Canadian Dollar Volatility and the Salary Cap

Last November, as the Canadian dollar was starting to fall, I attempted to estimate the impact a sliding Canadian dollar would have on the 2015 Salary Cap

In the absence of the league’s confidential information, estimating league revenues and, more importantly, their exposure to foreign exchange risk, is an almost impossible exercise. Basically, you have to layer one assumption on top of another. Nevertheless, in my work I estimated that a $67-69M cap was not out of the question depending on what happened with the Canadian dollar. 

It was only a few weeks later that Gary Bettman announced at the December Board of Governers meeting that he expected the Salary Cap would be around $73M for the 2015 season. This news must have come as a relief to many General Managers. “No need to cut down on egregious contracts, we have plenty of room. Crisis averted.”

Only, apparently there was a bit more foreign exchange exposure than Bettman realized back in December.

In the chart below, we can see how the decline in the league’s cap projections is in step with the decline of the Canadian dollar versus the US dollar: 

salary cap decline with CAD

On Sunday, the Globe and Mail’s James Mirtle (@mirtle) had this to say in a series of tweets: 

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“NHL’s inflator may well be less than 5 per cent but more than zero. First time if it happens. That is more downward pressure on the NHL’s cap. A 2.5% escalator would be a drop of roughly $1.7-million in next year’s salary cap! That’s such a big difference you can see why league would fight that “compromise” solution. Some teams can’t afford that low a cap. To clarify… if NHL’s cap is expected to be $71-million with 5% escalator, it’d be roughly $69.3-million with 2.5%. Big difference.”

Clearly, the cap situation is turning out to be worse than the league had expected back in December, and many GM’s appear to have been caught flat footed. Volatility like this creates both risks and opportunities. 

Exploiting the Cap Situation of Other Teams

The top teams in the league will be in for a world of pain this summer if the Salary Cap ends up being in the range Mirtle alluded to on Sunday. It’s already been contemplated that a team like Chicago may have to look seriously at moving players like Bryan Bickell and Corey Crawford in order to get in under the cap. 

Boston already has $63.1M commitment, and that’s before signing Dougie Hamilton, who is the future of the Bruins blue line. I assume free agents like Carl Soderberg and Matt Bartkowski have already said their goodbyes. 

Then there is the RFA market. Will this be the year a cap-space rich team with deep pockets like the Buffalo Sabres offer sheets a player like Hamilton or Vladimir Tarasenko? It sure would be nice to have the cap-space to give it a try.

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Impact on the Trade Market

As the cap comes down, it becomes a buyers market for established players with hefty contracts. I’ve advocated moving Kevin Bieksa, Dan Hamhuis, and Radim Vrbata, all of whom will be free agents next summer. The trouble is, with teams like Chicago, Boston, Tampa, and Philadelphia all close to the cap there will be more and more competition to move aging veterans with big price tags, and the value of the return will decrease. 

The Canucks Situation

Ironically, back in November I noted that the Canucks could be in a situation to exploit the cap pain of their peers, but that was before they committed $6.2M to Luca Sbisa and Derek Dorsett. According to NHLNumbers.com, the Canucks have $66.6 Million in cap space committed for next season to 10 forwards, 5 defensemen, and 2 goalies. If the cap ends up being in the $69M range, then this offseason just got a lot tougher for Jim Benning as he’ll have to fill a number of roster spots in around the league minimum mark in order to field a salary cap compliant roster. 

This also means that Benning will likely have to trim every penny of salary he can for the Canucks to be cap compliant. We assume that veterans like Kevin Bieksa and Chris Higgins will be on the move if they allow Benning to trade them, but a player like Zack Kassian might be forced out as well. Also, the team will not be able to keep Jacob Markstrom in the minors if they re-sign him to a new RFA deal. One of either Miller, Markstrom, or Lack will have to go.

Conclusion

There are areas that are within the control of a team’s management, but the foreign currency markets aren’t one of them. As such, teams need to evaluate their cap situation under a variety of scenarios and plan accordingly. Financial liquidity is an asset that should never be undervalued. 

As fans, we should expect management to do more than take the league’s estimate for the cap and manage to it. They should be asking question like “what happens if the Canadian dollar drops to $0.80?” “What happens if the league’s estimate of revenue growths comes in a percent lower than expected?” “If these ‘worst case’ scenarios play out, how does that impact who we sign, when we sign them, and how much we sign them for?”

From the big dollar signings the team has made in the last twelve months, specifically the $12.2M allocated to Ryan Miller, Derek Dorsett, and Luca Sbisa, one can only assume that either a) this type of work isn’t being done, b) its being done, but is ignored by senior management, or c) senior management is aware of the risks associated with these signings in a “worst case” salary cap scenario and has built a contingency plan we should expect to see play out in the next couple months. 

