Loonie swoons

The Canadian dollar is trading well below 72 cents US. Canadian clubs in MLS and NASL take in most of their revenue in domestic currency, but pay out a lot of expenses in U.S. dollars. But, for NASL teams, the currency gap is widened because they pay out contracts in Canadian dollars. How is our weakening currency changing the soccer landscape?

All MLS salaries are paid out in American dollars. NASL contracts can be paid out in either American or Canadian dollars.

But, no matter the currency the team pays out, for FC Edmonton, the Ottawa Fury, Toronto FC, Montreal Impact and Vancouver Whitecaps, the majority of the revenue comes in Canadian dollars. So, as the loonie continues to slip in value as the price of oil plummets, Canadian teams are left with a gap — each dollar they take in is worth less in a league where they either have to pay out in American bucks. In the cases of NASL clubs, they have to convince foreign players to accept contracts in Canadian dollars, which lessen in value by the day.

As of January, 2016, the Bank of Canada listed the loonie as being worth less than 72 cents US.

Vice versa, it would take more than $1.40 to buy one American dollar. So, if the Vancouver Whitecaps are paying US$60,000 for a squad player, that contract is worth nearly $80,000 in Canadian money.

And it’s been an adjustment the teams have had to make in very short order. The Canadian dollar was nearly at par with the American buck just two years ago, when the Ottawa Fury joined NASL.

It has been a quick plummet.

FC Edmonton co-owner Tom Fath confirms that his team, in fact, pays out all of its contract in Canadian dollars. But that still represents a problem.

“If we’re trying to attract American players, they may look at it at how much that works out to in American dollars. And the European players will be saying how much that works out into in their currency, so it may make it harder for us to attract some of those players.”

Let’s say FC Edmonton signed a player in November 2015 to a contract worth CDN$50,000. Convert that figure, and it works out to a little more than US$37,600.

In 2013, had FC Edmonton signed that same player to a $40,000 contract, based on the exchange rate at that time, signing that deal would have been worth US$38,900.

So, in 2013, paying a player $40,000 would have been worth more in American dollars than signing a player to a $50,000 contract in 2015.

Now, Fath says that the cost of living in Edmonton hasn’t shot up over the past couple of years. So a player’s day-to-day expenses haven’t changed. The team has housing it provides to players. The question of the exchange rate comes in if a player is looking to take some of the money he makes to send to another country. So, maybe the player understands that half of the paycheque will go to cost of living, which isn’t affected by the exchange rate, and the other half is sent away, which is affected by the exchange rate. It’s a very complicated exercise in mathematics.

But, for FCE, there’s no interest in paying even some of the contracts in U.S. dollars, like we see in the NHL or MLS. That’s because if foreign players were being paid in Yankee greenbacks, the Canadian players would also want to be paid in the more stable currency, and it would swell the team’s payroll budget.

The weak Canadian dollar doesn’t just mess up the front offices of the MLS and NASL teams north of the border in terms of labour costs. Travel costs have escalated because of the weak dollar. Most of the road trips the Canadian teams embark upon will take them to to the United States. The flights may need to be paid in U.S. dollars, the hotels will charge in U.S. dollars. Per diems need to cover expenses in the United States.

So, with every cent the dollar drops, many of a team’s expenses go up by one per cent.

“Certainly, for most of our travel, the hotels, we’ll have to pay in American dollars,” says Fath. “The biggest area is travel. With the exception of a couple of trips to Ottawa, all of our travel is in the United States. And, because of the fall in the dollar over the last couple of years, we’ll have seen those costs go up by 30 per cent.

“As well, we have held training camps in the United States, and those costs are in U.S. dollars, and we’ll have to take a look at those.”

In 2015, FC Edmonton headed out to Florida three weeks before the season opener in Jacksonville. That’s three weeks worth of hotels, per diems, bus rides and field rentals — all paid in American bucks.

In 2016, instead of going to the U.S. for preseason preparations, the Eddies will have a two-week preseason camp in Stirling, Scotland. Now, that’s not to suggest a trip across the ocean is cheaper than a trip to the United States. A preseason trip to Europe in no way suggests that Fath is doing anything more but increasing his investment in a team he and his brother, Dave Fath, have lost money on since day one. But, with the dollar slumping to less  than 72 cents US, and it likely to drop even further as the oil price continues to sag, the fact remains that a trip to America has become increasingly expensive, and will likely be even more pricey in the spring of 2016.

As of December 2014, one Canadian dollar is worth just more than 0.66 Euros. In January 2016, at the time of this writing, one Canadian dollar is worth just a little less than 72 cents US. At this time last year, the Canadian dollar was worth 0.69 Euros, and 87 cents US. So, the loonie hasn’t moved much against the Euro, while it’s slid badly against the US buck. So, financially speaking, a trip to Scotland vs. a trip to the United States makes a lot more sense in 2016 than it did a year ago.

In total, Fath estimates that 30 per cent of FC Edmonton’s expenses are paid out in American dollars. Because the Canadian dollar has slumped by about 30 per cent over the past two years, Fath estimates the fall of the loonie has added about 10 per cent to his expenses over that time.

New Ottawa Fury FC coach Paul Dalglish came to the club from the Austin Aztex. He still owns a home in Texas. And he says the effect the low Canadian dollar is having on him is huge.

“For sure, it’s a problem. Right now,the exchange rate is 1.3. I still have a mortgage in Texas, and now I am working in Canada. So, basically, my mortgage payments have gone up by 1.3.”

And he says, when it comes to attracting American players to the Fury, “for sure it makes a difference.”

It’s one thing if an American player comes here and has no expenses back in the States. As long as he’s paying rent, buying groceries and making other transactions in Canadian dollars, he won’t notice the poor exchange.

But Dalglish says that many American players do have expenses back home. They may have student loans to pay off. And all of those expenses go up at the same rate that the dollar plummets.

As of the time of this writing, the Fury — who went to the NASL Championship game — wasn’t able to re-sign American strikers Tom Heinemann or Andrew Wiedeman. Then, imports Ryan Richter, Richie Ryan and Sinisa Ubiparipovic all put in transfer requests that were granted by the Fury. The team has shed foreign players at an alarming rate.

The Eddies lost their most prolific goal creator, Jamaican Lance Laing. And, earlier this year, NASL commissioner Bill Peterson admitted that he’s seen little interest from potential Canadian expansion markets.

Truth is, for a Canadian businessperson, it’s scary to walk into a U.S.-dominated league when the dollar is at such a weak level, and indications are that it could slide even more. Remember that, at the turn of this century, small-market Canadian teams in the National Hockey League were getting equalization payments — basically, subsidies raked from the profits of the large-market clubs — to make up for a dollar that had dipped below 70 cents. When, five years ago, the loonie was actually worth more than the American dollar, Canadian may have naively assumed that the days of a struggling currency were over.

But, thanks to a massive oil-price slump, the loonie’s days of strength are over. And our sports teams are feeling the effects.