A Revenue Wobble
It is time for some speculation on the impact of the new exchange rates will have on league revenues, the salary cap, and revenue sharing. I suspect it will be significant, since all the teams that should be scrapped are in the US.
I think it is probably too early. First, I don’t think the Canadian dollar will necessarily stay where it is. The value of the dollar is tied to oil prices and I expect energy prices to rise, not fall. Second, even if the Canadian dollar continues to fall, the impact next year will not be enough to actually drop NHL revenues. If all other things remain more or less equal – the league “enjoys” a small increase in real revenues – the salary cap would still go up a little bit. Third, any adverse impact of the changing Canadian dollar will fall mostly on the Canadian teams. It will mostly help the revenue challenged teams in the United States if the salary cap level stabilizes.
A far more significant issue is the general state of the American economy as it continues to deteriorate. The consumer is being squeezed and that consumer will be cutting spending on entertainment and other discretionary items. NHL teams may find themselves with higher travel costs and lower revenues. The financially challenged teams could be substantially affected.
If revenues actually do fall we are into uncharted waters, but the cap formula includes an automatic 5% increase. As a result revenues have to fall a lot to actually drop the salary cap. A zero increase in the cap is probably my worst case scenario. I don’t think that would cause significant problems. It would, however, help the Russian league compete for players.
It would take a revenue disaster to actually drop the cap. If that happens, well, its a disaster. Its easy to imagine liquidity problems, an unhappy NHLPA and a difficult period for the league. I don’t think that’s very likely for this season. I expect a revenue wobble and mounting losses for the financially challenged. How that plays out is anybody’s guess.