Without adding a single forward, goalie or defenceman, the Toronto Maple Leafs saw the potential cost of their payroll jump by more than $1 million this past week.

Much of that climb came in less than 24 hours. The reason? A sudden two-cent plunge in the value of the Canadian dollar, after the Bank of Canada shocked investors by cutting a key interest rate on Wednesday.

With the loonie down by almost 20 per cent against the U.S. dollar over the past year, the cost of doing business for Canadian teams in the NHL, NBA, Major League Baseball and MLS has been climbing steadily. That’s because under their collective agreements players get paid in U.S. dollars. The majority of revenue, however, is in Canadian currency.

“That’s a 20 per cent addition to the wage bill for every Canadian NHL team, the Raptors and the Blue Jays,” said Glen Hodgson, chief economist at the Conference Board of Canada, an Ottawa-based economics think tank.

When those wage bills are in the tens of millions of dollars, that adds up to a whole lot more than chump change. For the Toronto Blue Jays , whose 2014 payroll was around $137 million (U.S.), the loonie’s fall over the last year equates to more than $25 million. For the Raptors and Leafs, both around the $70-million mark, it’s an extra $14 million each. For Toronto FC , which has been busy adding high-profile international players, the added cost could prove to be as much as $4 million.

For teams looking to sign free agents, an extra 20 per cent could prove prohibitive, suggested Hodgson.

“At that level, you’re starting to add another factor to the decision-making. They might decide they’re not able to spend as much on a particular player,” said Hodgson, who along with colleague Mario Lefebvre wrote Power Play , a study of the pro sports industry in Canada.

For Alberta’s two NHL teams, he adds, there’s a financial double whammy: The loonie’s drop comes at the same time as a dramatic fall in oil prices that’s hitting Alberta’s entire economy, including companies that buy high-end corporate boxes.

But just like buying insurance in case your house burns down, sports teams can soften the blow of fluctuating currency costs. The most common approach is the same way large import and export companies do, via currency hedging. Hedging contracts are agreements to buy a particular amount of a given currency for a set price on a set date. Companies can bet both ways: the price is usually set either higher or lower than the current value of the currency. The Blue Jays declined to comment on whether they engage in hedging.

For Maple Leaf Sports and Entertainment — which runs the Leafs, Raptors, TFC, the Marlies — the decision to hedge was an easy one to make, said chief financial officer Ian Clarke.

“Our approach has been that it’s better to have certainty over how much things are going to cost. Win or lose your bet, you know what it’s going to cost you,” said Clarke, adding that MLSE hedges about $100 million (U.S.) each year. According to published estimates, that’s more than half the total payroll for MLSE’s teams.

Most companies that look to hedge their bets on the currency market don’t go all-in, said Camilla Sutton, chief foreign exchange strategist at Scotiabank.

“Fifty per cent is the level of least regret . . . so it kind of tends to be the starting point for most companies,” said Sutton, who estimated it would cost MLSE around $350,000 at current prices to hedge $100 million. “A lot of people look at it as risk management.”

While Canadian teams in U.S.-based leagues are directly affected by the loonie’s plunge, American NHL teams don’t escape unscathed. The top 10 revenue-generating teams in U.S. dollars contribute to a pool divvied up by the bottom 10, under terms of the collective agreement. According to a report by Forbes magazine three Canadian teams were among the top 10, with the Leafs in second spot (a report disputed by the team).

There’s also less money in the pot for players themselves. They are guaranteed 50 per cent of league-wide hockey-related revenue which is calculated in U.S. dollars, so any fall in the loonie means less cash to go around.

“If you have a league whose currency is U.S. dollars and you have Canadian teams, the revenues are going to be lower. . . . The players get 50 per cent, and it’s going to be lower. That’s the simple math,” said Clarke.

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Still, said Hodgson, there’s less of a problem now than when the Jets left Winnipeg in 1996, and the Quebec Nordiques moved to Colorado in 1995. For one thing, the loonie was at 70 cents U.S. in 1995. For another, the NHL does more today to help weaker clubs.

“The revenue sharing in the NHL definitely mitigates things,” said Hodgson.

Correction - January 27, 2015: This article was edited from a previous version that mistakenly said the Toronto Rock is owned by MLSE.

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