Wednesday, June 06, 2007

Competition Bureau investigates NHL

According to a report today from the National Post, the Canadian Competition Bureau is investigating the NHL's franchise relocation policies and specifically the aspects that involve the "territorial rights" of teams like the Toronto Maple Leafs:
...sources told the Post the Competition Bureau is reviewing a section of the NHL's constitution that deals with the "territorial rights" of the league and its member clubs. According to Article 4.1 of the league's constitution, "each member shall have exclusive territorial rights in the city in which it is located and within 50 miles of that city's corporate limits," which is known as the club's "home territory."
The details regarding the rights are old news, and they've always been the reason pundits have declared a second franchise in the Greater Toronto Area a non-starter. Should this watchdog find improprieties in the NHL's guidelines, however, that could change:
According to insiders, the competition bureau is reviewing whether the territorial rights and vetos ascribed to the league and its individual members in its constitution contravene civil sections of the Canadian Competition Act that deal with abuse of dominant position and market restriction provisions. The watchdog is attempting to determine whether the NHL and its member teams are engaged in anti-competitive practices that substantially lessen competition in a market, or, are likely to do so.
It's hard not to believe that Jim Balsillie didn't have just a little to do with the fact this is now being investigated, and you wonder if this business is making the Maple Leafs brass squirm.

The timing of it all, including the recent news regarding an arena lease in Hamilton, is rather convenient.


At 1:27 p.m., June 06, 2007, Blogger PPP said...

Great news! I'd love to have 4 more games close to home to be able to watch the Leafs. A team in Hamilton/KW could count on at least 16 sellouts in their first year (MTL, TOR, OTT, BUF).

At 4:35 p.m., June 06, 2007, Blogger rosco said...

I dabbled in Competition Law during my time in school, and I always thought that the territorial rights veto raised issues of abuse of dominance under the Competition Act. Unfortunately, this is a messy and time-consuming area of law that could ultimately prove futile for Hamilton's prospective owners. Still it is good for Jim and the gang to get the Competition Bureau looking into this.

In my quickee law student opinion:

The territorial rights veto given to each team guarantees absolute control, in a monopolistic fashion, of the territory for which they operate. The restrictive covenant put in place guarantees that the Toronto Maple Leafs and the Buffalo Sabres can dictate prices and conditions by which anyone wishing to enjoy professional hockey within their markets must adhere. With an absence of competition - since the WHA and other pro teams have failed in those markets - the lack of ability for any firm to enter into the professional hockey market without access to the NHL structure is a demonstration of dominance.

The territorial veto is an express agreement in the NHL Constitution that demonstrates prima facie joint dominance; if the Leafs and Sabres, parties to the constitution, exercise their veto, they would be engaging in a practice of anti-competitive acts. The NHL Constitution is evidence that every member of the NHL - leafs and sabres included - wished to entrench their agreement into a legally binding agreement between each franchise. This contract is exclusive, long term and acts as an absolute reduction of potential competitors. The territorial rights veto impairs any competitor from realistically competing with the NHL within 80 km of an existing franchise. This would likely satisfy the element of prevention or substantial lessening of competition.

This would satisfy the three-part test for abuse of dominance and would enable the Competition Tribunal to strike down the territorial rights veto. This would enable each NHL franchise to freely choose who they would sell their team to in an open market. Basically, the preds could come to Hamilton.

However, this still doesn't correct the potential problem of regional TV rights. The Leafs viewing region is huge and selling rights to regional broadcasters brings in almost $20 million a year for the Leafs. If Hamilton or whatever Southern Ontario city lands this team, wouldn't that cut into that potential viewership and ultimately the value of those tv rights? Something tells me that protecting that large source of revenue would be the ultimate motivator for the Leafs to guard against a Competition Bureau investigation. Tickets to a leafs game will always sell out; however, the leafs don't want their tv blacked out.

Thoughts? do we have any competition lawyers out there? If so, does anyone want to take a stab at defining the market in play here? is this professional hockey, hockey, entertainment, etc.?

(History lesson: The Competition Bureau investigated the NHL and its relocation practices back in the 1980s when St. Louis almost moved to Saskatoon before the NHL vetoed it. The Bureau investigated but ultimately found nothing wrong with the process or any evidence of wrongdoing. However, that was under the old Competition Act, not the current one which came into effect in 1986.)

At 11:20 p.m., June 06, 2007, Anonymous Anonymous said...

Like most pointless laws, the Competition Act sounds good. But it's toothless. We all know gas prices and real estate commissions are fixed in a geographic area, cable and telephone company monopolies screw us, the list goes on. Yet check out the list of "successes" by the Competition Bureau. It's short to non-existent.

At 1:25 p.m., June 07, 2007, Anonymous Anonymous said...

As soon as I got wind of the fact that the competition bureau was looking into the NHL Toronto/Buffalo veto powers over territorial rights - I thought - Hey If I was a Billionaire and could place the team anywhere in southern Ontario, why would I pick Hamilton when I can locate in anyone of the City's just north of Toronto. I live in the City of Vaughan. Yes, the City above Toronto. Anyone that knows and understands mass Marketing and the importance of having a huge populatiuon with a disposable income and huge corporate moneys will tell you that the best market for an NHL team is anywhere in the greater Toronto region. My choice is the City of Vaughn.

Not only did I think of this yesterday, but I acted on it too. I sent an email to our Mayor Linda Jackson who kindly responded and said she thought it was a "very interesting idea and that she would look into the possibilities of having the City of Vaughan as an option"

To tell you the truth I was and still am quite surprised that other outlining cities have not tried to intice Mr. Balsillie (or maybe we just don't here it in the media). All I know is that if the territorial rights are being challenged then why bother putting a team in Hamilton or Waterloo when you can pull from the existing fan base right here at home which I don't think it would be a stretch to say this same region is actually what supports the leafs now. I can see the Leaf Brass shaking in their corporate offices right now. Look out Leaf Nation because I think Mr. Blackberry has a little berry up his sleave and we are all going to be shocked when the real news emerges. For those who don't realize this is the same guy who challenged and WON against the biggest US patent lawyers when RIM (Blackberry) was taken to court about the technological infringments.

Here come the "Vaughan Blackberries !!!!!"


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