The NHL Is Positively Loonie

| About: ELEMENTS Canadian (CUD)

I came across an interesting article yesterday that discussed the impact of the U.S. dollar weakness (and Canadian dollar strength) on the state of the National Hockey League (see Currency Rise Helps Canadian NHL Teams).

The decline of the American dollar has led to a trade imbalance north of the border, on the rinks of the National Hockey League

Over the past two decades, the Canadian teams in the N.H.L. were considered poor cousins of their colleagues in the United States. Some floundered financially, others packed up and moved south. The league even created the Canadian Assistance Program to subsidize the country’s struggling teams.

But the landscape in Canada has changed drastically, because of a rise of more than 50 percent in the Canadian dollar since 2002. A stronger currency has made it cheaper for the six Canadian teams to pay their players in United States dollars and to reduce debts. It has also inflated the revenue of the six Canadian franchises and, in turn, the league’s revenue.

…The rising Canadian dollar is nearing parity with its United States counterpart. The Canadian dollar, whose value against the United States dollar fell to a low of 62 cents in 2002, is worth about 96 cents today. As a result, the revenues for the six Canadian clubs helped the entire league earn its highest operating profit in more than a decade, according to Forbes magazine.

…added revenues have had the biggest impact for the Canadian teams with player salaries, which must be paid in American dollars under the collective bargaining agreement between the N.H.L. and the N.H.L. Players’ Association.

MY COMMENT: In hindsight, I bet that some players wished they had negotiated to be paid in Canadian dollars.

The Canadian teams’ relative wealth is quite a turnaround, given that the league initiated the Canadian Assistance Program at the start of the 1995-96 season to help small-market Canadian teams stay afloat.

The N.H.L. prefers exchange-rate stability, but recognizes that the rising Canadian dollar has helped revive some teams, which is good for the league.

MY COMMENT: Of course the league prefers relative exchange-rate stability (in a floating exchange-rate regime), as do most businesses that operate across multiple country markets. Exchange-rate stability makes predicting future states of the economies in which companies operate a much easier task.

That said however, the larger question for the league is whether the strength in the Canadian dollar and the weakness in the U.S. dollar represents a temporary, transient effect or a more permanent, structural economic state (see Forces Impacting the Dollar).

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