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.