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The sudden nosedive of the loonie this month and its continuing volatility threaten to wreak havoc with the finances of Canadian sports businesses that face heavy expenses in U.S. dollars, compounding the inevitable woes stemming from any sustained weakness in the economy.

Each one-cent decrease in the value of the dollar against its U.S. counterpart costs Canadian clubs anywhere from about $400,000 to more than $1-million, depending on the size of their player payrolls and other U.S. costs, as well as income from U.S. sources, sports insiders say.

The calculation is simple, Edmonton Oilers president Patrick LaForge said. "We're at $55-million [U.S.]in player comp and it's easy to calculate what every penny difference means. For every 10-per-cent drop, it moves down $5.5-million. So a 20-per-cent drop costs us around $11-million."

Hedging strategies adopted by the Oilers and most other clubs when the dollar was stronger limit the currency damage, but do not eliminate it.

"I doubt anyone is hedged to cover this level of drop," Vancouver Canucks president Chris Zimmerman said.

The Oilers, for example, bought commitments to buy U.S. dollars at a prefixed price for delivery in November, December and some more in January.

But the club was unable to do any hedging beyond that because the dollar "just dropped so fast," LaForge said. "That was the freakiness of all this for everybody involved. There was no time to adapt."

Maple Leaf Sports and Entertainment, which operates both the Toronto Maple Leafs and basketball's Toronto Raptors, hedges much of its currency risk at least 18 months ahead. But about 20 per cent of its net U.S. dollar exposure is unprotected, said Ian Clarke, MLSE chief financial officer.

"I didn't think the pure fundamentals would result in the Canadian dollar being this low," he said. "I would expect it to come back up, but who knows. There's just so much uncertainty in the marketplace."

The effects will be felt not only by clubs in the major sports leagues, but in other areas, such as golf, tennis and auto racing, where purse money is distributed in greenbacks.

"We just have to find ways of covering [the added expense] either through additional sponsorships or ticket sales and cost reductions," said Michael Downey, the president of Tennis Canada, which pays out prize money for both Rogers Cup events in U.S. dollars.

"We're in pretty good shape for this year because we did some hedging early in the year. We're not fully covered."

October has marked the worst month for the dollar in 37 years, as it plunged from just below 94 cents (U.S.) to a low of 77.59 last week. But in the past couple of days, it has rebounded sharply along with world oil prices, rising above 82 cents before closing yesterday at 81.63 cents.

The unprecedented swings make budget planning a perilous process. They also make hedging - insurance that locks in the cost of buying a foreign currency - more dangerous. Bet the wrong way on a currency move, and you can lose a considerable sum.

"Say you lock in what you think is a good rate and the dollar rises," explained Anaheim Ducks general manager Brian Burke, who held the same job with the Canucks when the loonie bottomed in the low 60s in 2002. "It's a dicey proposition for a team, because you can be very wrong. I can't speak for the Canadian teams, but if you ask [Vancouver GM]Mike Gillis, he'd rather have the dollar at 92 cents [than rely on hedging]"

Damage to the bottom line from the slow economy and the currency swing won't show up for months yet. As much as 85 per cent of revenue for this season - from such sources as season tickets, advertising, sponsorships and television rights - are already in clubs coffers, industry executives said.

But if the loonie begins treading water for a prolonged period or resumes its decrease, it will eat a significant hole in the hefty profits of the six Canadian clubs in the NHL and the country's lone major-league baseball and basketball franchises.

"We don't know where the bottom is," said Toronto Blue Jays president Paul Godfrey, who estimates that each one-cent drop costs the Jays about $760,000 on a payroll of $100-million. "It's like falling into a black hole."

Prolonged dollar weakness would also have serious repercussions for the NHL itself, which derives about one-third of its $2.6-billion in league-wide revenue from the Canadian clubs. As the dollar soared to par and beyond in the past two years, the sharp gains played a key part in driving up revenue and the players' salary cap, which is tied directly to them.

Now, the reverse is about to happen, which may well bring down the cap for the first time since it was imposed as a supposed cost control as part of the settlement reached to end the player lockout of 2004-05.

The league is monitoring the currency situation closely. "It is something we are very aware of," Bill Daly, the NHL's executive vice-president, said by e-mail. It's "tough to detail what it will mean to total HRR [hockey-related revenue]and the salary cap next year because of all the variables involved."