SPORTS
16 Obiter Dicta
Oil, the Dollar, and Your Favourite Sports Team
What Impact will Current Economic Circumstances have
on Canadian Professional Sports?
michael silver › staff writer
I
n just over six months, the price of oil has
dropped from over one hundred dollars per
barrel to under fifty dollars per barrel. A significant portion of the Canadian economy is
dependent on oil. Over the same period of time, the
Canadian dollar has dropped from a high of over
ninety-four US cents to a low of under seventy-nine
US cents. The weakening of the currency, and the
economy generally, has of course had many important impacts, but this article will focus on what
impact it will have on Canadian professional sports
teams.
The weak Canadian dollar makes it even less likely
that an NFL team will be moved to Toronto in the
near future. It is simply more difficult to make money
today, and the same issues that apply to the existing
Canadian teams in other leagues would apply to this
team.
The Toronto Raptors of the NBA are likely to be the
least impacted of any of the teams, especially from
a fan’s perspective. The NBA is structured in such a
way that teams are obligated to spend within a certain narrow range on player salaries. A decrease in
the Canadian dollar will not change what the Raptors
spend on these salaries. The team may experience
some decrease in profits because its main expense,
player salaries, are in US dollars, when their main
revenues, including ticket sales and Canadian TV, are
in Canadian dollars. As the Canadian dollar decreases
against the US, these revenues decrease. However ,
this will not necessarily be the case. A large portion
of the Raptors’ revenues come from the NBA’s US
national TV contract, which has
g row n sig n i f icantly in recent
years. The revenue
for the owners of
the Raptors (Bell
and Rogers by way
of MLSE) is also buoyed of late because of the team’s
success on the court. More people watch the games
on TV when the team is successful so advertisers are
willing to pay more.
The Blue Jays are in a somewhat similar situation
to the Raptors. They also receive a significant amount
of money from their league’s US national TV deal,
which has also increased in recent years. A significant portion of its revenue is also based on Canadian
sources, which are less valuable with the low dollar.
They are also owned by the same company that televises their games (Rogers), thus providing a corporate
incentive to field a successful team. Where the Blue
Jays differ from the Raptors is in the salary structure
of their sport. MLB teams are left completely free to
determine their payroll. With a decreasing Canadian
dollar, many observers expect the Blue Jays to attempt
to decrease expenses by not acquiring as many high
level players as expected. To this point, in their offseason this appears to be exactly what is happening.
Perhaps this approach is justified. To meet a payroll
of 140 million US
dollars the Blue
Jays would have
to spend approximately 180 mill ion C a n ad i a n
dollars, instead of
the perhaps 145 million Canadian dollars that they
likely budgeted. However, such cost cutting measures
would likely result in the Blue Jays failing to field a
sufficiently competitive team to retain fans, or bring
in expected revenues. If revenue targets fall short, the
payroll will likely be cut even further in response. The
decrease in the dollar therefore appears to be especially damaging to the Blue Jays.
The current economy has a unique impact on the
NHL. Seven of the NHL’s thirty teams are based in
Canada, proportionately far more than any other
sport. The NHL is far more popular in Canada than it is
anywhere in the US. Therefore, a much larger portion
of the entire league’s revenue comes from Canada,
and in the form of Canadian dollars. However, player
salaries are calculated in US dollars, as is the salary
cap. The salary cap is currently sixty-nine million
US dollars. In December, league commissioner Gary
Bettman indicated that he expected the salary cap to
rise to seventy-three million dollars next year. Yet
this figure was acknowledged to be largely dependent on the Canadian dollar. At the time the Canadian
dollar was at eighty-eight cents US. It would be reasonable to expect the cap to be lower than that estimated figure if the Canadian dollar remains lower
than that level. That provides difficulty to many
teams and players. In planning contracts, teams generally assume that the salary cap will rise. This allows
them to accommodate raises for their existing players
and continue to sign new free agent players. If the cap
does not increase as expected, many of these teams
will not be able to sign the players that they otherwise would have hoped for. From the perspective of
the players, it is also a problem. Players entering free
agency will not be able to find teams with enough
room under their salary caps to pay them what they
would otherwise be worth.
I am sure the drop in oil and the connected drop
in the Canadian dollar has had similar impacts on
other industries, but none of these other industries
are likely to impact the way that I spend my free time
as much as these professional leagues. Let us hope the
loonie bounces back for the sake of our favorite team OK, maybe also for the value of our bank accounts. u
“The decrease in the dollar
therefore apears to be especially
damaging to the Blue Jays.”
ê Photo credit: thestar.com
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