The Mockingbird

Hedging Their Bets

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For years, the weak Canadian dollar has crippled the Blue Jays payroll. Back when it was hovering between 1.40-50, the Jays were hemorrhaging cash paying salaries in American Dollars. According to Paul Godfrey (First on Darren Rovell’s Blog and found on Fanhouse):

About 35 percent of our revenues come in in U.S. dollars and 65 percent come in Canadian dollars,” Godfrey told CNBC. “So when the (Canadian) dollar was the other way–it was as high as $1.61 Canadian to the dollar American, the cost to the ball club was astronomical. We were by far the largest losing baseball team in the major leagues. With the loonie improved, so does our bottom line. In fact, every time the Canadian dollar goes up one cent relative to the U.S. dollar, our bottom line improves by about $730,000 Canadian.”

Things were bad for the team back then- they were losing 50-60 million dollars in 2001-02 (partly due to a 50 million dollar payroll costing 75 mil) and it even looked like they might not be around much longer. MLB took pity on the team starting in 2002 and started handing over 5 million a season to try and offset the issue (money the Jays obviously will not receive next season).

But all that’s over now. Now it’s Canada’s turn to turn up our noses up at US change and throw around cash in American holiday spots like sailors. However, the Jays’ payroll apparently is staying dead level, with Ricciardi down to 4 million to find a backup catcher and maybe a reclamation project like Matt Clement. If the amount set aside for salaries is worth 15-20 million more now, why aren’t they using that extra cash to fill a couple of holes or sign a big name? At least one columnist, Fox’s Tracy Ringolsby, sees this as proof of a burning desire to maintain mediocrity in a year that might be the Blue Jays’ best chance to challenge in the AL East:

Seeing as the Jays do business in Canadian money but pay American dollars to the players, the Jays could join the $100-million-a-year teams without even asking owner Ted Rogers for more money. But the only time the Canadian dollar seems to be a factor with the Blue Jays is when it is weak against the U.S. dollar and can be used as one of Ricciardi’s excuses for failure.

Then he goes off with some bizarre theory that J.P. wants to keep the payroll low so he’s not expected to make any big moves, and refers to Aaron Hill as “journeyman-caliber” but anyway…I’m sure similar articles are going to fly off the presses in what promises to be a bone-dry offseason if the Loonie stays on par.

While it sounds good to armchair economists and fans frustrated by long years of being outspent into third place, a multi-million dollar team isn’t anything like your Sunday cross-border shopping trip. Like every large company doing business in another currency, the Jays are guaranteed to have hedged some, if not all of the currency required as part of the budget set out for the next few years.

It’s standard, absolutely required practice. The Jays are not going to play the market with 80 million dollars every season. When setting out their budget years in advance (as Rogers did from 2005-07) companies reduce the risk and uncertainty by locking in the current exchange rate (essentially buying the currency they need in advance).

The benefit is that you can keep afloat even in the middle of the bottom falling out of the country you do business in, and the downside is that you won’t see the benefits if the local currency goes on a run for a few years. So while the loonie’s recovery is certainly good news for the health of the club going forward and will increase their revenue next season, it doesn’t mean that there’s extra money laying around for J.P. to spend or for Rogers to pocket.

Written by halejon

November 21, 2007 at 11:46 pm

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  1. […] Hedging Their Bets […]


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