Slipping on the Exchange Rate : Teams Pay Premium Just to Play in Canada

Michel Bergeron had heard enough. Before his Quebec Nordiques played the Blues in St. Louis, the fiery coach delivered an impassioned pregame speech--on international exchange rates and tax structures in the province of Quebec.

The Nordiques had been preoccupied with such weighty matters ever since they hooked up the night before with three former teammates who had been traded to the Detroit Red Wings.

While the Nordiques were in Detroit, their former teammates held court. Brent Ashton, Gilbert Delorme and Mark Krumpel told the Nordiques the details of the trade, and--this is what piqued the Nordiques’ interest--how the stronger American dollar and the different tax structures had nearly doubled their take-home pay.

The Nordiques mulled over that disclosure that night while losing to the Red Wings, and talked about it on a plane to St. Louis.

Then, before the game in St. Louis Arena, Bergeron made some disclosures of his own.

“I got straight to the point,” he said. “I told them that I had had enough of hearing about the superiority of Uncle Sam’s dollar and the very low tax imposition in the United States. I made myself very clear--The next guy who would bring up the subject would be fired. Not fined, fired. He wouldn’t set foot in my dressing room again.”

Those who know Le Petit Tigre knew he wasn’t kidding. Neither are sports executives across Canada when they shout ‘Unfair!’ to mostly deaf ears.

In the business of sports, where every advantage is a thing to be coveted, it’s understandable that sports executives in the United States would be less concerned about the problems of their counterparts in Canada.

Among the problems:

--A comparatively strong U.S. dollar that makes it expensive for the six Canadian National Hockey League teams and the two Canadian major league baseball teams to travel around the predominantly American leagues. The unequal dollars also put the Canadian teams at a disadvantage in making trades and bidding for free agents.

--Strict Canadian tax rates that swallow more than 60% of the players’ paychecks.

The province of Quebec is hardest hit, with the highest tax rate in North America. Bad news for the Nordiques and the Montreal Canadiens in hockey, and the Montreal Expos in baseball. The Toronto Blue Jays, in the province of Ontario, are only slightly better off.

“I don’t think that the Philadelphia Phillies or the Los Angeles Dodgers wake up in the morning and worry about the poor Canadian teams,” said Pierre Gauvreau, vice president of finance for the Expos.

He’s right. Administrators of American teams who were interviewed showed little sympathy for their Canadian counterparts.

Rogie Vachon, general manager of the Kings, even saw some advantages for the Canadian teams, at least in hockey.

“I think it’s easier to sell a player on the Montreal organization, with its tradition,” Vachon said. “Most players would take a cut in salary to play for the Edmonton Oilers.

“All the Canadian teams sell out (their games). They make it up in other ways. Their marketing is better. In general, they probably have better TV revenues than we do. No, I don’t feel too bad for them.”

Yet Vachon witnessed first-hand how the system works against Canadian teams who wish to pick up players in trades from U.S. teams.

When the Kings shopped Marcel Dionne immediately before the trading deadline this season, three or four Canadian teams were interested in the popular player, a Canadian citizen.

Dionne, who eventually went to the New York Rangers, was attractive in every way to the Canadian teams. Almost every way.

“As soon as they found out how much he made, that turned them off right away,” Vachon said. “They can buy almost three other guys for the same money.”

In Dionne’s case, a Canadian team took one look at his $600,000-a-year salary, and, after converting it to $810,000 Canadian, immediately said: “Non, merci.”

“A player making $200,000 here is not too bad, but when you tack on 35% to his salary (the Canadian conversion), that’s a lot,” Vachon said.

And, since a dollar to a Canadian means as much as a dollar to an American, it’s an increase that’s hard for the Canadian teams to swallow.

A similar situation developed when Bob Carpenter, now with the Kings, was made available by the Washington Capitals early in the season. Carpenter’s agent, Bob Murray, said that Canadian teams interested in Carpenter’s talents were less interested in his salary.

“We preferred for Bobby to stay in the United States,” Murray said. “If an American guy is drafted by a Canadian team, he’s looking at cutting his paycheck by 35%. A lot of agents try to negotiate for higher salaries in Canada to make up the difference.”

The Toronto Blue Jays have spent $6 million, Canadian, to offset the exchange rate loss, according to Bob Nicholson, the team’s vice president of finance.

“All our baseball expenses are budgeted in U.S. dollars,” Nicholson said. “In that way, we may be different from hockey. We have to buy dollars, so you spend money in the exchange. I track the (exchange) rate every day.”

It’s a rate that has changed dramatically since most Canadian hockey and baseball teams got into business.

“We were used to the Canadian dollar being much closer to the U.S. dollar and even worth more,” Gauvreau said. “Our financial health is connected with the U.S. dollar.”

For 20 years, in the 1950s and ‘60s, the Canadian dollar had more buying power than its cousin to the south. The currencies were fairly even for a few years and then, in the early ‘70s, the American dollar surged. Since 1978, the American dollar has gained steadily. It peaked last year at $1.40 U.S. to $1 Canadian. The difference currently is about 35 cents.

Athletes and their agents are aware of the problem. Baseball’s collective bargaining agreement requires that all players be paid in U.S. dollars. In hockey, few players on Canadian teams receive such a break, although many ask for it, especially the Swedes and Finns in the league.

“For a European player, it’s a real battle to get paid in U.S. dollars,” said Murray, who has European clients. “The teams try not to do that, they don’t want to set a precedent.”

For hockey, such a precedent would be a financial burden, on top of an already tight situation. Unlike baseball, which takes in millions of television dollars, the NHL has no television contract.

In an average season, the Vancouver Canucks take in $13 million Canadian, but pay out more than that in U.S. dollars, according to John Chesman, Vancouver’s vice president of finance.

“I think the basic problem here (in Canada) is that 70% of our revenues are in Canadian dollars, while 75% of our expenses are in U.S. dollars,” Gauvreau said.

That kind of inequity obviously hurts the club, but the high tax rates hurt the athlete most. In baseball, at least, players are taxed on only 40% of their income, since they spend so much time out of the country.

That’s a small break. There are stiff federal and provincial taxes to pay, and, if the athlete is an American citizen, he must pay taxes in the United States on money earned in Canada.

“U.S. citizens get a credit on taxes they pay in other countries,” Gauvreau said. “However, because of the exchange and the differing tax rates, the U.S. citizen winds up not getting full credit.”

Despite the bleak picture the teams paint, they do get one advantage--their shares of league revenues are in U.S. dollars, a windfall that goes a long way to evening the score on the books, if not on the field or ice.

Perhaps the biggest gripe Canadian sports executives have is the lack of awareness of their problems.

“We take all this for granted as part of the cost of doing business,” Gauvreau said. “But I don’t think it’s a concern around the league.”

The Canadian teams do get back at their American counterparts, a little. “The American teams become aware of the difference between the Canadian and U.S. dollar--every time they come to Montreal,” Gauvreau said.

“When they come in to get their share of the gate receipts, we give it to them in Canadian dollars. They look at the money and say, ‘What are we going to do with this?’ We feel a little better after that.”