It’s All About the Benja…er…Bordens?

There was huge news in the hockey world last week. The announcement of a $5.2 billion, 12 year pact with Rogers Communications that has dramatically altered the TV and internet viewing future of and for NHL fans in Canada. There has been plenty of talk about who wins and who loses, but what hasn’t really been spoken about much is what this rather large chunk of money means for Canadian NHL teams, like the Edmonton Oilers, and what some of the motivation was for signing such a controversial landmark deal, other than the obvious one of Gary Bettman wanting to roll in his ‘The Count’ Sesame Street undies on a bed of full c-notes.

(This is all speculation on my part, so take everything I write with a grain of salt.)

First and foremost the NHL is a big, big, business. This contract solidifies that beyond any doubt. You can’t really fault the owners for signing such a deal. Make hay while the sun shines right?

What I would like to hear is what factor the Canadian dollar played in signing the deal. If anyone hasn’t noticed yet the Canadian Dollar is starting a descent. Most people probably don’t think much about it because the only time they need to is when taking a holiday to the States and what it means for their holiday budget. Some of us buy products in the US on a regular basis for work, but I don’t think we care to worry a whole lot about the effects of a few cents drop in the CAD compared to the USD. It’s company money and you pass the cost along down the line.

Now, it’s a lot different if you are a Canadian business collecting your revenues in CAD while paying out a very large part of your expenses, payroll, in USD. This is exactly what Canadian NHL teams do. Duh, you say? I know, Mr. Obvious. But this hasn’t been an issue in the past half decade or so because the dollar has been is a relatively unchanged state of +/- 10 cent flux. That is until now I believe.

Here is what I think…

In the last ~6 months the Canadian dollar has flirted with the $0.95 US mark. So what you say? Ok. Since mid 2010, the last time the dollar was at the point it is now, it has consistently maintained that $0.95 cent floor, a little less on the odd day. In the past few days it has begun to close below 95 cents and it is being accompanied but what people in the money businesses like to call a falling top. The dollar has breached a floor that has been maintained for over 3 years and its being accompanied by ever shrinking trading highs. Chances are we are in for a bit of a dollar slump so take your US holiday now.

If you’re asking “What the hell does this have to do with the Edmonton Oilers?!” Don’t fret. I’ll get to that shortly.

Once you have digested that little nugget of financial doom I’d like to drop a few more numbers on you. Based on the estimated average ticket price of $79.27 (no premium seats included) coming out of the last lockout, for argument’s sake lets say the Oilers bring in about $1.33 million in ticket revenue per game (based on a sellout). That number is obviously CAD so you have to get it converted into USD to pay the players. Now here is the number that means something. At the Current payroll cost (non bonus), every 1/2 cent the dollar loses or gains against the greenback the Edmonton Oilers pay $293,000 more (or less) per season in player salary. Up to this point, if NHL owners are smart business men which most of them are undoubtedly, they had probably been budgeting and forecasting the Canadian dollar being no lower than $0.95 because that was an established floor. Now that the dollar looks like its doing a little dive you can bet that 1) the NHL, the owners and their money men saw the trend and what was coming (to an extent) and 2) the TV deal was made in part to insulate the league against having to go back to the old equalization payments of when the dollar was sub $0.80 for a loooong time.

The league has basically retroactively snubbed out the effects of the Canadian dollar on the NHL, riding on the back of Canadian teams. It is guaranteed income regardless of what happens and they don’t have to worry about where that money is coming from for the next 12 years. Every year the league will be able to hand over a cheque to each team worth $14.4 million dollars. You know what that number represents to the Edmonton Oilers and other Canadian teams? With a $0.25 drop in the exchange rate and at current payroll levels, right around $14 million.

Darryl Katz is no dumb welder. He is the member of a shrewd club of billionaires and those who are almost and their #1 goal is profit. He has negotiated a very good deal for his new arena, the new arena will bring on a substantial increase in revenues compared to the old barn and deal, he just sold the naming rights to said building and he has a fan base that provides the club with sell very night, even in the midst of a 8 year(!) playoff drought. And us fans? We are still clamoring for Hall, Nuge, Eberle, Yak and Co to give us more. A good business to own I’d say:)

The TV deal may signal the end of NHL on TSN, but the game has never been more stable and so go your Edmonton Oilers.