League Revenues, the Loonie and the Salary Cap
On Monday NHL Players Associations Executive Director Paul Kelly was on Prime Time Sports with Bob McCown discussing several topics but of particular interest was the light he shed on NHL revenues, the contribution of Canadian teams to those revenues, and the impact of the Canadian dollar on those revenues. You can listen to the complete interview but let me summarize.
He stated that 27% of all league revenues are generated by the 6 Canadian NHL franchises and that of the 12% revenue growth the league saw last season, one quarter, or approximately 3% growth, was attributed to the rise in the Canadian dollar. This to me was the clearest statement I have heard from anyone in regards to the percentage of league revenues generated by Canadian teams and the extent of impact it had on the league wide revenue. He went on to say that the rise in the Canadian dollar contributed approximately $75 million to league revenue increase in 2007-08 over 2006-07.
From these numbers, which I believe are pretty accurate, and with the salary cap numbers, which we know exactly, we can estimate what actual league revenues over the past two seasons.
The 2008-09 salary cap was set at $56.7 million which according to the CBA is $8 million above the ‘midpoint’ which is what is calculated from 2007-08 league revenues plus 5%. Crunching the numbers we get $56.7 million less $8 million less 5% multiplied by 30 teams gives us $1391 million, which is what the 2007-08 players share of revenue should have been. This would then put the total league revenues at approximately $2.62 billion. Doing the same calculations for the 2006-07 season I have calculated the 2006-07 total league revenue to be $2.32 billion.
From those numbers we can determine that league revenues rose $300 million from 2006-07 to 2007-08 which is a 12.9% increase in revenues which seems a bit higher than Paul Kelly’s statement of 12% revenue increase but the rise of $300 million matches exactly with his claim that the rise in the Canadian dollar accounted for 25% of the increase in revenue as 25% of $300 million is $75 million. I haven’t seen or heard any firm numbers but rumours were that last years revenue was in the $2.6 billion range so my numbers seem reasonable.
It should be noted that in calculating the salary cap the formula takes into account player benefit costs. I do not know what the player benefit costs are but I estimated them based on a sample formula found in the CBA and scaled it at the same rate of increase as player compensation which may or may not be correct and may lead to some of the disparity with the numbers.
So, what does all this mean looking forward and how much the salary cap be affected? Lets take a few scenarios while assuming that the Canadian-US dollar exchange rate for the 2007-08 season was parity (i.e. one Canadian dollar equals one U.S. dollar) and that the players choose to adjust upward the salary cap by 5% for the 2009-10 season.
Scenario: The Canadian dollar drops to an average of $0.80 US while there is an across the board revenue increase of 5% not accounting for the exchange rate. Based on this scenario, the Canadian portion of revenue would be cut by 20% from the dollar and then increased by 5% for estimated revenue growth while the U.S. revenues would simply increase by 5%. Under this scenario total league revenues would be $2.602 billion or a drop of about .67%. This would result in the salary cap dropping slightly to $56.5 million per team.
Here are some other scenarios.
Revenues are in Billions of dollars and salary cap is in Millions of dollars.
If my projections are accurate, so long as the league can increase revenues (not including currency factors) then the salary cap isn’t likely to be impacted negatively in any significant way and could increase by a couple million dollars if the Canadian dollar rebounds measurably (it has jumped a couple of cents today). But in a worst case scenario where the league cannot grow at the same pace as it has and the Canadian dollar remains where it is today the salary cap is likely to fall by up to a couple million dollars.
In the Paul Kelly interview there were a couple of other tidbits that I found interesting and might signal the direction the players want to go in future CBA negations. When asked if he thought the NHL-NHLPA is really in a partnership he responded “I think it is clear the answer to that is no.” He went on to say “It would be a fallacy to call it a partnership because we don’t have an equal voice on a number of issues.” He mentioned expansion and re-location of franchises as a couple of examples where the players have no input. Expect this to be a bargaining point or a bargaining chip during the next CBA negotiation.
When discussing expansion and relocation he praised RIM CEO Jim Balsillie and stated that having someone like him and his wealth in the NHL would be a positive but also mentioned that he believes that there are people within the NHL that do not want him to be a part of the league. Paul Kelly was also very positive and receptive to the idea of having another NHL team in Toronto or southern Ontario and eluded to the fact that he thinks the Toronto area could probably support 3 teams.
It’ll be interesting to see how the NHL-NHLPA relationship develops over the next year or two but it is becoming clear to me that the next great battle might the players to push for expanding the ‘partnership’ beyond just revenue sharing but into all areas of revenue development including franchise relocation and expansion.