In the past, the Gillis/Gilman tandem was masterful when it came to salary cap management. Unfortunately, as a result of the Lindenning administration’s allocation of $12.2M to Miller, Sbisa, and Dorsett, the Canucks have not only lost an opportunity to exploit their competition, but they’ve put themselves in a bind if they still plan on fielding a competitive roster next fall. It’s going to be tough to improve when you have no money to spend on getting better.

Of course, there’s always a chance that this is all part of Benning’s master plan. We know from last season that he’s not afraid to make moves when necessary. It’s all leading up to what we can expect will be an action packed off season for the Canucks head office. It remains to be seen whether that is a good or bad thing. 



  • BuffaloBillsOfHockey

    hey hey hey I got an idea. Since Eddie is a UFA next summer, we trade him this season for a second round pick and then next season we can trade Miller and sign Eddie back. How does that sound? I think Eddie won’t mind sticking with another team for a year.

  • BuffaloBillsOfHockey

    It’s hard not to see this as a stealth tank. Committing almost 20% of our cap to our worst forward, worst dman and worst goaltender is almost too brainless to be an honest decision by someone who’s watched a game of hockey.

    What was the rush with Sbisa and Dorsett? Couldn’t risk a hot streak in the playoffs? We’re obviously getting the (accidental) tank we need to rebuild – it’s just going to be a lot more expensive than it had to be.

  • peterl

    the graph above of Canadian dollar and projected salary cap does not look that informative. Just based on number of teams in the United States (23/30), the Canadian dollar will not affect a majority of teamsémarkets and thus does not graphically look like it changes the cap a lot. Perhaps there is some 23/30 normalization and some more data points in the projected salary cap to get a better graphic for how the Canadian dollar affects the salary cap.

    • Squibbles

      If I’m not mistaken, despite Canada having far fewer teams those teams provide a disproportionate amount of revenue to the league compared to the larger number of American teams. Thus the outsized impact of CAD on league revenue.

  • peterl

    @ van:

    Yup, I think you nailed it. No master plan, no contingency plans, no stealth. This is good ol’ timey GM’ing. “The cap will just go up and up.” Spend big on a goalie in his twilight years, on a 4th rate forward, and 6th rate dman. Don’t move a 4th line forward having a career year at the deadline. Talk a lot about loyalty and bringing the kids up in a winning atmosphere. I feel bad for the Sedins, who’ll probably ask for a trade to Detroit when it’s too late.

    Now I know how Oilers fans felt under Tambellini.

    For those who wanted a rebuild, the Aquilinis found a way to do it without meaning to!

    • peterl

      I recall Trevor Linden coming back and playing here while way past his twilight years. So twilight that Rod Serling would be baffled.

      This isn’t new from the Canucks. they’ve been doing this for a long time. Getting players in their twilight years out of desperation or stupidity because let’s face it, the Canucks don;t draft well, don’t develop players so the only thing they can get is over priced 4th helpings.

  • pheenster

    “In the absence of the league’s confidential information, estimating league revenues and, more importantly, their exposure to foreign exchange risk, is an almost impossible exercise. Basically, you have to layer one assumption on top of another. Nevertheless, in my work I estimated that a $67-69M cap was not out of the question depending on what happened with the Canadian dollar.”

    LOL, that’s the world we live in, a world full of BS courtesy of the money lenders and fiat printers on wall street and the banks. Everything is volatile or not, in supply or in demand or not, just mere words coming from the ultra rich who are always scheming new ways to steal and gouge more money. They own the banks, wallstreet, hollywood, media, the biggest corporations and your government. It’s funny how concerned the NHL is for nothing more than it’s own self serving interests. They do nothing but suck up money into their own bank accounts while crumbs get tossed back at the public.

    These owners and Bettman are no better than the royal families of Europe and the world, parasites who live off of others. Bloode suckers need hosts to survive, they cannot live off each other. And the stupid public who love paying taxes to the rich and their puppet politicians are ultimately what will bring everything to an end.

    -The real tyrants are not your puppet Politicians and their masters, it’s your own brothers and sisters who join their armies and police forces and enforce their laws and taxes-

  • FlamesRule

    Oh Brother, this has gone really sideways from a hockey talk but I’m going to chime in anyways. @MoneyPuck I enjoy the reads, but I have to encourage you to combine your wizardly number crunching with some wider perspective and a bit of common sense.

    For starters don’t forget the 5.0 M owed Vrbata next year also on the Linden/Benning watch. It seems paying above minimum possible acquisition dollars to players to secure your first choice options via longer term and less trade limited contracts is actually extremely intelligent practice as it gets you what you want and builds asset flexibility. To acknowledge Gillis/Gilman as “masterful” without pointing out their cap performance was on the back of no trade clauses being handed out like candy is a bit fast and loose with the facts.

