The president of the Ottawa Senators claimed a proposal to end tax breaks on corporate season tickets could spell not only spell the end of the his team, but also adversely affect other Canadian-based NHL clubs.

In recent years there’s been numerous stories of southern-based NHL franchise struggling to survive in their respective markets, either teetering on the brink of relocation (Nashville in 2007, Phoenix since 2009) or, as with the Atlanta Thrashers, moved to a Canadian market when no buyers could be found willing to keep them in their Sun Belt city.

Many Canadian pundits and hockey fans have taken the league to task over efforts to save its struggling Deep South teams, chiding the notion professional hockey could survive, let alone thrive, in those markets.

According to the self-appointed cognoscenti, it would make more sense to relocate those teams to northern markets, preferably Canadian ones, where the combination of the league’s salary cap, a strong Canadian dollar, and the steadfast support of Canadian fans would ensure those teams would be financial successes to the end of time.

So imagine the surprise when the headline “Tax hit would wipe out Sens: Leeder” appeared in the March 1st edition of The Ottawa Sun:

“Leeder” is Cyril Leeder, president of the Ottawa Senators, and the headline was based upon his reaction to a proposal by Ontario finance minister Dwight Duncan to his federal counterpart Jim Flaherty to study the idea of cutting tax exemptions for corporations which purchase season tickets to professional sports games.

Leeder claimed if such a proposal were implemented, it could spell doom for the Senators.

“If you follow it to its logical conclusion, you’ll lose ticket holders and suite holders and we can’t afford to lose anybody from our ticket base right now. We operate right at the very margin in Ottawa, we have for 20 years.”

He added the club was starting to get calls from some corporate sponsors saying they’ll want out of their contracts with the Sens if this proposal goes through.

It’s not just the Senators Leeder claims could suffer, but “all sporting endeavours not only in Ontario, but in Canada.”

That sparked a swift response from Ontario Liberal cabinet minister (and former Ottawa mayor) Bob Chiarelli, who replied the proposal was “not a done deal”, but merely one of several possible considerations.

Chiarelli also cast doubt upon Leeder’s claims the Senators couldn’t survive if all tickets and corporate suites were made non-deductible.

“I have no doubt that whatever outcomes from a tax point of view might ensue that they will remain very competitive and viable financially,” he said.

Chiarelli noted the strong Canadian dollar has generated “millions and millions” of dollars in new revenue for the Senators, which under NHL rules pays its players in American dollars.

It’s certainly true that, nearly a decade ago, the Senators – despite having a competitive team and a sold-out arena – really were “operating near the margin”. In fact, by 2002, they were swiftly approaching a tipping point.

The club was awash in red ink incurred by their previous ownership, much of it linked to the construction of their arena.

Midway through the 2002-03 season, the Senators filed for bankruptcy, requiring emergency funding from the league to finish the season. There was talk of the Senators facing relocation until billionaire Eugene Melnyk purchased the team, providing the stability the franchise has enjoyed to the present day.

Melnyk swiftly became one of NHL commissioner Gary Bettman’s most vocal supporters during the lockout season, and is believed among the more influential owners in the league.

Today, the Senators aren’t among the wealthiest franchises in the NHL, but neither are they facing financial peril as they were ten years ago.

According to Team Marketing Report, the Senators began this season fifteenth in fan cost index(FCI), at a total of $314.06, a miniscule increase of 0.3 percent over the previous season, and just below the league average of $328.81.

Though the Senators are in the fourth-largest market (behind Toronto, Montreal and Vancouver), they charge the lowest FCI of the seven Canadian teams.

Since the lockout, the Senators have been among the top ten teams in attendance for four of the past six seasons, never falling lower that 12th, where they placed in 2009-10. They’ve played to capacity every season but two over that period, and this season are currently seventh overall in league attendance.

Last November, Forbes Magazine conducted its annual study of NHL teams, ranking the Senators 17th among the 30 franchises, down from its high of 13th in 2008.

Forbes discovered that, despite the Senators missing the playoffs last season (finishing among the worst teams in the league for 2010-11), the club actually turned a modest profit. The reason? A strong Canadian dollar, and the near sellout crowds last season at Scotiabank Place.

The magazine also found the Senators’ average ticket price was $60, around the middle of the field for NHL ticket prices (which is also where they place with their FCI), but well below the ticket costs of teams like Toronto and Montreal.

Given the current improvement of their product, the full houses they’re now enjoying, the likelihood of at least one round of playoff revenue, and the promise of their roster rebuilding plan, the Senators should see more profit this season.

