Behind the Scoreboard: Legal Considerations in Buying and Selling Sports Franchises in Canada

Big plays, bright lights and billion-dollar contracts are all part of the appeal of professional sports, but behind the excitement of the games themselves lie intriguing investment opportunities. Analysts note that investments in sports franchises “consistently outperform traditional asset classes like equity, fixed income and commodities.”¹ There have been numerous recent team sales across North American professional sports leagues, including the NFL’s Denver Broncos in 2022, the NHL’s Arizona Coyotes (now Utah Mammoth) in 2024, the NBA’s Los Angeles Lakers and Boston Celtics in 2025, MLB’s Tampa Bay Rays in 2025 and the pending sale of MLB’s San Diego Padres. Interest in this asset class has also grown among private equity funds as some leagues have relaxed their rules on private equity investment in individual franchises.

Canada hasn’t been sitting on the sidelines, with Rogers’ continuing consolidation of ownership of Maple Leaf Sports & Entertainment, and a possible partial sale or spinout of the sports conglomerate. Following the sale of the NHL’s Ottawa Senators in 2023, the next wave of investment opportunities in Canadian professional sports may be emerging. Non-Canadians looking to enter the owner’s box will need to be aware of some key legal and regulatory considerations.

Foreign Investment Review (Investment Canada Act)

The Investment Canada Act (ICA) is engaged whenever a non-Canadian makes a controlling investment in Canada, which can be deemed to occur with an acquisition of as little as one-third of a Canadian business. A pre-closing application for review by the Minister of Industry to confirm the transaction is of “net benefit to Canada” is required where the target’s enterprise value is at least C$2.179-billion (for investors from countries with free trade agreements with Canada) or C$1.452-billion (for investors from WTO countries). The threshold is lower still if the investor is a state-owned enterprise, with notification being required if the target has an asset value of at least C$578-million. A net benefit review considers factors such as the effect on economic activity in Canada, including employment, the participation of Canadians in the Canadian business, and compatibility with governmental industrial, economic and cultural policies.

The ICA also provides for the Minister of Canadian Identity and Culture to review foreign investment in Canadian “cultural businesses” with a much lower threshold of C$5-million in asset value. Cultural businesses include those that produce or exhibit video recordings and television broadcasting undertakings.

Typically, to obtain approval after such reviews, investors are required to provide undertakings to ensure the net benefit of the investment to Canada, which often includes retaining Canadian management and employment levels, maintaining Canadian offices, and making Canadian capital expenditures. For cultural businesses, the undertakings focus on protecting Canadian cultural identity, such as by giving Canadians creative control of the business. State-owned foreign investors can expect deeper scrutiny and potentially more stringent undertakings.

Canadians take great pride in their sports teams, which are cultural institutions. This means the government would likely take a net benefit review very seriously. Further, even minority investments can be subject to national security reviews under the ICA. While ownership of a sports team is unlikely to be a national security concern, foreign investors should be prepared to develop messaging on how even a minority investment benefits Canadians.

Competition/Antitrust Review (Competition Act)

The Competition Act is also typically engaged for large acquisitions of more than 20% of a public company or more than 35% of a private company, regardless of the investor’s country of origin. An acquisition that meets both the size-of-transaction threshold (i.e., the target’s Canadian assets or revenue exceeds C$93-million) and the size-of-parties threshold (i.e., the parties’ combined Canadian assets or revenues exceed C$400-million) will require notification to the Competition Bureau. The relevant test is whether the transaction is likely to prevent or lessen competition substantially. So, whether an investor has other sports interests in the same market would be important to the analysis.

Broadcasting and Media Regulation (Broadcasting Act)

The Broadcasting Act restricts foreign ownership of Canadian broadcasters: Canadians must own and control at least 80% of broadcasting licensees, and at least two-thirds of their parent companies. Accordingly, when acquiring a sports franchise that holds a broadcasting licence, rearranging the corporate structure to ringfence the broadcasting segment may be required if a foreign investor would like to exceed the statutory thresholds.

