Uh-oh, Canada

There was something almost allegorical about arrivistes from the Sun Belt (the Tampa Bay Lightning) beating stalwarts from Alberta (the Calgary Flames) to win the Stanley Cup this month. When Canadian teams compete in American leagues these days, they seldom come out ahead. Since 1994 three professional franchises have made like Canada geese and migrated south: the Quebec Nordiques (to Colorado), the Winnipeg Jets (to Phoenix) and the Vancouver Grizzlies (to Memphis). And by 2005 the Montreal Expos will likely have moved to...somewhere in the U.S. "Canadians love sports," says Brian Burke, until recently president of the Vancouver Canucks, "but their teams just can't compete under these conditions."

The most onerous condition is the currency exchange rate. Canadian franchises pay athletes in U.S. dollars but take in most of their revenues in Canadian dollars. When the Canadian dollar is worth 73 U.S. cents, as it was at the close of trading last week, it's tough to compete. When it's worth 62 cents, as it was as recently as last summer, competing is almost impossible. Toronto Blue Jays president and CEO Paul Godfrey attributes 60% of his team's losses ($70 million over the last two years) to the currency gap. "Assuming the payroll is $50 million," he says, "for every cent the Canadian dollar falls, it costs us $400,000. That kills us." Cultural attitudes about sports also work against Canadian teams. U.S. franchises have become adept at obtaining—extorting?—tax breaks and public funds to build venues. That concept is, well, foreign to Canadians. Not only do teams there have to pay for construction of their own facilities (the Canucks pay $10 million a year to service the debt on the arena they built in 1995), but they are also taxed at a higher rate than their U.S. rivals. "The [government's] attitude is, Rich players and rich owners, a pox on their homes," says Godfrey, "We pay more tax on our ticket sales than [promoters of] other entertainment events [10% versus 8%]. We even have to pay tax on the free tickets distributed to players' wives."

There is some reason for optimism in Canada. In 1999 NHL owners successfully lobbied for the Canadian Currency Assistance Plan, which helps the franchises defray some of their losses. Five of the country's six NHL teams made the playoffs, suggesting that savvy management can overcome financial constraints. The teams' success also augurs well for sponsorship dollars next season (provided there is a next season). What's more, several provinces recently voted to use public money to build junior hockey rinks as well as stadiums for Canadian Football League teams.

Now, says Burke, it's time to extend that attitude to the country's major pro franchises. "It's clear," he says, "that long-term viability depends on it."