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Tackling how the US debt debacle might affect the NHL

Aug 6, 2011, 4:27 PM EST

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In case you haven’t been paying attention to news and politics lately (it’s OK, we understand that little-to-none of the news has been good), the United States’ credit rating went from AAA to AA-plus according to Standard & Poor’s. It’s been called “an unprecedented blow” to the American economy and could “eventually raise borrowing costs for the American government, companies and consumers.”

If you’re visiting this hockey blog to escape that nightmare story, we apologize. The sad reality is that real-world economics often invade the comfy bubble of low-stakes sporting events.

On the Forecheck’s Dirk Hoag did a fantastic job of explaining how this scary situation might affect the NHL in general today. After giving an overview of how the values of the Canadian dollar and the American dollar changed over the years – and how those fluctuations affected the NHL in that time – Hoag gave three hypotheses on how this latest crisis might affect the highest levels of hockey.

Let’s take a look at each of the the main points he made.

1. More Canadian teams spending closer to the cap

… A windfall gain due to currency shifts could make it easier for those teams to boost their player salaries for the upcoming season, and/or increase off-ice spending to gain edges elsewhere (Calgary recently hired Chris Snow to conduct video & statistical analysis, while Toronto has a front office loaded with ex-GM’s from around the league).

Could these shifts also mean more Canadian teams, period? It certainly gives an extra bit of credibility to hockey-starved Quebec, if they could ever get that pesky NHL arena built.

2. Small market American teams face an additional challenge

The NHL has a revenue sharing plan that can benefit the league’s smaller markets, but those markets must reach certain spending and revenue benchmarks to enjoy those benefits. Here’s how Hoag described that possible situation.

For a team which earned a full share in 2010-2011, missing that target next year would mean they’d only get 75% for 2011-2012, a hit which could easily amount to $3-5 million depending on individual circumstances. Teams missing those targets for the second consecutive year only get 60% of their share, and for 3-year (or more) offenders, they get 50%.

The third point is more about minutiae, unless you’re asking Dan Ellis.

3. Players may benefit from decreased escrow

Again, that’s a concern that probably doesn’t register with many fans, but read the post if you’re curious.

***

So, the basic takeaway is that Canadian teams could benefit across the board while small market (non-traditional?) American teams might be under even more stress if the downgrade has a significant impact on American currency. In a way, it almost seems like Canadian teams are getting revenge for the ’90s, when their teams were bleeding money and the Sunbelt expansion was in full swing.

Of course, while Hoag’s post is grounded in logic, it’s still speculation at this point. That being said, could the NHL actually consider putting together an American Assistance Plan in the next Collective Bargaining Agreement to echo the Canadian version from the latest one? There are all kinds of possibilities at play here … and most of them are rather depressing.

We could have more than a year to discuss these and many other issues as the CBA races toward expiration, although most of us will spend the majority of our time simply begging for both sides to avoid another lockout.

  1. 1943mrmojorisin1971 - Aug 6, 2011 at 4:46 PM

    You don’t have to worry about there being more Canadian teams. Gary Bettman will defend the struggling American teams until they’re all losing billions of dollars, because as we’ve seen losing hundreds of millions isn’t enough to pull the plug on an American team

  2. sknut - Aug 6, 2011 at 5:22 PM

    I wonder how it will effect Phoenix, I am sure the NHL isn’t happy about still owning it and this might make it harder to find a buyer. Seems the Candian theory is a sound one and Phoenix is ripe for the taking.

  3. nhlbruins90 - Aug 6, 2011 at 8:58 PM

    It’s pretty simple really. The USA has debts it can’t possibly pay off, and we keep borrowing more. It can only play out in a few ways. We can default, and simply not pay off our bonds. That won’t happen. The USA always pays its debts.

    The other alternative is to crank up the printing press in the basement of the Treasury building. That’s why you’re paying more for everything at the supermarket and the gas pump, QE1 and QE2. Next up will be QE3 and on and on until the dollar is no better than green toilet paper.

    At that point, we’ll pay off the hard working Chinese factory workers who invested their money in US bonds with worthless dollars. American bondholders will be screwed as well. It’s default without having to actually say you’ve defaulted on your debts. Shameful really.

    The only question is how inflated the dollar becomes. Will it cost $1000 to buy a shopping cart full of groceries, or $10,000? Or am I being too optimistic. We’re over 14 trillion in debt and climbing fast. There’s no credible plan to change that. But like it or not, change is coming.

    Small market teams in the USA may become economically untenable. This is a boon for Canadian teams. I used to think NHL hockey returning to Quebec City was ridiculous. Now I think they may have their choice … Phoenix, Florida, Columbus, take your pick. And the NHL will be grateful. Hamilton … there may be hope for you yet.

  4. icelovinbrotha215 - Aug 6, 2011 at 9:31 PM

    All sports will suffer because they bank on us common folk to give them our disposable income. America will continue to recess (double-dippin’ now) and will have its inhabitants hold unto their monies. Experts say we will come out of this. Yet no visible sign is in sight. Hopefully leagues don’t start contracting.

  5. obsolete777 - Aug 7, 2011 at 2:16 PM

    nhlbruins90,
    Inflation has been kept under control, partially by the Fed and the very, very low interest rates. By making drastic spending cuts in a recession, more harm to the economy and recovery occurs than would happen from the modest inflation that would actually happen.
    Fears of runaway inflation are mostly a tea party scare tactic.