    Was 6.0M too much on a 3 year deal with Miller. Maybe, but when Benning signed it he had Lack coming off a burnout season under Torts and Markstrom having played 42 NHL games since 2012-13 and sporting a 3.21 GAA and a .881 Sv%. Again lack of historical perspective allows this signing to be characterized as a misallocation of funds, but if it buys time to figure out what you have in net, a stabilized transition to the next generation goaltender, and shows the team and the fans that you are still willing to invest against being competitive, is it really the travesty so many make it out to be?

    Sure if you can make a move with the Miller contract knowing what you know now about both the cap and at least the viability of Eddie Lack as a starter and are willing to take the risk of Markstrom as your NHL back up maybe it’s what you do but in the moment he made the deal it was a bold statement and served its purpose. Now there is a choice to make and that has value, that is good asset management.

    The continued characterization of the Dorsett and Sbisa deals as questionable management decisions , in this case in light of the sinking salary cap, are also off mark. It seems too many are seeking instant gratification and easy answers and have no time for any objective thinking on why these deals actually could make sense from the perspective of asset management over the medium and longer term.

    We all know Sbisa was going to need to be qualified at a minimum of 2.9M on a 1 year deal so at best we could have saved 700k next year if we wanted to keep him and since we don’t have any 6’2”, 200lb , 25 year old Left shot D men with NHL experience in our system, thanks to a long history of ignoring the position in the draft, we NEED to keep him. Your own analysis showed that our best alternative Free Agent gambles would be 34 year old Jackman or 32 year old Michalek at bigger dollars than Sbisa or 28 year old David Schlemko at a slight discount. So in the cap argument lowest dollar value scenario, we can have a 28 year old Schlemko with better advanced stats this year than a 25 year old Sbisa… what did David Schlemko’s stats look like when he was 25? He wasn’t playing as many games, scoring as many points, hitting as many people or blocking shots at the same rate as Sbisa did at 25 I’m guessing. Again, the asset management comes in to play with the dollar value – did Sbisa get a slight premium, yes he did. What did it buy the Canucks? 2 years of FA eligibility and no trade limitations which add up to making Sbisa a reasonably good medium term asset.

    Finally Dorsett, the fact that there are a limited number of comparable contracts speaks to the fact there are a limited number of players who bring the attributes that Dorsett brings, which is exactly what makes him valuable in particular to a team that lacks those attributes in the majority of its current roster. Dorsett, like Prust or Ott for instance (both paid comparably on relatively recent deals) bring intangible value beyond their regular and advanced statistical values. For proof of that perceived value in the market we can go beyond the pure contract values and look at what our very own over paid goalie brought in trade when paired with a Dorsett comparable player in the form of Steve Ott. The free agent to be Ryan Miller and the free agent to be 31 year old Ott fetched 28 year old Jaro Halak, 25 yr old Chris Stewart, a prospect in the form of William Carrier, a 2015 1st round pick and a 2016 3rd round pick. So we have Dorsett signed to a 4 year deal at the age of 28 at only a 50k premium to the $ being paid Ott who is now 32 and had similar stats to Dorsett, played similar minutes and had a similar role. What are the odds that at some point in that 4 year deal the Canucks get to the point that trading Dorsett is an option and again with no trade restrictions, they can make that move and upgrade the asset into a pick, prospect, or roster player. I think the odds are good as Dorsett is the kind of player that fetches inordinate return at trade deadline from teams looking for those exact intangibles he brings as they look forward to a long playoff run. In the mean time he has brought a presence to the room that is allowing the kids to mature and the skilled veterans to play a little bigger than they did without him in the line up. Again, Benning has created a tangible medium term asset for the organization and given himself the flexibility he will need to build on this team down the road.

    So let’s get back to the very beginning of this novel; a 33 year old Vrbata, at $5M for another year with a modified no trade clause coming off a career high 63 point season. Need Cap relief, a top 50 draft pick, and some room on the wing to play some maturing prospects, it’s pretty simple, pull the trigger on a Vrbata deal and turn an asset that met your needs last year into more assets applicable to your current needs. Flexibility, to do what you need to do when you need to do it… looks like pretty good management to me, I’m betting we’ll be ok in the Linden/Benning era and agree with one thing in your article 100% – it’s going to be an action packed off season!