League and Ownership Approvals

Each of the major professional sports leagues with Canadian franchises has its own procedures for approving the transfer of team ownership. Typically, controlling investments in any professional franchise require approval from both the league and the other franchise owners in the league.

Minority investments can also be restricted, with approvals from the league and other owners required in many cases.

Structuring and Tax Considerations

Another important consideration for prospective investors is how to structure the acquisition. For non-resident investors, a Canadian business is often acquired through a Canadian acquisition corporation. Depending on the specific transaction and the nature of the property being acquired, that structure can offer significant tax advantages, including greater flexibility to repatriate capital on a tax-efficient basis and access to other valuable post-closing planning opportunities, such as pushing acquisition financing into the Canadian target in a share transaction so that interest deductions may be available in Canada. In some circumstances, however, an alternative acquisition vehicle, such as a limited partnership, may be appropriate.

As with any acquisition of a Canadian business, a key consideration is whether the transaction should be structured as a share sale or an asset sale. Buyers often prefer an asset sale because it generally provides a stepped-up tax cost in the acquired assets and allows the buyer to choose which liabilities, if any, it will assume. By contrast, a share sale generally leaves the target’s existing tax attributes and historical tax liabilities in place and does not usually provide a step-up in the tax basis of the target’s underlying assets, subject to limited post-closing planning opportunities for certain eligible non-depreciable capital property where strict statutory requirements are met. Sellers, however, will often prefer a share sale because it more commonly produces capital gains treatment and avoids the immediate recapture and other income inclusions that can arise on an asset sale, particularly in respect of depreciable property. Asset sales may also raise GST/HST issues that would generally not arise on a share sale.

The choice between a share sale and an asset sale may be especially significant in the context of a sports franchise. The Canada Revenue Agency (CRA) historically has taken the position that, in an asset sale of a sports franchise, 60% of the purchase price would be allocated to player contracts and related rights and amortized over a relatively short period, potentially generating substantial accelerated tax deductions. To the extent a prospective buyer is comfortable that this position remains available in the particular circumstances, it may strengthen the buyer’s preference for an asset sale. Sellers, however, may resist that approach because of the potential for significant recapture.

To finance the acquisition, non-resident investors may use a combination of debt and equity, subject to Canadian thin capitalization rules and other earnings-stripping rules that can limit the deductibility of interest.

Ongoing cross-border payments also require careful consideration. Dividends, interest and royalties paid to non-resident investors attract Canadian withholding taxes (generally at 25%, which may be reduced under an applicable tax treaty). In addition, for multinational ownership structures, Canadian transfer pricing rules generally apply to inter-company transactions such as management and licensing fees.

On exit, non-resident investors may be subject to Canadian tax on the sale of any interests that constitute “taxable Canadian property” (meaning, very generally, that they derive their value principally from Canadian real or immovable property). Certain withholding and compliance rules are generally triggered on exit in such circumstances.

Practical Steps for Prospective Buyers

Any non-Canadian considering investing in Canadian professional sports teams should take the following steps to maximize the chances of a successful transaction:

1. Conduct early-stage regulatory risk assessments;
2. Develop public relations messaging to complement the regulatory strategy;
3. Closely manage the regulatory and league approval processes to avoid delays; and
4. Consider tax structuring early in the process.

Navigating Canada’s intricate web of foreign investment, competition law, broadcasting rules, and tax law, as well as public opinion, will be key to a successful investment. Non-Canadian investors who plan early, structure carefully and execute properly will be best positioned to make a winning play.

For more information, please contact the authors or any other member of our Competition, Antitrust & Foreign Investment, Mergers & Acquisitions, Tax or Sports groups.

Endnote

1. Royal Bank of Canada, “Analysis reveals a rapidly growing investment trend in the sports industry” (n.d.). online:  https://www.rbcwealthmanagement.com/en-ca/insights/analysis-reveals-a-rapidly-growing-investment-trend-in-the-sports-industry.