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How Madison Square Garden's $42 Million Tax Break Will Upend New York's NHL Geography

The Buffalo Sabres will play a "home" game in New York City against the New York Rangers next year, so the Rangers can keep their special tax exemption.

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Jim McIsaac/MCT/Newscom

Every January, the National Hockey League rings in the New Year with one of the more unique traditions on the American sports landscape: The Winter Classic, an outdoor hockey game played in a football or baseball stadium.

Next year, the NHL announced this week, that game will be an intra-state battle between the New York Rangers and the Buffalo Sabres, and the contest will be played at Citi Field, home of baseball's New York Mets. The stadium is located in Queens, less than 10 miles from Madison Square Garden, where the Rangers' normally play, but the Sabres will be the "home" team for the game, despite the fact that they hail from a city more than 350 miles away.

The reason, as the Rochester Democrat and Chronicle uncovered this week: tax breaks.

Specifically, one very peculiar tax break that applies only to Madison Square Garden.

Thanks to state lawmakers in New York, the "most famous arena in the world" is also one of the least taxed. Madison Square Garden has a full exemption from property taxes, but the exemption is contingent on having both the National Basketball Association's New York Knicks and the NHL's Rangers remain full-time residents of the building. Playing even one home game somewhere else could cost the arena's owners—who also happen to own both teams—as much as $42 million annually.

The special exemption was written into state law in 1982 in an effort to keep the Knicks and Rangers from following through on threats to leave Manhattan for a new stadium. It certainly accomplished that, but it's hard to justify such a narrowly tailored giveaway that benefits just a single business at the expense of all other New Yorkers.

The Madison Square Garden Company, which owns the arena and the two teams, certainly doesn't need the corporate welfare. According to the D&C, the publicly traded company has a market value of more than $4.8 billion. New York City's Independent Budget Office—basically the city's number-crunching equivalent to the Congressional Budget Office—says the Madison Square Garden tax exemption is worth an estimated $42 million for the city's upcoming fiscal year (up from just $17 million in 2013, before a $1 billion renovation of the arena).

There have been efforts to kill the tax exemption, most recently in 2016 when a proposal to eliminate the special giveaway was voted down in committee.

For what it's worth, the NHL says the decision to make Buffalo the nominal home team in next year's Winter Classic was influenced by "a variety of factors." But when the Rangers played an outdoor game at Yankee Stadium—also as the road team, against the New Jersey Devils—in 2014, The New York Times noted that the Madison Square Garden tax break was likely the reason.

Aside from highlighting one of the best examples of crony capitalism in New York's tax code, the whole situation says something about the unintended consequences of government policy. The state lawmakers who crafted this special property tax exemption for Madison Square Garden probably never intended to create a situation where the Buffalo Sabres would be playing a home game in Queens—for that matter, they probably never even considered the possibility of outdoor NHL games, something the league didn't start doing until the early 2000s. Policymakers can never foresee all the consequences of their actions.

As unintended consequences of narrowly-tailored tax rules that benefit one special interest go, this is probably one of the least consequential. The fact that the Rangers will be the road team despite being closer to home won't affect the outcome of the game, and the loss of one true home game probably won't change the trajectory of Buffalo's season.

Still, people and businesses respond to economic incentives. Apparently, $42 million of economic incentives are enough to invert the geography of New York State—at least for one day.