Thunder Up the Taxes!

By Dean, Kyle; Evans, Russell et al. | Journal of Business Strategies, Spring 2017 | Go to article overview

Thunder Up the Taxes!


Dean, Kyle, Evans, Russell, Willner, Jonathan, Journal of Business Strategies


ABSTRACT

Oklahoma City taxpayers approved a 1% sales tax to raise an estimated $120 million for improvements to lure the Seattle Supersonics, now the Oklahoma City Thunder. City civic leaders engaged a "Big League City" campaign, touting economic growth, increased business activity and jobs, and better quality of life as reasons to support the initiative. We evaluate the "Big League City" economic claims using local sales tax revenues to estimate the level and growth impacts resulting from the relocation of the now Oklahoma City Thunder. We find no significant relationship between the operation of the franchise and contemporaneous sales tax collections. However, we find a modest positive significant relationship between the presence of the franchise and the year-over-year growth rate of aggregate sales tax collections, providing some support for the amenity "Big League City" argument.

Keywords: Sports, tax revenue

INTRODUCTION

In 2008 the former Seattle Supersonics of the National Basketball Association (NBA) began the 2008 - 2009 season as the Oklahoma City Thunder. In a well-publicized move, new owners based in Oklahoma City relocated the franchise to Oklahoma's capital city. As a relocation incentive, Oklahoma City residents agreed to continue a 1% temporary sales tax to fund improvements to the then "Ford Center" arena and to fund the construction of a new team practice facility. Passed in March of 2008, the tax lasted 15 months and raised just over $105 million in revenues to fund the Thunder projects.

According to Forbes' Christopher Helman (2012), the Oklahoma City-based owners purchased the franchise with the promise to remain in Seattle "so long as we are able to negotiate an attractive successor venue and lease arrangement". Following a protracted discussion, the Seattle Legislature failed to approve the necessary incentives for new construction and the franchise owner group set the move to Oklahoma City in motion.

Oklahoma City gained experience hosting an NBA franchise, the New Orleans Hornets, after Hurricane Katrina. The city served as the Hornets' temporary host for two seasons (2005-06 and 2006-07). Hosting the Hornets created enthusiasm for the NBA within OKC. The experience provided positive evidence of the city's ability to support an NBA franchise; the announced paid attendance averaged 18,737 per game according to an economic impact study by Bryant and Evans (2007). While citizens hoped to retain the Hornets, their relocation to OKC was temporary and they returned to New Orleans after only two seasons. However, the Hornets experience changed the expectations of OKC residents and signaled to the NBA that OKC was in the market and could support an NBA franchise.

Without support from Seattle taxpayers, the new ownership group decided to move the team after OKC voters approved the extension of an existing $0.01 (1%) sales tax to fund arena and practice facility improvements. The sales tax extension was widely supported by local leaders as a means to increase economic activity and create long run growth, in turn making OKC a desirable place to live and work. OKC voters had previously approved two sales tax initiatives beginning in 1993 aimed at increasing local amenities, the Metropolitan Area Projects (MAPS) and MAPS for Kids. In a supportive "Vote Yes" television advertisement, Mayor Mick Cornett along with two previous mayors, Kirk Humphries and Ron Norick stated "...just like MAPS, improving the Ford Center will grow our economy, help attract even more companies, creating better paying jobs and improving quality of life". Using the tagline "Big League City," the message was clear that local leaders expected a long-run amenity effect from the relocated franchise.

The potential impacts from professional sports franchises may include both contemporaneous impacts on local sales tax collections and long run impacts on local labor markets and business development from the improved local amenity package and quality of life enhancement. …

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