Lower Canadian Dollar’s Effect on the NHL’s 2015-16 Salary Cap

As the value of the Canadian dollar continues to slide, it could have significant consequences next season for the NHL.

The weakened Canadian dollar recently plunged over a full cent on July 15 in reaction to the Bank of Canada lowering its key interest rate amidst a gloomy forecast for the Canadian economy over the remainder of this year. The “loonie” fell to 77.40 cents US, its lowest level since March 2009 amidst “The Great Recession.”

Back then, the decline in the value of the Canadian dollar also had a significant effect upon the NHL’s salary cap for 2009-10, increasing by only $100,000 from $56.7 million to $56.8 million. At that time, there were six Canadian franchises, which reportedly accounted for around 33 percent of league revenue.

Today, there are seven Canadian teams accounting for perhaps as much as 37 percent of league revenue. That’s worth noting if the “loonie” fails to improve, or sinks lower, over the course of 2015-16.

It’s in the best interests of NHL general managers to keep an eye on its value when planning payroll for 2016-17. They could end up with less cap space to work with.

In examining this last January, I referenced a New York Times’ interview last November with Glen Hodgson, chief economist of The Conference Board of Canada, in which he claimed the Canadian dollar would have to drop well below .85 cents for a lengthy period to have a significant impact upon league revenue.

Over the course of last season, we witnessed in real time what the impact would be. In December 2014, Bettman projected the salary cap for 2015-16 could reach $73 million. Over the remainder of the regular season and playoffs, he amended his projections several times before the cap ceiling was officially set at $71.4 million. Even then, it required the NHLPA membership voting to utilize their five percent “escalator clause”. Without it, the cap ceiling might have remained around $69 million.

Teams pressed for cap space heading into 2016-17 could find themselves in serious difficulty if the cap ceiling fails to significantly increase. And if it actually drops, the effects could be devastating, forcing those clubs to trade away expensive stars they would otherwise retain.

It’ll also affect players eligible for restricted or unrestricted free agency, especially the latter. Stars like Steven Stamkos, Anze Kopitar, Jakub Voracek, Eric Staal, Brent Seabrook, Mark Giordano, Dustin Byfuglien, David Backes, Andrew Ladd, Milan Lucic and Kyle Okposo are slated for UFA status next summer. While most are likely to be re-signed, there’s a deep enough pool of talent there to ensure a handful could be available.

Problem is, if the salary cap stagnates or declines, there might not be enough money available for those players to receive lucrative long-term deals. A number of teams could be unwilling to spend big on available stars in next summer’s free-agent market.

It could also create another situation where the threat of an offer sheet forces a cap-strapped club to trade away a good young restricted free agent. We saw instances of that this summer (Dougie Hamilton, Brandon Saad). Possibilities could include St. Louis’ Jaden Schwartz, Philadelphia’s Brayden Schenn, and the New York Rangers’ Chris Kreider.

Perhaps the only clubs that will welcome a stalled salary cap are those in smaller (Ottawa, Winnipeg) or struggling markets (Arizona, Carolina, Florida). They won’t have to spend as much to remain above the salary-cap minimum.

A lower “loonie” also effects the Canadian franchises. At the turn of this century, before the implementation of the salary cap, the Canadian dollar was worth around .65 cents US. All but the Toronto Maple Leafs felt the effect at various degrees. That’s because they were earning revenue in Canadian dollars but paying their players in American bucks.

There was genuine concern smaller-market franchises like the Calgary Flames, Edmonton Oilers and Ottawa Senators might relocate to American markets. That prompted the league to implement a form of revenue-sharing, called the Canadian Assistance Plan. Even then, many of those teams struggled to retain their best players. Only the deep-pocketed Leafs could afford to bid competitively for top free-agent talent.

The implementation of the salary cap in 2005 was heralded by some NHL fans as the saviour of Canadian-based teams. It wasn’t. The strengthening “loonie”, reaching par with the American dollar on two occasions (between Oct. 2007 to July 2008, and from Dec. 2010 to Feb. 2012), improved the fortunes of the Canadian franchises, allowing most to keep pace with a rising cap ceiling to retain and pursue talent.

Now, one wonders what the effect could be if the “loonie” remains at its current rate over the long term.

Struggling smaller-market Canadian franchises, like Ottawa and Winnipeg, could qualify for revenue sharing, which is now considered more lucrative than the old Canadian Assistance Plan. Still, even that might not be enough. Winnipeg Jets spokesman Scott Brown recently attempted to downplay the effects of the dollar’s decline on his team, claiming it hedges itself against the risk of the “loonie’s” falling value, though he didn’t elaborate as to what those measures were. Even so, Brown admitted the dollar’s slide is hurting the Jets’ business.

The league could have measures in place to adjust for the falling Canadian dollar. Revenue from its annual “Stadium Series”, broadcasting deals, an increase in the overall cost of attending games played by American-based franchises and the NHLPA once again approving its annual escalator clause could ensure a higher bump in the 2016-17 salary cap.

Still, recent history shows the drag of the lower Canadian dollar upon league revenue could have a substantial impact upon a number of teams. To varying degrees, every club will feels its effects. For most, it won’t be positive.