Sutcliffe: Sens should get used to new financial climate

The relationship between governments, taxpayers and sports teams is unusual and complex at the best of times. But when the economy is struggling and public finances are under pressure, the situation gets trickier.

Sutcliffe: Sens should get used to new financial climate
Kyle Turris #7 of the Ottawa Senators scores during the shootout against the Pittsburgh Penguins during the game at Consol Energy Center on April 13, 2014 in Pittsburgh, Pennsylvania. The Senators defeated the Penguins 3-2 in a shootout. (Photo by Justin K. Aller/Getty Images)

The relationship between governments, taxpayers and sports teams is unusual and complex at the best of times. But when the economy is struggling and public finances are under pressure, the situation gets trickier.

Columnist Mark Sutcliffe

On the surface, a sports franchise is just like any other local company offering a product to the community. But because professional teams are tied to the identity of a city and evoke deep passion in thousands of people – meaning voters – they are often given special treatment by governments. And it’s tough to have a rational debate about whether that’s a fair practice.

The latest in a long line of examples was introduced when Ontario Finance Minister Dwight Duncan began speculating this week about ending the tax deduction for businesses buying tickets or suites at sporting events. Rather than focus on the direct impact that might have on the thousands of companies losing the deduction (who would therefore have to pay more taxes) the discussion immediately centred on what it would mean for the sports franchises that would be indirectly affected.

The sequence of events that followed Duncan’s announcement was predictable. The Ottawa Senators claimed any change to the deduction could kill their franchise, sports fans and columnists responded with the same level of reasoned analysis as if a referee had called a penalty on Ottawa late in the third period of a close game, and others wondered aloud why the government should be subsidizing high-falutin’ tycoons doing business in a luxury box at Scotiabank Place.

We’ve been here before. Once upon a time it was the discussion over whether the Senators should get a break on their municipal property taxes. Then it was the debate over whether a provincial amusement tax should be applied to their tickets. Every time, the same scenario: the team says its existence is threatened, the fans panic, and others argue we shouldn’t subsidize pro sports and its millionaire players.

When times are good, the balance of public opinion often tips in favour of granting special status to sports teams for all the economic development and other benefits they create in the community.

But there are limits to the community spirit of the average taxpayer. In 2000, the Liberal government introduced a subsidy for professional sports franchises struggling under the pressure of a weak Canadian dollar. It was against the better judgement of ministers like John Manley, but there was a sense that Canadians would not tolerate losing another NHL franchise. Yet the backlash from taxpayers was so fierce the government reversed course and scrapped the plan in a matter of days.

But the furor over the latest proposal is overblown. Eliminating the tax deduction for sports tickets is not as significant a change as some people are suggesting. For one thing, taxpayers are not subsidizing 50 per cent of the cost of a corporate ticket purchase, as some people seem to have inferred. A business that claims the deduction is simply not paying taxes on the cost of the ticket if it makes a profit. There’s a big difference. On a $100 ticket, this might amount to a tax benefit to the business of $7.75. That’s not worthy of a public outcry over subsidizing rich CEOs so they can watch wealthy hockey players.

However, the size of the figure also suggests that eliminating the tax deduction would not dramatically impact a company’s decision whether to buy tickets or not. It’s natural that the Senators are feeling the pressures of a tough economy and having to compete against larger markets and they don’t want any new disincentives to purchasing tickets, especially during their season-ticket renewal campaign.

But there are many more reasons beyond an 8-per-cent tax benefit that a business executive sees value in taking a client to a hockey game. The Senators are selling themselves short if they think that a lack of a tax deduction would be a deal-breaker for many companies.

Beyond that, there is the fundamental question of fairness to a business. This isn’t really about the Senators, but whether a hockey ticket is a legitimate business expense. If buying an ad in the program can be deducted as a marketing cost, then why not bringing clients to the game to build relationships one-on-one?

There doesn’t seem to be a compelling principle to eliminate the deduction, other than the fact that the province needs the cash. But it wouldn’t likely make a huge difference to many companies if they could no longer claim half the expense as they can now.

Either way, it’s clear that with player salaries and ticket costs rising as fast as provincial and federal deficits, there is a diminishing compassion for sports teams as struggling operations in need of government support. As the provincial Liberals are aware, when people are worried about their health care, they’re less concerned about whether business owners will buy hockey tickets.

Whether the tax deduction is scrapped or not, the Senators and other sports teams should get used to the new climate. In tough economic times, there isn’t widespread sympathy for billionaire owners and millionaire hockey players, making them convenient targets for cash-starved governments.

— Mark Sutcliffe, The Ottawa Citizen

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