21 March 2016

Related-Party Transactions in the NHL

Guest Post by Jonathan "Jack" Decker

Related-party transactions shelter a staggering $100 million per year from MLB revenue. [1] This statistic alone shows how drastically this new relationship between sports teams and media companies has affected the baseball industry. Over the past twenty years, this “relationship” between teams and media operations, known as related-party transactions, has emerged as a trend amongst team owners and is employed by almost all teams, from the Yankees to the Pirates to the Dodgers. A tactic adopted as soon as MLB levied a 20 percent tax on teams’ net local revenues in 1996, the reason for it is simple: reporting profits under another company means teams evade paying taxes to the league. [1] Having read May the Best Team Win, the prevalence of related-party transactions seems to be clearly abundant in baseball, but it also plays a role in the sport of hockey. Here are examples of transfer pricing in the three largest NHL teams:

Toronto Maple Leafs

The Toronto Maple Leafs, professional hockey’s most valuable team, are the cornerstone of Maple Leaf Sports & Entertainment. Maple Leaf Sports & Entertainment, or MLSE for short, also owns the Toronto Raptors of the NBA, Toronto FC of Major League Soccer, Leafs TV, Raptors NBA TV, and a few minor league teams. [2] The Leafs and Raptors share the Air Canada Center, a stadium built in 1999 and owned by MLSE. MSLE’s decision to merge the Maple Leafs and Raptors franchises served two main purposes. The first of these is being granted two channel licenses by the Canadian Radio-television and Telecommunications Commission, Leafs TV and Raptors NBA TV, used to broadcast live games involving their teams in order to increase competition for their rights and drive up fees paid by other broadcasters. [3] The second purpose of the merge was a calculated 30% increase in ticket revenue under the new, shared stadium.

New York Rangers

The Rangers are run by Madison Square Garden, a division of Cablevision Systems that includes the NBA’s Knicks, WNBA’s Liberty, programming networks (such as MSG, MSG Plus, and Fuse), MSG Arena, the WaMu theatre, Radio City Music Hall, Beacon Theatre, and the Chicago Theatre. [4]

Montreal Canadiens

The Montreal Canadians were bought by George Gillett Jr. in 2001 for $181 million. Gillett Jr. also purchased the Bell Centre, the home of the Canadians, which opened in 1996. [5] Furthermore, Gillett owns a controlling interest of the NASCAR team Evernham Motorsports, under the name Gillet Evernham Motorsports, and is the founder of Gillet Entertainment Group.

Although through these examples it is clear that transfer pricing plays a role in the NHL, perhaps not to the same extent as in the MLB but still a significant role nonetheless, the question remains as to why this is the case. The NHL “taxes” teams not through a levied tax on revenues, like the MLB does, but rather through a hard salary cap. [6] This means that revenue does not decide how much money hockey teams must pay to the league, but payroll does. This may seem like there is little incentive for owners to shuffle around their money like in MLB, but they still do. The reason for this is similar to the reason the owner of the Chicago Cubs used; the owners can use this hidden revenue to convince the players that the team has less money to pay for their salaries. Besides more technical cases, like the use of the Leafs-Raptors merger to boost ticket revenue, most NHL teams use related-party transactions mainly to lower player salaries. Hockey teams do not have to pay the levied tax that MLB teams must pay, but still can benefit, in other ways, from the same tactics that baseball teams use to avoid them.

If you find this topic of interest, please share your thoughts below. If there are any other examples of transfer pricing in the NHL that you find interesting, feel free to explain them in the comment section. After all, this post only examines the ownership of the three largest teams. Make sure to return to Tully’s Sports Blog for more exciting sports information!

1. May the Best Team Win by Andrew Zimbalist
2. http://www.forbes.com/lists/2008/31/nhl08_Toronto-Maple-Leafs_312012.html
3. http://web.archive.org/web/20030321125842/http://www.crtc.gc.ca/ownership/cht177.pdf
4. http://www.forbes.com/lists/2008/31/nhl08_New-York-Rangers_315381.html
5. http://www.forbes.com/lists/2008/31/nhl08_Montreal-Canadiens_314528.html
6. http://www.nj.com/devils/index.ssf/2010/06/nhl_sets_salary_cap_for_2010-1.html

No comments:

Post a Comment