More on NHL Exchange Rates and Expansion

OTTAWA ON - JANUARY 14: A Quebec Nordiques fan shows his support for their return to the NHL at a game between the Calgary Flames and the Ottawa Senators at Scotiabank Place on January 14 2011 in Ottawa Canada. (Photo by Phillip MacCallum/Getty Images)

When I wrote my piece on Tuesday about hockey returning to Winnipeg, I found it surprising that some people dispute the role that exchange rates played in the NHL's current predicament. The NHL is unique in that it's the only truly international professional sports league - aside from the Toronto Blue Jays and Toronto Raptors, every other team in the NFL, NBA and MLB is in the US, and leagues around the world tend to be almost entirely confined to single countries.

This places an unusual constraint on the NHL, which is that it's also uniquely affected by the exchange rate between US and Canadian dollars. Most NHL revenue is generated locally in the local currency; when the Canadian dollar fluctuates against the US dollar, the price of Calgary Flames tickets moves independently. Salaries, however, are paid in US dollars. The net result of the US dollar losing 57% of its value against the Canadian dollar since the 2000-01 season is that Canadian team revenue has shot through the roof, increasing 10% per year in US dollars versus just 4.3% annual growth for US teams.

People like to blame the NHL's current relocation woes on its expansion into non-traditional hockey markets in the Southern US. Let's follow this claim through to its logical conclusion - if non-traditional hockey markets are the problem, should we not expect to see slower revenue growth there than elsewhere? I split NHL teams into four groups:

  1. "Southern" US Teams: Miami, Tampa, Atlanta, Raleigh, Nashville, Columbus, Phoenix
  2. Rest of US Teams: Dallas, Pittsburgh, Los Angeles, Anaheim, Minneapolis, Denver, Washington, San Jose, Buffalo, St. Louis, New York (New Jersey + Long Island)
  3. The "big five": New York Rangers, Detroit, Boston, Philadelphia, Chicago
  4. Canadian teams

Here's their annual revenue growth rate in local currency over the last decade:

Category Annual Growth Rate (2001-10)
Southern Teams 4.2
Rest of US 4.1
The "Big Five" 4.8
Canadian Teams 5.1

The issue is clearly not the growth rate, but the baseline:

Category 2001 2010
Southern Teams 53 73
Rest of US 63 87
The "Big Five" 86 125
Canadian Teams (CDN) 88 131
Canadian Teams (USD) 58 125

Ten (and 15) years ago, Canadian teams other than Toronto and Montreal simply didn't generate as much revenue as even the most non-traditional, most disinterested hockey markets, but the Canadian dollar's appreciation against the USD changed that calculus. There are 18-20 NHL teams that can function regardless of what the Canadian dollar is worth. But the next 15 markets are highly-dependent on the exchange rate - with CDN at 60 cents US, only two Canadian teams are truly viable; with the currencies at par, there are probably 10 teams that cn survive.

Sure, there are other forces at play here, and I do understand why people would question the NHL's southern expansion strategy, but revenue - and by extension, currency - is the major driver of where NHL teams can operate successfully.

X
Log In Sign Up

forgot?
Log In Sign Up

Forgot password?

We'll email you a reset link.

If you signed up using a 3rd party account like Facebook or Twitter, please login with it instead.

Forgot password?

Try another email?

Almost done,

Join Arctic Ice Hockey

You must be a member of Arctic Ice Hockey to participate.

We have our own Community Guidelines at Arctic Ice Hockey. You should read them.

Join Arctic Ice Hockey

You must be a member of Arctic Ice Hockey to participate.

We have our own Community Guidelines at Arctic Ice Hockey. You should read them.

Spinner.vc97ec6e

Authenticating

Great!

Choose an available username to complete sign up.

In order to provide our users with a better overall experience, we ask for more information from Facebook when using it to login so that we can learn more about our audience and provide you with the best possible experience. We do not store specific user data and the sharing of it is not required to login with Facebook.

tracking_pixel_9355_tracker