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Commentary: Canada: Penny Wise, Franchise Foolish


Sports Business

Commentary: Canada: Penny-Wise, Franchise-Foolish

For a country that teaches its toddlers to play hockey on backyard ice patches, Canada still seems somewhat naive about the price it must pay to keep its beloved NHL teams at home.

Canadians want their professional hockey, but they want to be practical about their passion. They'll stomach higher ticket prices, but they won't approve government subsidies. And maybe that's the right reaction to what some see as sports extortion--extracting juicy tax breaks from municipalities eager to land a big-league franchise.

Caught in the middle, though, are the six Canadian teams of the National Hockey League, which must struggle to compete against stronger and richer American rivals. While many U.S. teams play in arenas that are at least partially subsidized by local taxpayers, Canadian owners have to dig into their own pockets to build new facilities. The Montreal Canadiens and Vancouver Canucks each fork over more in taxes than all of the American teams combined.

In addition, players, who can end up losing almost 50% of their income to taxes, are getting owners to make up the difference between what they would have to pay in the U.S. and what they must pay under the higher tax rates in Canada. To make matters worse, while Canadian teams generate revenue in Canadian dollars, player salaries, their biggest expense, are paid in U.S. dollars.

With so much pressure on their cost structure, four of the six remaining Canadian NHL teams--Edmonton, Calgary, Vancouver, and Ottawa--face constant economic crises. Only Montreal and Toronto, original NHL members, have not been at least entertaining the temptation to pack up and move south to U.S. cities like Portland and Las Vegas that are eager for a hockey club.

A recent federal overture to help pro hockey stay in-country was, by all measures, a sensible response to a seemingly intractable problem. Ottawa was prepared to contribute up to 25% of the combined total of all municipal, provincial, and NHL subsidies to each team. That would have meant about $2 million to $4 million annually per club, on top of the more than $42 million in Canadian dollars that the league has kicked in for currency equalization since 1995--a subsidy that has no guarantees past 2002. "It is a temporary, modest package to try to get some time for Canadian teams to continue in the NHL," Industry Minister John Manley said of the federal proposal.

Yet at the thought of tax monies being forked over to keep unprofitable hockey ventures wheezing along, the public cleared the benches, dropped its gloves, and beat the plan to death. Just 72 hours after his announcement, Manley played coroner to his own offer: "This proposal is dead," he said.

The flap did have one positive side effect. After the public backlash against the bailout, the Ottawa Senators, projected to lose $7 million to $10 million this year alone, challenged the local community to accept higher ticket prices and help save the team. It worked. The club triumphantly announced late in February that it would be staying put after 87.3% of current season-ticket holders renewed for the next year at higher prices and 1,500 new season tickets were sold in a 19-day campaign.AWFUL TRUTH. Prices and pride in having a hometown team have limits, however. And the irreconcilable public mandates to save pro hockey in Canada and to deny financial support have left teams with little room to maneuver. If Canada really wants to prevent more clubs from migrating to receptive cities in the U.S., it needs to acknowledge that it is part of a system--however flawed--in which municipalities go to extraordinary lengths to lure and keep major-league franchises.

Certainly, opting out of that system sends a pointed message. But it's one that is no doubt being received with glee by U.S. cities hungry for hockey. The awful truth these days is that taxpayers can holler and pundits can carp about the lunacy of giving away the public store to bag a team, but at the end of the day, O Canada, you gotta pay if you want to play.By Petti Fong; Vancouver-Based Fong Writes About Canadian Business.


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