First year Program
Dr. Joseph Jockel
March 29, 2000
Hockey in Canada
Ice hockey has in the last hundred years evolved to become international. Canada is in jeopardy of losing its six teams. Tradition run deep in all of the cities and also professional hockey teams create thousands of jobs and help out in the communities. Teams in the Canadian market are having trouble keeping their programs in the black because of higher taxes and a weaker Canadian dollar. In order for professional hockey teams in Canada not to relocate to United States, it is necessary for Ottawa to provide tax cuts for them.
Professional hockey has been around in Canada for over one hundred years. Tradition runs deep in programs like the Toronto Maple Leaf’s and Montreal Canadians, which have been located in those towns since the creation of the NHL. In 1917 the NHL had its first full season and all of the five teams were from Canada. By 1934 there were only two
teams left in Canada but those two teams (the Montreal Canadians and the Toronto Maple Leaf’s) are still in the NHL after 93 years.
Privet research firms have done studies for professional sports franchises to see if moving their franchise is more profitable than their current location. Currently three of the six Canadian markets are more profitable than the open locations in the United States (Dryden 2). A study done by J.C.H. Jones and D.G. Ferguson has come to the conclusion that the quality of a location directly affects a teams profitability. Also take into the consideration that the quality of a location also impact the quality of the athletic talent.
“Finally, the one pervasive element in the empirical analysis is the significance of a Canadian location. The “hoser” variable is simultaneously a proxy for Canadian sporting culture and a talisman for franchise survival. It is probably no accident that, at the entrance to the Canadian Pavilion at the World Fair of 1986, there is a single ikon which presumably described Canada to the world-the largest hockey stick and puck in the world. Seemingly, everyone recognizes that in Canada, “Hockey is King” (c1).
These teams have made a home for themselves in their towns and if these two franchises are up rooted from their communities they may not be gained much of an advantage even with the lower taxes (Dryden 2).
One of the fundamental problems with Canadian hockey teams competing with their American counterparts is that Canadian teams pay all of the player’s salaries and travel are in American currency. However, all the revenue from ticket sales, concessions and advertising is in Canadian currency. American teams have an advantage over their Canadian counterparts because all the money that was created from ticket sales, concessions and selling advertising is one-third more than what Canadian teams will make. This is because of a weaker Canadian dollar, 69 cents to one American dollar, means that Canadian franchises will always make one-third less from basic franchise profits as long as the Canadian dollar stays the same. “The teams are among Canada’s fewest businesses that pay most of their salaries and expenses in U.S. dollars out of revenue earned in depressed Canadian dollars” (May p 2). This is a problem because the weaker Canadian dollar makes it harder for these franchises to run day-to-day operations (Duhatschek 7). “The result is uneven playing field between 22 U.S.-based franchises and six in Canada”(Duhatschek 7). The weaker Canadian dollar and higher taxes is forcing Canadian franchises to look south for better opportunities.
The National Hockey League needs to make it so teams in profitable areas could help out teams in lower profit markets by sharing some of their profit. By sharing profits this could help Canadian teams with high taxes. Unlike the NBA or NFL the NHL does not have a lucrative TV contract with a network to help some teams with the inflated taxes. The NHL also does not share its gate receipts with its other members (c1). That means that teams like the Detroit Red Wings, which is one of the most profitable teams, does not share any of its gate receipts with teams that aren’t profitable like the Calgary flames. This system is used in the NBA and teams in markets that are not as profitable are still able to compete against teams in cities such as New York and Los Angeles(c1).
Many Canadian corporations get government funding to be competitive with the American market because of the higher taxes (Duhatschek 7). Much like the hockey issue these corporations need government funding so that they can be aggressive against their American counterpart. The Canadian government has given money to multibillion-dollar corporations so that these companies can be competitive in the American market. The Canadian government has given money so that Canadian production companies can make films. “The government provides financial support to a number of projects that would not be produced if making a profit were the only incentive.” The film industry is like professional sports in many ways, they’re both providing entertainment for viewing audience and both Corporations have to pay their employees a large sum of money. “For the past nine years, the Canadian federal government has provided massive subsidies to rich owners and high profile industries such as the movie industry and high-tech” (Duhatschek 7). With government subsidies such as the movie industry movie and aerospace industry get the NHL could remain in all six Canadian locations (Duhatschek 7).