It’s difficult to feel sympathy for a franchise which, in the recent past, ranked among the top teams in the NHL in payroll, and currently has an average cap hit of around $28 million tied up in six players.

It’s also easy to be skeptical of Leeder’s claims that a franchise purchased for $92 million in 2003 and currently valued around $201 million is just barely getting by, considering the now-robust Canadian dollar, strong attendance, and the potential for more profit from the inevitable increase in ticket prices.

But let’s assume Leeder is right, that losing a tax exemption on tickets and corporate suites would spell the end of the Ottawa Senators, as well as have a serious, perhaps disastrous impact, upon other Canadian-based NHL franchises, except for Toronto and Montreal.

If the Senators, and most Canadian NHL franchises, rely on tax exemptions for survival, then those who believe Canada can sustain more NHL franchises are not only wrong, but seriously deluded.

After all, if the Senators, playing in a metro market of 1.2 million, supposedly need tax exemptions for their very survival, then how can the Calgary Flames (1.1 million), Edmonton Oilers (1 million) and Winnipeg Jets (800, 000) possibly hope to survive?

For that matter, how can Toronto sustain a second franchise? How could Hamilton, Quebec City, Saskatoon or Halifax afford franchises?

If a Canadian dollar at par, sold out buildings, and some of the highest fan cost indexes in the league aren’t enough for the current Canadian franchises, then why do those cities have franchises in the first place? And wouldn’t they be better off in markets where they stand a better chance of survival?

Remember, this is taking Mr. Leeder at his word. He claims the loss of a tax exemption on tickets and corporate suites would put his team out of business, as well as have damaging consequences for all Canadian professional sports teams.

Unless, of course, he was making a mountain out of a molehill. In which case, there’s nothing to worry about.

But if he’s not overstating his case, if tax exemptions are needed to survive, then it blows a gaping hole into the perception Canadian-based franchises stand a better chance of survival than those in the American south. It also raises serious concerns about the long-term viability of franchises in smaller Canadian markets.

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8 Responses to Could Ending a Tax Break Kill the Ottawa Senators?

  1. ryan says:

    bye bye sens! looks like steeltown will get their team one way or another!

  2. chaas says:

    I get the feeling this is just a lot of hocus pocus and political silliness.

  3. gravitymike says:

    So corporations buy tickets and suites and write them off as a business expense (entertainment) and get a tax break as well. They are so burdened, that without subsidising their lavishness, they’d actually have to stop enjoying live hockey rather than paying for their own tickets, which many hard working families already can’t afford. Sounds to me that Chiarelli is just being a shill for the fat cats. I think I should get a tax break for purchasing gamecenter live, especially when I’m hosting a game in my den.

  4. Dave says:

    Its my understanding that the majority of buildings in the league are configured with corporate support in mind, if that is the case, don’t be surprised when teams come calling for government money when they have to overhaul their business model from corporately supported luxury box revenue and general public revenue to 100% general public revenue. The cost to re-configure all the buildings would be very high, if at all possible, which could mean buildings that are only a quarter to half way through there life cycle are not at all viable going forward.

  5. Tom Simon says:

    @gravitymike: ‘So corporations buy tickets and suites and write them off as a business expense (entertainment) and get a tax break as well.’

    No. The ‘tax break’ is the fact that the tickets are deductible as a business expense. The proposal is to make such things (and presumably, all business-related entertainment) non-deductible, so that any money spent for such purposes would be taxed as if it were clear profit. That would significantly reduce the amount of money that businesses could spend on entertainment — which means that the price teams can get for club seats and luxury boxes, which mostly go to corporate buyers, goes down drastically.

    Ironically, this would likely have the effect of reducing overall tax revenues. Right now, corporations don’t pay tax on the money they spend to buy season tickets, but the majority of that money gets paid out in player salaries, which are taxed at a much higher rate than corporate profits.

  6. JJB says:

    The Senators are fine, this is just how Canadian politics work. The tax break won’t even come close to wiping them out.

  7. Predfan 306 says:

    As a Nashvillian, I can’t speak to the political climate in Canada. I can tell you that the reason the Predators struggled financially for so many years was because of a lack of corporate support. It sure wasn’t because Nashville spent at the top of the cap.
    Loosing a business tax advantage will put pressure on some corporations to not renew tickets and suites. Whether others step in buy any tickets that are not renewed, will determine the real impact. Owning a hockey club is in the end, an investment. They hope to either make money during the years or when they sell the team. The result may be spending less on payroll or even worse, a financial loss for this club and other Canadian clubs.
    For the sake of my northern hockey fans, I hope we never have to find out.

  8. Robin Goodfellow says:

    Oh boy I hope this is not true ,you are scaring me Lyle.

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