    • nhlbruins90 - Aug 7, 2011 at 3:27 PM

      Well, have you been to the market lately? Everything is smaller but costs more. Have you filled up your gas tank lately? Prices are up and it ain’t because supply is drastically down. To the extent that inflation is contained, it’s because consumer demand is down, and the housing market has suffered a drastic spell of deflation.

      I understand the theory, but at the end of the day, if you double the money supply your money is worth half as much. In real science, there’s a fundamental law – matter can neither be created nor destroyed, only transformed. In economics, perhaps we should operate on the notion that wealth cannot be created on a printing press.

      We spent a trillion of borrowed (or printed) ‘stimulus’ dollars to goose the economy along, and how’s that working out? The big banks are fat and happy, the Federal workforce has ballooned (that’s productive, right?) and every company with a lobbyist in DC was able to scam a billion here and a billion there. If you’re on the receiving end of those dollars, it’s great. For the country as a whole, we’re only deeper in debt.

      And now the temporary (unproductive) stimulus is over and we’re waking up to reality. The government has a bigger chunk of GDP, unemployment is still above 9%, companies are more dependent on Washington (rather than consumers) than ever before, the USA is less competitive in the world, and economic growth has practically stalled. We’re only deeper in debt.

      Tax revenues will be down as the economy slows, borrowing costs go up with a lower credit rating, and the debt burden gets even heavier. So what’s the solution? Print some more, kick the can down the road again and don’t address the fundamental problems. This isn’t a cyclical recession caused by the normal business cycle. This is a fundamental decline in the American economy.

      At this point, the only way the debt will be paid is to monetize it. I understand why many people have no fear of this. People who are smart and have the means can make a fortune. The run-up in the stock market goosed along by the Fed and QE2 was great for the big players. For people trying to find work, not so much. QE3 will make the same people happy, which is why they’re calling for it. The results will be the same though.

      • 1943mrmojorisin1971 - Aug 7, 2011 at 5:52 PM

        It’s a hockey forum guys, your economy is in disarray and the entire situation is too complex to discuss here so leave it at that. The only way this debt debacle will affect the NHL is that small market teams will lose even more money and Gary Bettman will look even more incompetent as he keeps them on league life support til the bitter end

  6. nhlbruins90 - Aug 7, 2011 at 9:13 PM

    Actually, this topic is explicitly about how the staggering US debt will affect the NHL, particularly its marginal teams. So, naturally, the messages here will be economic arguments of varying quality. And no, it’s not really that complex.

    Beyond that obvious point … it’s August! Also known as the doldrums of the hockey year. The folks who run this site are obviously sprinkling in a few posts that wouldn’t show up in November. No harm there.

    And finally, you’re apparently Canadian, so just relax. No matter how this debacle plays out, Canadian hockey fans come out the winners. There’s nothing Gary Bettman can do about the exchange rate. Now go crack open another Molson, eh.

    • 1943mrmojorisin1971 - Aug 7, 2011 at 9:51 PM

      Exactly, it’s about how the situation affects the NHL, not how the situation should be resolved. And it’s obviously a fairly complex issue based on that book you just wrote about solutions. But if you insist, the debt the US has accumulated is unprecedented so it’s unlikely it will take a conventional solution such as spending cuts or increases or whatever you think will help to fix it. Based on history things look incredibly grim for the US. The only similar situation that comes to mind is Germany in the 1930s when their inability to pay reparations led to hyperinflation, ultimately leading to a total economic collapse that was only righted by fascism. Basically the government will have to take control of the economy to a certain degree if there’s going to be any kind of recovery but that’s highly unlikely given the immense opposition to “socialism”. I really don’t know what you guys are going to do but it certainly won’t be an easy or simple solution, it will have to be drastic

      • nhlbruins90 - Aug 8, 2011 at 8:37 AM

        If I can rip off a ‘book’ on the debt crisis in 3 minutes, why would you care? I hope it didn’t take you more than 30 seconds to write that incoherent ramble.

        Logic check – something can be drastic and simple. Drastic does not imply complex. The thrust of your argument is that government will have to exert more control over the economy to fix it. Fact check – since this crisis heated up in 2008, the government has drastically increased its control over the economy. Results not so good. Like I said, the quality of the ‘arguments’ will vary.

      • 1943mrmojorisin1971 - Aug 8, 2011 at 11:27 AM

        Ah I get it, my argument isn’t in line with your views so it’s incoherent. The very nature of an argument is that there are differences of opinions. The control the government has taken over the economy was essentially putting some companies on life support until they were able to offer an IPO. That’s simply not enough. To fix this mess the government needs to have more control, but of course most Americans consider that communism which is why I use the word drastic (drastic from your perspective, not mine, us socialist-communists here in Canada don’t view such a move as drastic when it’s so neccessary)

      • 1943mrmojorisin1971 - Aug 8, 2011 at 11:42 AM

        And here’s a “fact check” for yourself to consider: the only economic crisis comparable to this is the Great Depression. During the ’30s the countries that cut spending in pursuit of the balanced-budget quick fix saw their economies suffer a longer and deeper recession. It took increased production as the result of global war to fix these economies. Coveresely, facist countries returned their economies to pre-Depression production levels before any liberal countries by exerting total control. Obviously the US will not assume complete control of its economy but the solutions they are pursuing now are proven failures

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