How a weak Canadian dollar affects the NHL salary cap
Because of the significant depreciation of the Canadian dollar since late October, the upper limit of the NHL's salary cap is unlikely to rise to $71 million - as was forecast by the league - for the 2014-15 NHL season.
Los Angeles Kings general manager and spreadsheet warrior Dean Lombardi all but confirmed this in the wake of Wednesday's deadline, predicting a salary cap increase of only $4 million for next season.
"We found out, to our chagrin and surprise the other day," Lombardi told the LA Times, speaking about the smaller than expected salary cap increase. "We had been told the cap was going to be $71 [million] and now with the Canadian dollar having tanked, that the cap could be as low as $68 [million]. That's a huge swing."
The upper limit of the NHL's salary cap is tied to league revenues, a significant portion of which are generated from consumers in the hockey mad Canadian market. How important is the Canadian market for NHL revenues? Take this breakdown from Forbes' NHL franchise valuations for example (and take it with a grain of salt):
Last season, six of the seven Canadian teams charged an average ticket price for non-premium seats of at least $70, compared with a league average of $64. And the five most expensive average ticket prices were charged by Canadian franchises–Toronto ($120), Montreal ($99), Winnipeg Jets ($95), Vancouver ($90), Edmonton Oilers ($79). Ticket revenues in the NHL are the Mother’s Milk of profits because the home team keeps 100% of the gate. The top teams in gate receipts-per-game last season: Toronto ($2.2 million), Montreal ($2.1 million), Vancouver ($1.8 million), New York Rangers ($1.8 million), and Calgary Flames and Edmonton Oilers tied at ($1.6 million).
The impact of the new, mammoth Canadian broadcast rights deal won't be felt - in salary cap terms - until the 2015-16 season.
The value of the Canadian dollar has imploded over the past few months, losing nearly 6 cents relative of the value of the greenback since late October (although the Canadian dollar has rallied nearly a half cent in just the past few hours).
From X-rates.com:
If the salary cap increases by only $4 million this summer as opposed to the nearly $7 million that had been previously anticipated, it will have a massive impact on free-agency in particular (and by extension the trade market). Perhaps the uncertainty surrounding the salary cap provides us with a partial explanation for why buyers were so conservative during the NHL trade deadline on Wednesday.