The soaring dollar has been an ongoing headache for multinational companies. But it has other victims too—like Canadian sports franchises.
This year not one Canadian team qualified for the Stanley Cup playoffs (the country’s poorest showing since 1969). And any hopes for a comeback next year is complicated by an exchange rate-induced cash crunch that shows no signs of letting up.
That’s because all players, including those who play for franchises based in Canada, must be paid in American currency. For teams that take in revenue in Canadian dollars, this effectively increases their payroll by whatever percentage of the US dollar the Loonie represents. That’s significant. As of mid-April, the Loonie was on a slight uptick to around $.76 against the US dollar. But projections from earlier in 2016 show that it could fall to as low as $0.59 US in the coming years, mostly because the Canadian dollar correlates so strongly with the oil market, which is unlikely to see the kind of rebound needed to bring back the halcyon days of the early 2010s, when the Loonie was worth the same or even more than the US dollar.
For hockey fans, this is all-too-familiar; in the ‘90s, a plummeting Canadian dollar led to teams from Quebec City and Winnipeg decamping for warmer climes and better economic conditions in Colorado and Arizona, respectively. Though this crisis is not at that point yet, concern is mounting, and the weak Loonie makes it more difficult to bring a new hockey team to Quebec City or a new baseball squad to Montreal.
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One way existing teams protect themselves against the strong dollar is by hedging their currency—buying up gobs of American money at a fixed price for the next year, locking in their payroll cost. But like any hedge, this brings serious risk, says Glenn Hodgson, the chief economist at the Conference Board of Canada—if the Toronto Maple Leafs buy up a years worth of American money at $0.76 on the dollar and the Loonie sees an unexpected sure to $0.80, the team is left out in a cold worse than an Ontario winter (though likely not as bad as the teams five-decade Stanley Cup drought).
A version of this article appears in the June 1, 2016 issue of Fortune with the headline “Pity the Canadian Hockey Teams.”
