NAFTA Chapter 11 and Professional Sports in Canada

By Schmoll, Robert A. | Vanderbilt Journal of Transnational Law, May 2003 | Go to article overview

NAFTA Chapter 11 and Professional Sports in Canada


Schmoll, Robert A., Vanderbilt Journal of Transnational Law


ABSTRACT

Modern professional sports leagues are significant economic enterprises, the most prominent of which span the political border between the United States and Canada. In recent decades, local governments in the United States have invested heavily in professional sports franchises by building stadiums and arenas, hoping either to prevent the home team from moving out or to entice someone else's home team to move in. The willingness to pay of U.S. local governments, coupled with apparently disadvantageous economic conditions in Canada, has resulted in a net loss of professional franchises for Canadian cities, in particular franchises in Canada's national game, hockey. This Note inquires whether this process harms Canadian investors in professional sports franchises in a way that implicates the North American Free Trade Agreement (NAFTA), specifically the Agreement's rules governing investment. Although there is a growing body of adjudications under NAFTA Chapter 11, U.S. local assistance to professional sports franchises has not, to date, been the subject of a claim. This inaction may result from the inertia of U.S. municipal investment in professional sports, the confusion created by the unique economic structure of the professional leagues, or the perception that the professional sports industry is somehow less worthy of attention. Based on a survey of the types of aid provided by local governments to professional franchises, the recent movements of teams in the three relevant leagues, and a close examination of the economic relationship between franchises in a single league, this Note argues that Chapter 11 is a potentially relevant, if overlooked, part of the regulatory landscape. After sketching a hypothetical claim under Chapter 11, the Note concludes with an examination of the NAFTA's Cultural Exception in light of the steady migration of National Hockey League franchises out of Canada.

TABLE OF CONTENTS

  I. INTRODUCTION
 II. MUNICIPAL INVESTMENT IN PROFESSIONAL
     SPORTS FACILITIES
     A. Modern Stadium Finance and Economics
        1. Stadium Finance: Transfers
           from Local Governments to
           Professional Sports Franchises
           a. Direct Payments
           b. Favorable Lease Agreements
           c. Advertising and Other
              Revenue
           d. Loans and Additional
              Facilities
        2. Stadium Economics: Returns on
           Municipal Investment in
           Professional Sports Franchises
     B. Overview of Relevant Events in the
        Professional Sports Leagues
        1. Major League Baseball (MLB)
        2. National Basketball Association
           (NBA)
        3. National Hockey League (NHL)
III. REGULATION OF INVESTMENT UNDER THE NORTH
     AMERICAN FREE TRADE AGREEMENT
     A. Basic Elements of a Claim under the NAFTA
        Chapter 11
        1. The Claimant Must Be an "Investor"
        2. The Claimant Must Have an
           "Investment".
        3. There Must be a Government
           "Measure".
        4. The Measure Must Breach One of
           the Substantive Guarantees of
           Chapter 11
     B. The Canadian Cultural Exception to the
        NAFTA
     C. Is the Chapter 11 Dispute Settlement
        Mechanism Constitutional?

 IV. A HYPOTHETICAL CLAIM UNDER CHAPTER ELEVEN
     A. Professional Sports Franchise
        Owners are "Investors" under Chapter 11
     B. Professional Sports Franchises are
        "Investments" under Chapter 11
     C. Public Assistance to Sports Franchises
        Constitutes a Government "Measure"
     D. Does Public Assistance to Sports
        Franchises Violate the Substantive
        Protections of Chapter 11?
        1. Is the Claimant "In Like
           Circumstances" with Favored
           Domestic Investors?
        2. Has the Claimant been Treated
           Less Favorably?
        3. Is there a Reasonable Policy
           Justification for Less
           Favorable Treatment? … 

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