Canadian dollar ends day at highest value since July 1977

[MAROONSRoad]

Hi business of hockey forum posters/readers,

The Canadian dollar is up 43.4% since 2002. As I've mentioned before, the rise has been a significant factor in the leagues’ revenue growth or revenue stability over that period and through the Lockout, as the Canadian market place is the source of a disproportionate amount of the NHL's revenue. For example, it was widely reported earlier this year that the 6 Canadian NHL teams account for 1/3rd of the NHL’s revenue. I found that hard to believe and it may have been the result of careless reporting; however, it is certainly believable - and very likely if you add up the rough estimates - that the Canadian market place accounted for 1/3rd of the League’s revenue this year once you include non-team revenue, such as national TV rights fees, merchandise, licensing, etc.

Many economists and Bay Street analysts are now predicting parity of the USD and CAD this year. This is an advantage to Canadian NHL teams (other things being equal) and a disadvantage for USA NHL teams, since the Cap bands are set to rise as the CAD appreciates against the USD. This could cause difficulties for small market teams in the USA that are currently losing money; at the same time, it is a benefit to small market Canadian teams which bring in revenue in CAD but pay players’ salaries and some travel costs in USD.

This is a thread for anyone that would like to discuss the implication of the CAD/USD exchange rate on the business of hockey.

From CTV:

"The Canadian dollar closed on Friday at 94.22 cents US, its highest value since July 1977, and economists are saying it will continue to rise...

The new high comes after economists at CIBC World Markets predicted that the loonie will be equal in value to the American dollar by the end of 2007...

"The Canadian currency has plenty of octane left to take a concerted run toward parity against the greenback and hold it into at least the first quarter of 2008," Jeff Rubin, chief strategist and chief economist at CIBC World Markets, said in a report.

The dollar is already up about nine per cent this year. Over the past five years the dollar has jumped 43.4 per cent." "

http://www.ctv.ca/servlet/ArticleNe...01/cdn_dollar_070601/20070601?hub=CTVNewsAt11

GHOST

Click to read more...

 

[Fugu]

Many economists and Bay Street analysts are now predicting parity of the USD and CAD this year. This is an advantage to Canadian NHL teams (other things being equal) and a disadvantage for USA NHL teams, since the Cap bands are set to rise as the CAD appreciates against the USD. This could cause difficulties for small market teams in the USA that are currently losing money; at the same time, it is a benefit to small market Canadian teams which bring in revenue in CAD but pay players’ salaries and some travel costs in USD.

This is a thread for anyone that would like to discuss the implication of the CAD/USD exchange rate on the business of hockey.

This is bad for me personally. We're headed to the Rockies and BC for a family holiday in August. I won't even get the 10% discount I'd expected, let alone the 30% discount we got the last time we visited the area!

I agree that the benefits to the Canadian teams are obvious. It's like finding a lot more money in one's pocket after keeping spending and income at the same level. Almost like it grows on trees... (or *ahem* sand tar pits)

Why do you believe this is bad for the small market American teams? If the Cdn teams' revenues do rise rapidly relative to the US teams, it is more likely that these teams would become contributers to the revenue sharing plan. I won't quote the specific formula, but the top half all contribute based on a formula that looks at their total revenues. The more you have, the more you pay.

 

[Sotnos]

Why do you believe this is bad for the small market American teams?

I don't understand that either. Wishful thinking.

 

[Willis]

If the Cdn teams' revenues do rise rapidly relative to the US teams, it is more likely that these teams would become contributers to the revenue sharing plan. I won't quote the specific formula, but the top half all contribute based on a formula that looks at their total revenues. The more you have, the more you pay.

I5 of Canada's 6 teams paid into revenue sharing (Ottawa was the only one that did not) according to Pat Laforge (Edmonton VP). With the increase in the Canadian Dollar it will mean more money for the small market Canadian teams but not much for the small market US teams.

