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.
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.