Inside sports business
It turns out the prediction of a January vote by Seattle City Council on a Sodo District arena was not only optimistic, but downright delusional.
City Hall sources now indicate a vote to cede Occidental Avenue South for Chris Hansen’s project won’t happen before late March, early April at best. It’s the final hurdle to approving an arena, but legal and political scheduling steps apparently are too complex for anything before spring.
So, that eliminates Seattle sneaking back into National Hockey League expansion discussions, right? Well, not exactly.
The good news is, the Canadian dollar just bought us more time. Maybe even the rest of this year.
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Anyone not into cross-border shopping might have missed Canada’s dollar plummeting faster than the Seahawks’ Super Bowl hopes midway through the Carolina game.
It’s due mainly to plunging world oil markets. There is too much surplus oil, not enough demand.
Canada’s economy relies heavily on crude oil exports, so its dollar is getting pummeled.
In mid-May, the Canadian dollar was worth 83 cents U.S. It went into the weekend worth 70.68 cents — and only after a boost from the Bank of Canada not lowering interest rates.
Unsurprisingly, an NHL executive committee recently shelved expansion decisions until March, maybe April. No official reason was given, but don’t be surprised if the Canadian dollar’s precarious state further extends that time frame.
NHL deputy commissioner Bill Daly insisted via email Saturday: “The value of the Canadian dollar is one of many factors that are taken into account when evaluating the existing expansion applications. But it’s not one ‘determining’ factor.’’
We’ve previously discussed the NHL wanting badly to be in Seattle as a factor that could delay expansion. There’s also buzz about overhauling the league’s expansion draft.
But I’ll go out on a limb and suggest the Canadian dollar hitting 12-year lows overrides all other factors combined. It’s lost a nickel against U.S. value since last month alone and could plunge another dime.
This is different from a few months back, when American-based NHL governors worried about Quebec City expansion simply because the Canadian dollar declined a tad below 80 cents U.S.
Those familiar with Canadian history and monetary policy realize 77 to 80 cents against the U.S. dollar isn’t rare and the country’s leadership typically avoids too strong a currency because it hurts export companies.
But those knowing NHL history understand how a now 70-cent dollar would prompt a slamming of expansion brakes. Especially after it touched 68 cents last week and respected investment bank Macquarie forecast a sub-60-cent bottoming out.
It’s never fallen below 61 cents.
So, the NHL’s immediate concern is figuring out where rock bottom actually is and assessing damage already done. Just as the NBA won’t expand until finalizing revenue sharing details in 2017 collective bargaining, the NHL likely won’t add teams until getting a better handle on how a crashing Canadian dollar impacts earnings this season and beyond.
Canadian teams earn revenue in Canadian dollars while paying salaries and most expenses in U.S. funds. So, it hurts when revenue, by early last week, had declined 10 percent in U.S. worth since October.
In baseball, they call that “a Toronto Blue Jays Problem” and in basketball it’s “a Toronto Raptors Problem.’’
But in the NHL, it’s everybody’s problem. Though only seven of 30 teams are in Canada, they account for a third of league revenue.
The NHL has a yearly salary cap based off overall revenue projections. When that incoming money target is missed, everybody loses.
Players have a percentage of earnings placed in an escrow account and when there’s a revenue shortfall, some of that withheld salary reverts to team owners. The owners get hurt because missed projections one season likely mean a lower salary cap the next. Owners already approaching cap limits might have to trade pricier players.
So, this isn’t only a Quebec City issue, despite concerns a $500 million expansion fee would now cost future team owner Quebecor $700 million in Canadian funds.
In the mid-1990s, with the Canadian dollar worth 70 cents U.S., Quebec City and Winnipeg franchises relocated to U.S. markets. In the early 2000s, a dollar averaging 65 cents imperiled Edmonton, Calgary and Ottawa franchises.
That said, a lower dollar doesn’t automatically doom Quebec City expansion. The guy fronting Quebecor’s bid, company chairman Brian Mulroney, is a former Canadian prime minister who knows his country’s dollar politics better than any NHL employee.
Under free-trade proponent Mulroney’s watch from 1984-1993, the Canadian dollar never surpassed 90 cents U.S. and plunged as low as 69 cents. So, Quebecor is undoubtedly prepared for a world where the Canadian dollar trades at 80 to 90 cents U.S. to keep cross-border exports booming. Even prepared for occasional declines below 80 cents.
But today’s Canadian dollar plunging so far, so fast is a game-changer for all. And that temporarily buys Seattle time to figure out the arena.
The Canadian dollar won’t stay this low forever.
Oil reserves will eventually burn off, prices will rise and Canada’s dollar could again hit 80 cents U.S. by next year.
By then, perhaps far sooner, the NHL should feel comfortable expanding. And when the league is ready, Quebec City will be.
The question is whether Seattle will be ready to jump back in to expansion discussions. With a shovel-ready arena and promise of generating revenues entirely in U.S. funds.