revenues generated in Canada.... expressed in CAD. The Mark Spector article referenced above does give some Canadian numbers, which I'll add immediately beneath this post. We can see if that gets us any further.

I would forewarn you that, if we do use those numbers, they certainly do not add up to Canadian teams generating 1/3 of revenues.

And they shouldn't. If the premise is that the portion of Canadian-based revenues now represents one-third of NHL revenues, that has to be interpreted as the apex: the CAD has increased over the past few years vs. the USD. Absent ANY organic growth in Canada, this alone would mean that Canadian revenues are increasing in the percentage of the NHL total that is represented (and also assuming US-based revenues haven't grown excessively).


PS I'll combine the latter part of your post with the Spector date next....

 

[Fugu]

Incidentally, my overarching point is that, at this stage in the NHL's growth, the excahnge rate only makes an impact of $8.5 million for every penny difference in the exchange rate, which equates to 0.03% of NHL revenues. Going forward, that has an immaterial impact on the cap. Even if the dollar were to incredibly go to par as an average for next season (which would require that it go above par by either a fair bit or for an extended period of time, since we have started the next League Year), that is about a 3.5% impact on league revenues. Since the league revenue grew by about 5-6% in ways not attributable to the exchange rate, it might then be playing a significant role in league revenue growth in that extreme situation (which exchange rate increase has never happened in a single year).

From the Mark Spector National Post article, already cited above:

According to the document, 26 of 30 clubs raised ticket prices this season. On a league wide average, the average ticket price went up 5.9% to $52.31 (all figures in U.S. funds).

Through Dec. 31 however, gate receipts were up only 4.9%, lagging behind the ticket hike -- a hike that will be impossible to duplicate again next season. In 16 NHL cities -- more than half of the league -- the percentage of ticket-price increase was not met or surpassed by an equal percentage of increased gate receipts.

Paced by a whopping ticket increase of 21.4% in Edmonton, the steepest jump in the NHL this season, the six Canadian teams raised their ticket prices by an average of 8.7%.

Their gate receipts also rose, by 9.2%, placing all six Canadian NHL teams among the top dozen gate-receipt leaders in the NHL.

Assuming these trends held (and we can probably agree some teams' attendance improved, but I'll get to that next)....

*Average NHL Ticket Prices increased by 5.9%, but gate receipts were up 4.9%. At least we have some indication as to how much of the increase from $2.17 billion to $2.33 billion is due to price increases. Nestled within that however is the Canadian price increase plus the exchange rate gain.

*In that average NHL ticket price increase, we have to note that the 6 Canadian teams average increased by 8.7%. I must assume that these are USD figures, and that this figure already represents whatever currency gain has happened.

*The Canadian-based teams' collective gate receipts rose by 9.2% vs the prior year. I also have to assume Spector is using USD figures which would also have the currency gain included with the organic growth.

I've downloaded the G&M data to Excel (an option available for those who haven't figured that out), and will play with some numbers in my free time.

 

[Sotnos]

*The league generally does better in the second half of the season so these numbers are probably on the low side since they are through 31 January; also assumes the same average price held for the remainder of the regular season.

This is all I'm asking for when these numbers get brought up.

 

[Fugu]

This is all I'm asking for when these numbers get brought up.

I'll plug in the reported attendance figures per ESPN, adjust for the comps as reported thus far, and extrapolate to a full season, just for you!

 

[Sotnos]

I'll plug in the reported attendance figures per ESPN, adjust for the comps as reported thus far, and extrapolate to a full season, just for you!

Thank you, I'm interested in looking at that.

I'm just asking the person who posts those figures in EVERY SINGLE THREAD to post a similar disclaimer. It is only being honest to say that those #s don't tell the whole story.

 

[GSC2k2*]

The National Post provided some revenue comparisons for the Canadian teams; the Globe and Mail printed a [apparently] leaked data on NHL gate receipts for all NHL teams through 31 January of the past year. This information showed that the 6 Canadian teams were generating one-third of all NHL Gate Receipts.

As an aside, fugu, I did a little number crunching of my own this morning, and determined that even that is a bit of an overstatement. Canadian gate revenues are in fact 29% of NHL gate revenues (as of that date, at least). They are disproportionate, of course - I have never suggested otherwise - but not a third.

 

[Fugu]

As an aside, fugu, I did a little number crunching of my own this morning, and determined that even that is a bit of an overstatement. Canadian gate revenues are in fact 29% of NHL gate revenues (as of that date, at least). They are disproportionate, of course - I have never suggested otherwise - but not a third.

Ohhhh... you did say CANADIAN revenues. I read right over the top of that the first time....

So I just deleted that post. However that brings us right back to what Dreger meant. We can guess at what year end Canadian gate receipts might be, and we can pull together the TV/media money that is generated in Canada. So Canadian teams represent 30% of 50% of NHL revenues. How does the remaining 50% of NHL revenues break out?