THE OTTAWA SENATORS' LOBBY FOR COMPREHENSIVE TAX RELIEF: A SOMEWHAT (but only somewhat) PRINCIPLED APPEAL TO THE NOTION OF TAX FAIRNESS Ryan Keon McGill University, Montreal Faculty of Law July 2001 A thesis submitted to the Faculty of Graduate Studies and Research in partial fulfilment of the requirements of the degree of Master of Laws (LL.M.)· © Ryan Keon, 2001 National Library Bibliothèque nationale 1+1 of Canada du Canada Acquisitions and Acquisitions et Bibliographie Services services bibliographiques 395 Wellington Street 395, rue Wellington Ottawa ON K1A ON4 Ottawa ON K1A ON4 canada canada Your file Va"" réf#irence The author has granted a non­ L'auteur a accordé une licence non exclusive licence allowing the exclusive permettant à la National Library ofCanada to Bibliothèque nationale du Canada de reproduce, loan, distribute or sell reproduire, prêter, distribuer ou copies ofthis thesis in microform, vendre des copies de cette thèse sous paper or electronic formats. la forme de microfiche/film, de reproduction sur papier ou sur format électronique. The author retains ownership ofthe L'auteur conseIVe la propriété du copyright in this thesis. Neither the droit d'auteur qui protège cette thèse. thesis nor substantial extracts frOID it Ni la thèse ni des extraits substantiels may be printed or otherwise de celle-ci ne doivent être imprimés reproduced without the author's ou autrement reproduits sans son penmSSlOn. autorisation. 0-612-79135-1 Canada --- - --------------~---~ Acknowledgements 1wish to acknowledge the great patience and dedication which the following people showed in helping me to complete this paper: my wife Cindy, Professor Richard Janda, Professor Stephen Smith, The McGill University Faculty of Graduate Studies and Research, and my employers LaBarge Weinstein. Table of Contents Abstract 1Abstrait iii 1. INTRODUCTION 1 II. A BRIEF HISTORY OF PROFESSIONAL HOCKEY IN CANADA 5 A. Introduction 5 B. Elite Professional Hockey in Canada Prior to NHL Hegemony 6 C. The "Original Six" Era of NHL Hockey in Canada 22 D. The WHA: 1972-1979 25 E. The NHL in Canada Since 1980: The Best of Times or the Worst of Times? 30 F. Conclusion 37 III. TAXATION APPLICABLE TO THE OTTAWA SENATORS AND OTHER CANADIAN ENTERTAINMENT BUSINESSES IN ONTARIO 40 A. Introduction 40 B. Taxation of Business in Ontario - The General Rules 41 i. Municipal Taxation in Ontario 42 H. Provincial Taxation of Corporations Doing Business in Ontario 49 Hi. Federal Taxation of Corporations Doing Business in Canada 54 C. Special Tax Treatment of Canadian Live Entertainment Businesses in Ontario 57 D. Special Tax Treatment of Canadian Film and Video Production Businesses in Ontario 63 -1- E. Unfavourable Tax Treatment of NHL Hockey in Ontario 72 F. Conclusion 77 IV. THE INCOMPLETE RATIONALE FOR COMPREHENSIVE TAX RELIEF IN FAVOUR OF CANADIAN NHL HOCKEY TEAMS 80 A. Introduction 80 B. The Meaning of "Fairness" in Comparing the Taxation to Which Different Canadian Businesses are Subject 82 C. The Federal Government's Solicitude for NHL Hockey in Canada 85 D. A Preliminary but Inconclusive Fairness Rationale: Fostering and Protecting NHL Hockey as an Element of Canadian Heritage 88 E. Prospects for Mitigating the Capture of Proposed Federal Assistance by Star Players on Canadian NHL Teams 93 F. Rationalizing Municipal Tax Regimes Applicable to NHL Hockey in Ontario with United States Norms 100 G. Conclusion 102 V. THE IRONY OF THE SOLUTION TO THE OTTAWA SENATORS' FINANCIAL NEEDS 104 A. Introduction 104 B. High Technology Businesses in Ottawa 104 C. The Tax Treatment of Research and Development Businesses in Canada 110 D. Conclusion 118 VI. CONCLUSION 120 -11- Abstract The Ottawa Senators' lobby for comprehensive tax relief in favour of Canadian NHL teams towards the end of the 1990's is commendable. The argument that the Ottawa Senators hockey team is unfairly taxed in comparison to other Canadian businesses rejects reliance upon familiar economic impact studies of dubious validity, and is almost undeniably true in respect of property taxes. The argument is also colourable with respect to tax incentives which are given to businesses with links to Canadian culture and heritage, but are denied to professional hockey. Ultimately, however, the absence of any need to encourage Canadian participation in hockey, the obvious capture of any benefits by star players unwilling to participate in the structuring of an assistance programme, and the extraordinary public appetite for the NHL in Canada, distinguish hockey from those comparable businesses. Abstrait Durant les derniers années du vingtième siècle, les Sénateurs d'Ottawa ont essayé de persuader les gouvernments que les impots payer par les équipes Canadiens de LNH sont injuste. Cet argument rejet des études de l'impact économique qui sont bien connut, mais incertain, dans le contexte des sports professionels. Certainment, les impots payer par les Sénateurs en respect de leurs immeubles ont été