The impact on the small market US teams is unknown. 6 Canadian teams will push the cap higher with the increase revenue since things are calculated on the US dollar. We do not know what the impact will be on how much higher the cap goes vs their ability to pay. Buffalo which has lots of fans on the other side of the river may be able to increase ticket prices but still make it more affordable for those fans coming from Canada so it may make them better off or the cap goes up faster than then the Caps can pay so they become less competative.

 

[MAROONSRoad]

This is bad for me personally. We're headed to the Rockies and BC for a family holiday in August. I won't even get the 10% discount I'd expected, let alone the 30% discount we got the last time we visited the area!

I agree that the benefits to the Canadian teams are obvious. It's like finding a lot more money in one's pocket after keeping spending and income at the same level. Almost like it grows on trees... (or *ahem* sand tar pits)

Why do you believe this is bad for the small market American teams? If the Cdn teams' revenues do rise rapidly relative to the US teams, it is more likely that these teams would become contributers to the revenue sharing plan. I won't quote the specific formula, but the top half all contribute based on a formula that looks at their total revenues. The more you have, the more you pay.

It is likely that all Canadian teams will contribute to revenue sharing this year, so that is already the case. There are several NHL teams in the USA that are currently losing money according to their own public statements despite receiving revenue sharing. In order to receive the full allotment of revenue sharing teams are required to increase their revenue at a faster pace than the league average. Just some points to consider.

GHOST

 

[Fugu]

5 of Canada's 6 teams paid into revenue sharing (Ottawa was the only one that did not) according to Pat Laforge (Edmonton VP). With the increase in the Canadian Dollar it will mean more money for the small market Canadian teams but not much for the small market US teams.

If Ottawa's revenues slide up, it will mean that 6 out 6 Cdn teams will contribute to revenue sharing. Higher NHL revenues will mean a greater share goes to the players, so not only does the % go from 54 but anywhere between 55-57%, but the floor comes up with the ceiling (as everyone here knows). In absolute terms, that's a good chunk of change getting dumped into new player contracts as the top spenders spend to the cap while the bottom end is forced to come up. The total amount that has to come from revenue sharing IF American low revenue teams don't increase their revenues significantly must go up as well (more $$$ into the revenue share pot). [I'll get to the requirement that they increase attendance to qualify for 100% of their potential revenue sharing allotment...]

The impact on the small market US teams is unknown. 6 Canadian teams will push the cap higher with the increase revenue since things are calculated on the US dollar. We do not know what the impact will be on how much higher the cap goes vs their ability to pay. Buffalo which has lots of fans on the other side of the river may be able to increase ticket prices but still make it more affordable for those fans coming from Canada so it may make them better off or the cap goes up faster than then the Caps can pay so they become less competative.

I think we can conjecture a bit here on what the effect will be on the small market US teams.... that's kind of what GHOST was trying to discuss. In addition to what I said in the first paragraph, we do have to keep in mind that we're talking about a third of the NHL revenue (per some reports) increasing by somewhere between 5-10% from this past season to the next. I think the biggest currency effect has already been seen when the CAD rebounded from its record lows. That change is reflected in the current revenues (and perhaps has contributed the most to Cdn teams representing up to a third of NHL revenues...). While I do expect the CAD to increase some further, I don't expect anything on par to the recent rebound.

 

[Fugu]

It is likely that all Canadian teams will contribute to revenue sharing this year, so that is already the case. There are several NHL teams in the USA that are currently losing money according to their own public statements despite receiving revenue sharing. In order to receive the full allotment of revenue sharing teams are required to increase their revenue at a faster pace than the league average. Just some points to consider.

GHOST

The key there is the league average in terms of revenue, and % of avg league capacity (17 or 17.5 K... kdb will save the day...) for sequential years after the 1st year. I believe those are on the order of 75-80%.

