Economic Fallout From COVID-19 Could Threaten International Relocation, Expansion

JohnWallStreet

Prior to the Coronavirus outbreak talk of international relocation and/or expansion permeated throughout each of the big four sports leagues. Last July, MLB granted the Tampa Bay Rays permission to explore playing half the team’s home games in Montreal. Quebec City and Toronto have often been cited as viable destinations for an NHL club (it’s believed the Ontario province could support two teams). NBA commissioner Adam Silver has said both Mexico City and Vancouver are markets the NBA would be interested in exploring further and London, Mexico City and Toronto have all been mentioned as cities worthy of playing host to an NFL franchise. But the pandemic has shut down international borders (which as we’ve seen has become problematic for the UFC and CFL) and with each state - never-mind each country - managing the re-opening of their local economy differently (an issue that sparks a whole other set of problems for pro sports leagues with teams in +/- 30 markets) it’s worth wondering if the NFL, NBA, NHL and MLB will shun future interests in expanding the leagues’ footprint for fear of another global crisis occurring.

Howie Long-Short: The prospect of international expansion and/or relocation is unlikely to be negatively impacted by the actual spread of the COVID-19 virus. John Lashway (Lashway Consulting Group) said “the expansion and relocation processes take so long to play out - at least 2 years, perhaps 3 or 4 - that the virus won't alter how team owners [or prospective owners] think about markets outside the U.S.” The former MLSE executive presumes the 2-4 year window would be enough time for scientists and medical experts to discover a vaccine.

The real concern for team owners or investors interested in placing an NFL, NBA, NHL or MLB team outside the U.S. is the economic fallout from Coronavirus. “The Canadian dollar has dropped from $.75 to $.71 over the past two months.” Needless to say, that's problematic for businesses expected to pay out their employees in American dollars. But the weak Canadian dollar isn't a new challenge for those who want to place a big four sports team in a Canadian city. Lashway said conversations he’s had with various groups interested in Canadian NHL expansion/relocation over the last half decade have indicated that “the dollar exchange is the single biggest factor [in deals not getting done]." It should be noted that the value of the Mexican peso has taken an even bigger hit since March 1st (-18%).

That doesn’t mean international expansion/relocation is off the table - at least for markets north of the border. Lashway said, “everyone in Canada seems to believe the value of the Canadian dollar is going to bounce back quickly. People are pretty bullish on the prospects of an economic rebound.” Remember, that doesn’t necessarily mean the Canadian dollar reaches par with the U.S. dollar. The Canadian department of finance has suggested that $.90 to $.93 is the optimal level for the country's currency (they want to be able to drive tourism from the U.S.) and “anecdotally it’s been around $.75 on average for much of the last 25 years.” For what it’s worth, when the Toronto Raptors and Vancouver Grizzlies franchises launched in Canada in 1994 the exchange rate was $.73 (i.e. no material difference to today).

If one believes it’s “just a matter of time” before the next pandemic begins to spread, it’s fair to wonder if the big four sports leagues will look at Canada’s response to the COVID-19 outbreak (just 5,500 deaths in a country of 37 million people) and see the country as a ‘safer’ haven for a team than other international locales (think: more likely to be able to return to action in front of fans sooner). As Lashway noted “the virus certainly didn’t hit [the great white north] like it did in places like Italy, Spain and other European markets.”

As noted in our story on CFL’s plea for government aid, the NFL has always been hesitant to move into Canada for fear of crushing the 100+ year old league. Lashway agrees that if the Canadian Football League were to fold that Toronto would become a viable expansion or relocation target for the National Football League (think: sponsorship possibilities, TV market) - he’s just not convinced the CFL is going anywhere. “I’m pretty optimistic about the league’s future. There’s clearly an appetite from the decision makers in Ottawa to keep the CFL intact because of its cultural significance to the country.”

It's worth mentioning that the National Lacrosse League, which has built a growing business on both sides of the border, remains bullish on further expansion within Canada. Nick Sakiewicz said that unlike within the big four leagues "the question of American or Canadian dollar is rarely an issue [for the NLL] because the investment levels are so reasonable." The Commissioner said that disparity allows his league to ignore fluctuations in currency value and instead focus solely on finding markets that are the right fit.

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