Fall of the Canadian dollar leads to the rise of Bethlehem Steel

When Bethlehem Steel FC's newest signing Ryan Richter left the Ottawa Fury earlier this month, he wasn't alone. Richter was among a whopping ten players to be leaving the NASL side within a week. Now certainly, some things played into Richter's decision to request a transfer - coach Marc dos Santos' decision to take a position with Sporting Kansas City took a toll on the team, and it's possible that Richter wanted to be closer to home and with a team where he has a clear path to returning to Major League Soccer. But there's one factor that could also explain why Richter and the other nine decided to leave:

As James Carville famously quipped, "It's the economy, stupid."

More precisely it's the Canadian economy, one which has seen the Canadian dollar sink to lows that haven't been seen in over a decade - even during the financial crisis of 2009 that saw Canada's GDP shrink 2.7% from the previous year. Canada's economy however was able to rebound quickly, thanks in part to overall employment rates not falling as hard as in previous recessions as well as everyday Canadians being more fiscally responsible than their neighbors to the south. "Canadian households (having) strong balance sheets going into the downturn" were a factor in allowing Canada to escape the brunt of the Great Recession of 2008-09 relatively unscathed, according to the Globe and Mail. After the economic rebound, Canada's currency was even able to overtake the US dollar thanks to the United States economy taking longer to stabilize during the financial meltdown.

As evident in the above graph, the Canadian dollar has been on a slide since 2011 when it reached a high of just over USD$1.05 to C$1.00. This is due in large part to the dropping price in oil, since according to the Globe and Mail "Oil and gas activity accounts for less than 10 percent of the economy, but a much larger share of exports (25 percent) and business spending (30 percent)." With this much of the Canadian economy tied into the petroleum industry, it's not surprising to see the Canadian dollar worth only about USD$0.72 today.

This brings us back to Richter, whose salary with Ottawa was paid in Canadian dollars. When he signed with the Fury on January 28 of this year, the exchange rate was C$1 for every USD$0.80, which is not terribly unfavorable historically speaking. That is until you consider that the value of his contract has in the span of almost a year lost 10% of its original value. Out of the aforementioned ten players who have left Ottawa, six have signed with a new club - and all six of those signed with clubs in the United States.

One Canadian MLS club that seems to be faring well during this economic downturn is Toronto FC. TFC is owned by Maple Leafs Sports Entertainment (MLSE), which also owns the Toronto Maple Leafs, Toronto Raptors, the Canadian Football League's Toronto Argonauts, and the Toronto Marlies of the American Hockey League. According to Dave Rowaan of Waking the Red, "MLSE buys US dollars in advance so the dipping (Canadian) dollar will not hurt them for this next year at the very least.  If it stays low it has long term implications, but short term they will be just fine."

Rowaan went on to say "The MLS teams all (buy US currency to pay their players) but not with the same buying power as MLSE who are doing this for multiple teams, and other parts of their business also work in US dollars. The NASL teams might (buy US currency) but their capital is far more limited, and no way they could buy much currency in advance.  They are clearly feeling the impact already because of that. If one of the MLS teams will feel the squeeze first it will be the Vancouver Whitecaps since they have the ownership with the least financial resources and the least likely to have been prepared for a long term drop in the dollar."

Major League Soccer owning the contracts and paying the salaries of all players (except Generation Adidas and portions of Designated Player salaries) also helps, as MLS contracts are all negotiated in US dollars, putting NASL (and to an extent USL) clubs at a major disadvantage.

Bethlehem Steel lucked out with Richter - a guy who has proven he can play at a decent level in MLS. They are providing him with a place to ply his trade within sight of the big club as well as something perhaps much more important - financial stability.