Being too lazy to look that up, and knowing there are others who enjoy that, suffice it to say that the teams who aren't growing are part of the NHL averaging that happens. Thus the teams that need revenue sharing have to do better than the league average, which really shouldn't be insurmountable. Stagnation or outright loss of momentum of course would be a huge concern, but that would happen regardless. As I said in my previous post, the growth expected out of Canada isn't going to be nearly as large as the rebound that has already happened. Let's say it's 10% over their current revenues due to CAD increases. At one third of all NHL revenues of say $2.3 B (about $800 MM) plus 10% ($80 MM)... it's not peanuts but it sounds worse than my very simplistic calculation here shows. Also, the teams lose some portion of their revenue sharing but not all of it (25% of their alloted amount in the first instance).

I think any team that has to rely on revenue sharing [as it is set up now] ad infinitum for their survival has bigger problems than the CAD : USD rate.

 

[william_adams]

i know jeff rubin thinks so, but does anybody really think we get to parity without 80 oil??

i say get all the teams back up in canada while we can -- under the sell high buy low (USD that is) theory... i mean pretty soon we are gonna be clamoring for a third team in alberta for goodness sakes -- the fort mcmurray flyhawks

 

[timmy12]

Isn't this kind of a bad thing for Canada in general? I don't know, but I read the following posts on another message board where some Canadians claimed it was not good that the Canadian currency was valued so high. Perhaps someone with more knowledge can explain.

yeah if our dollar meets the american dollar then canada will have a lot of layoffs. American companies will have no reason to run offices out of canada if it costs just as much. As far as raw materials it will only further encourage them to goto third world countries even more so then they currently do. Canada is based on selling resources and cheap (for the 1st world anyway) labour. When alls said and done our economy isnt currently built to sustain a strong dollar compared to the americna dollar. I will be ok with it reaching about the same during the months of december and march of the following year though as thats when ill be travelling to the US

Yeah, from what I've been reading it's hurting us a bit. In my area there are a lot of manufacturing jobs. Basically this whole city is based around the automotive industry. Pretty much everything is shutting down around here. It's hit the tool and die shops pretty hard.

 

[Egil]

i know jeff rubin thinks so, but does anybody really think we get to parity without 80 oil??

Yes because of interest rates. The US rate is currently 1% higher than the Canadian rate. However, it is expected that the US Fed will lower the US rate and the Bank of Canada will raise the Canadian rate. A large part of this is that Canada isn't suffering from the rediculous housing bubble, and our government is running surpluses, not deficits.

All of this will drastically affect the Canadian dollar.

As for the dollar and the economy, it certainly changes things. But we still are an extremely stable and reliable country to get resources from, we still generate alot of electricity for the US, and we have tons of oil.

 

[dashingsilverfox*]

The Can Buck at 94.77 this morning and still rising.

 

[Fugu]

i know jeff rubin thinks so, but does anybody really think we get to parity without 80 oil??

i say get all the teams back up in canada while we can -- under the sell high buy low (USD that is) theory... i mean pretty soon we are gonna be clamoring for a third team in alberta for goodness sakes -- the fort mcmurray flyhawks

At least with regard to the USD, the state of the US current account balance indicates that the dollar should stay weak. The best two ways to reduce a deficit is to either increase exports (reduce imports) or to increase savings. Hmmm. Americans to increase savings?

 

[Crosbyfan]

Isn't this kind of a bad thing for Canada in general? I don't know, but I read the following posts on another message board where some Canadians claimed it was not good that the Canadian currency was valued so high. Perhaps someone with more knowledge can explain.

As a manufacturer selling into the states, my prices are significantly higher when I quote to a US customer. Some of my costs are reduced, the small amount that I import, but overall it is not a good thing. US manufactures have the opposite effect, so they have gained a competitive advantage. Slowly this will help they're economy (not just our manufacturers) and hurt ours, until their is a downward pressure on the Canadian dollar. It should balance out but tends to "cycle".