    • FlamesRule

      Thank you for a well reasoned and in depth analysis. I guess I say that because I am in agreement. Miller and Vrbata were necessary signings last year to reaffirm that the leadership was willing to pay to bring in credibility in the desire of management to win. This was needed because fans were not renewing tickets, thanks to the idiocy of the previous year in coaching and in an unwillingness to recognize a need for change. 7 out of 23 regulars were new this year, and I expect a further 5 or 6 changes this year. Sbiza is not a great dman, but he is mean and he hits and each team needs that, and he is young enough to improve. I totally agree on Dorsett on 3rd or 4th line duty. I expect to see Bieksa, Higgins and possibly Miller moved this summer, with Vancouver retaining 2 mill of Miller’s salary. Vrbata may also move on and I expect Kassian to be gone as they have replacements for him that are just as cheap and younger and less head cases. Bieksa replaced by Franson, Higgins by Baertschi, Miller by Markstrom, Vrbata by one of the young guns, whomever does best in pre-season. That would give us about 10 mill in cap space. Next year you will see Burrows moved on. Oh and Matthias and Richardson will not be resigned.

    • Dirty30

      Gee, you need to elaborate a little more. People can’t understand you when you keep things so short and vague.

      It took me 2 hours to scroll up to write my name and 2 more hours scrolling down to click on “post comment”.

    • pheenster

      Good post! I hadn’t thought about Sbisa’s contract in context of free agency; it does make the deal a bit more palatable. Still makes me twitch a little bit. Can’t help it. We’ll see what the new season will bring.

      Steve Ott isn’t the best comparable for Dorsett. Ott is a better PK option, and is a bit of a minor deity with faceoffs. Couple that with the age difference–especially with Ott on the other side of 30, and due for a (possibly rapid) decline in production, and it raises more points of difference than similarity with Dorsett.

      Of the two contracts, I’m personally more willing to give Dorsett the benefit of the doubt, however. His ‘fancy stats’ are so all over the map (some have him overperforming; others have him underperforming & suffering from bad ‘puck luck’) that I kinda have issues figuring out what we really have here in Double D.

  • FlamesRule

    Bettman looks really pale and disheveled like a vampire. I guess when you make a living sniffing and managing greedy NHL owner’s bums you’re bound to get little sun.

    But don’t worry all you Canadian fans, just keep buying tickets and the owners will give you what you want because they love you so.

  • FlamesRule

    It should be interesting to see who goes.

    Benning has spoken positively about Higgins being valuable as a “glue” guy. Hamhuis and Bieksa are loyal soldiers as well. Much as the speculation from reporters has been advocating moving these guys, I doubt that it will happen.
    On the other hand, I can’t imagine Kassian being a Canuck next season. Something fishy was going on with the total team silence about his injury or how long he would be out at playoff time.
    Vrbata played well, but moving him would make a lot of sense. Benning might be tempted to move him for assets.
    It also seems likely that Lack will be moved, although I would prefer that Miller be the one. The fact that Willie put in an injured Miller over Lack says a lot about how the Canucks management feels about Lack.

    Benning has also been very positive about Baertschi so I expect he will be on the team next year. With Virtanen, Shinkarek, Gaunce, and Grenier possibly making the team, and Cassels, and McCann having an outside shot at it, there may have to be more forwards moved out than just Mathias, Kassian and possibly Vrbata.

    On D, there won’t be as much pressure from Utica, but Benning traded for Clendening so he will probably get a shot and possibly Corrado. Apparently Benning wants a lot of D around, so I’m not sure who will move, if anyone.

  • Dirty30

    I didn’t like the Miller signing and not at 6 mil with a limited trade contract … However, after reading everything (except the Calgary posts) it came to me that hat perhaps part of the ‘deal’ between friends Jim and Ryan is the idea that if Miller took this deal Benning would have the option to shop him as needed without the Kelser theatrics.

    I have a little more hope that perhaps that scenario will happen and maybe the same with Vrbata — we paid good money for the right to say good-bye.

  • pheenster

    @maxfun

    good post! it really does seem like the wolves are out already for benning. people loathe the sbisa deal but it’s not like dmen grow on trees. same goes for miller. all he did was steady the ship and keep the canucks in contention while lack tried to find his head and then won game five playing injured. not such a catastrophe, i think.

    vancouver is a crazy market. remember folks, benning brought the team back to playoffs with a 2nd place finish in the pacific. a pretty successful season after “The Horror” wouldn’t you say? so what’s with the lynch mob? pretty harsh, i’d say.

    • Dirty30

      “benning brought the team back to playoffs with a 2nd place finish in the pacific. a pretty successful season after “The Horror” wouldn’t you say? so what’s with the lynch mob? pretty harsh, i’d say.”

      The thing is that Benning came into a organization where the bottom had fallen out, there was no where to go but up, or perhaps a little further down through the hole of the barrel, either way his odds were 50/50, which is a great odd for any gambler.

      Vancouver is a lynch mob, that you are right, problem is, they like to lynch any one new or any one that’s less relevant like kassian but the old time stale and moldy core gets a pass every time… but not from opposing teams of the gods of hockey.

      Vancouver is a country club team, simply put, they will never win the SC and never deserved to win… unless they wise up which you can bet will never happen. That’s why half a century is just around the corner. Tick tock.