Thursday, March 01, 2012

Is the future of the Ottawa Senators in doubt?


The Ottawa Senators are one of the NHL’s great feel good stories. Most NHL observers believed the Senators would have a difficult year on the ice, but 65 games into their 2011-12 regular season the Senators are poised to make the Stanley Cup playoffs. Off the ice the Senators hosted the 2012 NHL All-Star Weekend and have sold out 22 home games. The Senators are averaging 19,222 fans per game, seventh in the NHL in attendance. The Ottawa Senators are important to the future of the National Hockey League.

Wednesday the Ontario Liberal government announced their intention to end a tax break sports franchises in the Province of Ontario have used to leverage the selling of tickets and corporate suites. According to multiple media reports “Ontario will seek the federal government’s input on ending the tax break, including business meals and entertainment, that the minister maintains is costing the provincial treasury up to $350 million a year in foregone revenue.

“Hopefully, (Toronto Maple) Leafs tickets will become affordable for families,” Duncan said. “I know when a mum or dad take their kids out to a Leafs game, they don’t get a tax break. So it’s about priorities.”

In a letter to Federal Finance Minister Jim Flaherty Wednesday, Duncan says Ontario would like to work with the federal government to determine if taxpayers should be “subsidizing” business expenses for income and sales tax purposes such as private boxes and corporate seats at sporting events.

Currently the Province of Ontario allows businesses to write off 50% of all tickets and luxury suites for sporting events.

Ottawa Senators President Cyril Leeder reacted to news Wednesday night.

“We need that to survive,” Leeder told the Ottawa Citizen. “We cannot have another whack to our ability to operate here. You could take away incentives in bigger cities in sports and those teams would find a way to make it work, but the ones that are not in the major markets won’t survive.”

The city of Ottawa is a government town. More than 60% of the city’s population works for Canada’s Federal government. Ottawa is Canada’s capital. There are 120 corporate boxes in Scotiabank Place. All of the boxes are sold to companies that write off half of the cost against the cost of doing business. More than 50% of the Senators 11,000 season ticket holders are companies, companies again that use 50% of the cost of the tickets as a business expense.

“If they made all tickets, suites non-deductible, we wouldn’t survive,” Leeder claims.

Duncan’s assertion that the elimination of the taxable write-off will force the Toronto Maple Leafs to lower their ticket prices is laughable.

There are more than 6.3 million people living in the City of Toronto. More than 25% of Canada’s population is within driving distance of Toronto’s Air Canada Centre. The Toronto Maple Leafs will not be lowering ticket prices. Canada’s corporate headquarters are in Toronto. If the Ontario government repeals this tax benefit, corporate Canada will still buy tickets for Maple Leaf games at whatever price. Duncan and the Ontario Liberal government clearly do not understand how the sports industry works. In the law of supply and demand Toronto Maple Leaf tickets will be as in demand as ever.

There are teams in the Greater Toronto Area (GTA) that might be impacted by the repeal of this tax benefit. Accepting the premise that companies will still buy Toronto Maple Leaf tickets regardless of the taxable benefit, if companies are going to cut back on their purchase of sports and entertainment tickets the Toronto Blue Jays and the Toronto Raptors could be hurt. Neither team is as popular as the Leafs. That’s were companies will cut back on their ticket buying.

The Blue Jays haven’t been a moneymaker for their parent company (Rogers Communications for many years. Rogers who own SportsNet (Canada’s second biggest national cable sports network use the Blue Jays as programming during the summer months). This could impact the Blue Jays bottom line. The same goes for the Toronto Raptors owned by Maple Leaf Sports and Entertainment, the same company who own the Toronto Maple Leafs.

The future of the Canadian Football League’s Toronto Argonauts would face an even more uncertain future. Toronto supports the Argonauts but need all the help they can find to sell tickets. If the Argonauts future is in doubt, so is the future of the Canadian Football League.

The domino effect of the repeal of this taxable benefit would inevitably extend to the CFL’s Hamilton Tiger Cats. Located 45 minutes from Toronto, Hamilton relies on their small corporate community to buy tickets. Hamilton also remains as a likely destination for an NHL franchise in the next five to ten years. The repeal of this benefit could end those NHL dreams.

Ontario Finance Minister Dwight Duncan called the tax break a “loophole”.

“We’re spending money in that sector for corporate boxes at sporting events,” he said. “And my sense is in this era there’s a better use for those monies. At another age in time we could have afforded that as a luxury, but now we can’t. We’ve got to focus on our priorities.”

Leeder told the Ottawa Citizen Duncan “should remember that there’s more than one team in Ontario.”

“I think that’s the most disturbing thing here,” he said. “We weren’t consulted at all. We didn’t get a phone call until five minutes before there was something released to the public. If you’re really trying to find solutions, you would think you would talk to your constituents about where the solutions are.”

“We pay a lot of taxes here in this province. A lot. And we’re happy to do that but we just want to be treated fairly. And if we’re not, we can’t stay.”

Duncan also seems to have forgotten the tax revenues sports franchises generate. The Ottawa Senators play more than 50 games each year. Add 15 to 20 major events (events that fill the team’s 19,000 seat Scotiabank Place) and the many other events the building hosts, then factor in the taxes Scotiabank generates each year through tourism, food and other related taxes and the loss of the Ottawa Senators would cost the Ontario provincial government tens of millions of dollars annually.

Duncan mentioned the Toronto Maple Leafs. The only sports franchise in the Province of Ontario that wouldn’t be impacted by the repeal of this taxable corporate benefit would be the Toronto Maple Leafs. EVERY other sports franchise currently operating in the Province of Ontario could be impacted and as the President of the Ottawa Senators suggested could face a very uncertain future.

For Sports Business News this is Howard Bloom

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