Naylor: What makes Winnipeg and Quebec viable for the NHL?

Dave Naylor
5/5/2011 1:16:58 PM
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About a decade ago, an economics professor in Quebec predicted it was only be a matter of time before the Montreal Canadiens left La Belle Province for the United States.

It wasn't that Montrealers were losing their interest in hockey.

The professor simply argued that the slump of the Canadian dollar would force the Canadiens to relocate south of the border, just as it had done to teams in Quebec City and Winnipeg.

It sounds like an outlandish prediction.

But given that there had been just one bidder for the money-losing Canadiens when they went up for sale in 2000, it wasn't near as far-fetched as it seems today.

The discussion of NHL teams leaving Canada is no longer part of any conversation and has been replaced by the buzz of excitement over when and where a seventh team may arrive.

This week the Conference Board of Canada added its voice to those who believe that Canada is ready and able to support additional NHL teams, opining that teams in Winnipeg and Quebec City could be viable under current economic conditions.

The Conference Board was a key source of economic data and analysis last spring when TSN did its exploration of this issue in a six-part series called Why Not Canada? And not surprisingly, its conclusions reached this spring are almost identical to the ones TSN reached one year ago.

Essentially, the Conference Board said that while neither Winnipeg nor Quebec City represents a slam dunk for the NHL, there is no reason to dismiss either of them either.

From an economic point of view, Winnipeg and Quebec City are nearly twin cities, with almost identical populations, small corporate sectors, low unemployment and steady growth that have withstood the pressures of the recession.

Interestingly, one factor improving the attractiveness of Quebec City and Winnipeg as NHL cities is that both have experienced considerable economic growth since the mid-1990s, which flies in the face of those who predicted losing their NHL teams would spell doom.

Of course, any good economist could tell you that professional sports franchises do not create economic wealth, they merely redistribute disposable income, a lesson that would serve some of the city mothers and fathers in Glendale, Arizona, well about now. 

The key thing to understand about Quebec City or Winnipeg is that the margin for error would be thin. Franchises in either city would require shrewd management and mid-range payrolls. And both would be vulnerable to any significant change in the current economic conditions, especially a drop in the Canadian dollar.

The rise in the dollar is far and away the biggest reason why the hopes of Winnipeg and Quebec City have sprung to life in recent years. 

And it's not hard to see why. Consider that a team with a mid-range payroll in the NHL now spends about $50 million US per season on salary. With the current exchange of the Canadian dollar (1.05 per US $1.00), that would cost a team in Winnipeg or Quebec City $47.6 million Cdn.

Compare that to a $50 million payroll at the low-point of the Canadian dollars' slide (61.84 cents on Jan. 17, 2003) which would cost a team in Winnipeg or Quebec City $80.85 million.

That's a difference of $33,254,000 per season in costs expressed in Canadian dollars.

While the NHL's revenue sharing model would mitigate some of the currency depreciation, a large drop in the dollar would be difficult to overcome under any economic system.

No one is predicting the Canadian dollar is going to return to the 61-cent range. But then no one a decade ago was predicting it would fly above par with the U.S. greenback.

No matter how much analysis is performed on a specific market, there is no perfect science to determining whether it can support a given professional sports team. When it comes to predicting human behaviour, even the most exhaustive analysis can produce only educated guesses.

In addition, factors such as how successful a team will be in the standings, and how long a particular market would stand by a perennial loser, are impossible to measure.

But the one thing we do know about Quebec and Winnipeg, and which will not change under any circumstances, is that they enjoy a high concentration of hockey fans, a claim that cannot be made in many of the NHL's current markets.

The question is whether that concentration is enough to help either market weather the inevitable economics storm clouds that will emerge at some point in the future.

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