injuste. L'argument des Sénateurs mérite considération aussi dans le contexte de la traitement des entreprises liés à la culture et l'héritage Canadien, avec l'exception du hockey professione!. Mais vraiment, ces autre entreprises peut être distinguer du hockey par l'absence d'une necessité pour encourager la participation en hockey au Canada, les salaires payer aux joueurs pré-éminent qui ont refusé de participer dans un solution partager avec LNH et les gouvernments, et la demande extraordinare pour l'hockey professionel a Canada. -111- THE OTTAWA 5ENATOR5' LOBBY FOR COMPREHEN51VE TAX RELIEF: A 50MEWHAT (but only somewhat) PRINCIPLED APPEAL TO THE NOTION OF TAX FAIRNE55 "Look, we play the Star Spang/ed Banner before every game, you want us ta pay income taxes tao?" Bill Veeck1 "/ a/ways turn ta the sports pages first, which record peop/e's accomp/ishments. The front page has nothing but man's fai/ures." u. S. Chief Justice, Ear/ Warren2 1. INTRODUCTION There can be no doubt that the professional sports business is at times bizarre. The unbelievable salaries paid to players, the abandonment of apparently sound arenas and stadiums in favour of ever more lavish new construction, the public worship of local teams and star players, and owners' and players' apparently paradoxical shifts between obsession and indifference to the public's esteem are ail a IiUle perverse. On the other hand, few people can deny some fascination at the exhibitions of strategy, discipline, and individual excellence for 1 Bill Veeck became a professional sports team owner at age 28 when he bought the Milwaukee Brewers in 1941. Between 1946 and 1949 he headed a syndicate that owned the Cleveland Indians. In 1951 he became the owner ofthe St.Louis Browns baseball team. Between 1958 and 1961, and again between 1975 and 1981, he owned the Chicago White Sox. He published two books on the economics ofbaseball, namely, Veeck as In Wreck, and The Hustler 's Handbook. The quotation is taken from the latter, as discussed in J. Quirk and R.D. Fort, Pay Dirt - the Business ofProfessional Team Sports (Princeton, N.l: Princeton University Press, 1992) at 88-91. 2 M. Maggio, ed., Sex, Money & Sports: Quotations on the Only Things Men Talk About (Toronto: Prentice Hall Press, 1998) at 118. 1 which professional sports are sometimes a forum. ln the last year or so of the twentieth century, the Ottawa Senators were another one in a seemingly infinite line of professional sports teams that have pleaded for tax breaks. Making matters appear worse, their campaign happened to come at the end of a five year period in which NHL teams in Quebec City and Winnipeg departed for greener U.S. pastures, and Canadian NHL teams had failed to produce a single Stanley Cup finalist. In that context, the Ottawa Senators attempted to elevate their campaign to a matter of national public policy. The NHL supported that effort, and a number of federal politicians expressed their solicitude for the businesses engaged in Canada's favourite game. Nevertheless, the Ottawa Senators ultimately failed to inspire any new nationallaw or policy. This paper will attempt to objectively evaluate the merit and results of the Ottawa Senators' recent campaign to obtain comprehensive tax relief from municipal, provincial, and federal governments. ln their lobbying effort, the Ottawa Senators' eventually focused on the argument that the team's operations are unfairly taxed in comparison to other businesses. A comparison of the treatment received by NHL hockey and other entertainment businesses in Ontario certainly permits the argument that NHL hockey is unfairly taxed relative to other types of business. On account of differences in the economic fragility, the salary structure, and the public profile of hockey and other 2 businesses that bear similar relations to Canadian culture and heritage, however, the relatively poor location of NHL hockey on the spectrum of preferential, average, and prejudicial tax treatment that ultimately prevails within the Canadian tax system does not appear to merit comprehensive relief. Property taxes are a clear exception to that general observation and relief provided to the Ottawa Senators in that respect is quite rightly justified as a matter of fairness. Before turning to the actual question of taxation, the history of the hockey business in Canada is worth considering. Only time will tell for sure whether the business of professional hockey in Canada is in dire straits, but the current state of affairs appears much less alarming if considered in the context of over a hundred years of professional hockey in Canada. With the possible exception of the 1980's, there has never been such an abundant and stable supply of elite professional hockey in Canada. It is also worth noting that the attraction of failing Canadian leagues and teams to relocate and/or expand in the United States is not so new, dating from at least the 1920's, not the 1970's, 1980's or 1990's.