The Toronto Star reported that the Ottawa Senators Hockey team claim they will go out of business if companies can no longer write off 50% of ticket costs. I’m a hockey fan, but I’m not a fan of giving professional sports teams tax breaks.
When it comes to the financial side of sports, the fan base in one city is in competition with the fan bases in other cities. To see that this is true, we start with the fact that players move around. To the extent that players can move to new teams, the market for player salaries is similar from one team to the next. Poor teams have to pony up close to as much for a given player as other teams are willing to pay for him.
This means that all teams face similar costs if they want to compete. Teams that do a better job of evaluating talent can get better players more cheaply (think Moneyball), but this is the exception rather than the rule. All teams that want to compete face similar costs whether they have a large and rich fan base or a small and poor fan base.
One way for a league to deal with this problem is to share revenues from large markets with teams in smaller markets. Another approach is to threaten the fans in a small market with losing their team and try to extract some public money in the form of direct cash, tax breaks, or subsidized stadiums.
The problem with giving in to demands for public money is that it increases the league profits, raises player salaries, and puts more pressure on other cities to pony up public money. This is not an arms race that cities should want to pursue.
A counterargument to all of this is that sports teams create opportunities for other businesses and create jobs. This is true. But it is also true of most other businesses. If we subsidize sports teams, should we also subsidize all other businesses? Who would be left to pay taxes?
Professional sports leagues are incredibly profitable. Owners and players have their squabbles over how to divide the spoils, but we should view not just team profits but also most of what players are paid as the profits of the whole league. Viewed this way, it is obvious that leagues don’t need public money.
I would rather see all Canadian cities hold firm and not subsidize professional sports. It makes no sense for small cities like Ottawa to try to compete financially with large cities like Toronto and New York.