Dealing with the Dollar
Hockey is the biggest sport in Canada without a doubt, and is probably the fourth biggest sport in the US but oddly enough Canadian teams have a lot more trouble dealing with their budgets than American teams do. For Canadian teams, revenues come in as Canadian dollars; however, player salaries are paid in US dollars. To get around this, Canadian teams use hedging strategies to reduce their foreign exchange exposure.
This is a great idea for Canadian teams because it allows them to completely mitigate the risk of the dollar. With each drop of one-cent taking $690 000 off of the team’s bottom line this is a big risk. Having that money coming in at a guaranteed fixed rate allows the teams to focus on other things and gives them the reassurance of knowing that a big crash of the dollar isn’t going to make them lose money that season. It also allows them to set ticket prices at a rate making sure that they can cover their costs.
Not many people would enjoy owning teams in Canada if they knew any change in the dollar could make a profitable season catastrophic. But using hedging strategies, Canadian teams will know their revenues (more or less guaranteed to sell out each game in Canada, no matter how bad they play), as well as their costs, before the season, allowing them to calculate their break even point on ticket sales.
Ticket sales are heavily dependant on the teams costs. Canadian teams are using hedging strategies to lower the risk of fluctuation of the dollar.