Another major problem plaguing professional hockey in Canada is the taxes that the six Canadian teams have to pay. The Ottawa Senators, a new franchise as of 1992, paid more taxes then their entire payroll in 1999. They paid $14 million to the federal government, $16 million to the provincial government and $3 million to the city of Kanata which comes to a total of $34,132,950 (Bryden 3). The result was a cash loss of $10 million. This enormous some of money makes it incredibly hard for a team to be competitive and financially stable. Many of the other Canadian clubs such as the Montreal Canadians are locked into legal battle over the municipal tax bill for the Molson center, the home of the Montreal Canadian. The Canadians are asking that their taxes be cut from $9.5 million to $3.6 million a year (Hickey et al. 2). The municipal taxes in Canada are three times what all-22 to American teams pay municipal taxes a year.
In the United States cities and states compete aggressively with each other for major league sports. Cities and states are offering these professional teams subsidized buildings, exemption or more reduction in real estate and sales tax making it easier for these teams to be profitable. Most Canadian cities are not reducing the operating costs like their American counterparts making it impossible for these teams to operate for an extended period of time.
“Providing location incentive to businesses is a long
standing practice of states and local governments.
Tax abatements, low-interest loans, job training, and
facility and infrastructure development have been some
of the incentives offered to influence the location decisions of firms”(Swindell 12).
Even the biggest city in the NHL market, New York, gets special treatment. The Rangers are exempt from real estate tax on Madison Square Garden. Much like New York, Nashville is provided a building for rent of one million a year with no real estate tax. In Ottawa their attendance is in the top 10 in the league and their rank is in the top five both in the number of suites leased and the value all of signage and advertising in the building. But their taxes are higher than all 22 American teams combined (Manley 2).
These teams create jobs in the area where the teams’ arena is built. Not only will the people who work for the teams be out of jobs but surrounding businesses will be hurt as well with the lost revenue from the constant business from September till June.
“Investments in sports facilities have the potential for generating spillover effects. As already noted, some advocates for public-sector investments in facilities have argued that there are tangible economic spillover benefits such as new jobs generation, revitalized downtown areas, and improved land-use patterns, as well as intangible spillover
benefits such as an enhanced civic image and identity. These benefits are in addition to the basic entertainment made available to the payers of admission fees” (Swindell 13).
Cities such as Cleveland have shown that a new sporting complex creates new jobs. “Two years after both facilities opened, approximately 1300 jobs have been added in the gateway area and more than 700 million has gone into major development in downtown Cleveland since 1991” (B16). Professional sports teams are a staple of the economy in their area and with the withdrawal of teams could be economic trouble (b11-20).
John Manley, the Canadian minister of industry made a proposal to help bail out the six Canadian hockey teams. He gave it in front of the house on January 18th, the proposal give hockey teams tax relief’s from the government. In this proposal Manley would have given 25 percent of what the other parties (the other stakeholders, namely the National Hockey League and the provinces and municipalities) didn’t kick into the deal (Manley pg 1). The proposal was sent to the house of comments after a year of careful consideration by the Prime Minister Jean Chretien’s cabinet. Franchises such as the Calgary flames, Edmonton Oilers, Ottawa senators and the Vancouver Canucks are having trouble running daily operations without subsidies from the government. The local and national governments need to make provisions so that these teams can continue contributing to Canadian history. The portion of federal money used in the first proposal would come from the industry spending plan for the year 2000. The plan would give them money until 2004 when the collective bargaining agreement between the NHL and players association would be renegotiated. This Plan is essential for the survival of the NHL in Canada.
The national hockey league and the Canadian government worked on a plan to give government subsidies to Canadian hockey teams so that they could continue conducting business in Canada. Federal industrial minister John Manley pledged cash to the six Canadian NHL teams providing that municipal and provincial and government’s and the NHL share in what is described as a temporary bailout. The amount of assistance will be examined on a team-by-team basis. “The subsidies will run through the end of the current collective bargaining agreement between the NHL and its players in 2004 and Ottawa will provide 25% percent of the any aid package” (Hickely 1). Ottawa will only give a maximum of $2.5 million a team and that would mean $10 million a year. The money that would have been given to the NHL teams would have made it possible for all of the six Canadian teams to remain there till 2004 (Hinkely et al. 1-4).
Without help from the government the remaining six Canadian professional hockey teams will not survive until 2004. The bail out plan was key ingredient in keeping these teams in Canada and without a solidify short-term agreement with the Canadian government franchises such as Vancouver, Edmonton, and Calgary could find homes across the board. The Canadian government withdrew its funding because of public outcry now Canadian teams have to be creative in how they’re going to raise money to deal with the inflated taxes. Or the NHL could find itself in three new markets such as Cleveland Las Vegas and Portland. Out of the six Canadian franchises two are essential for the communities where they are located.