The Roundup

Thunder Up Tax Free

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Posted 06.12.12

The whole state is ablaze with Thunder fever as Oklahoma City’s four-year-old professional basketball team prepares to take on the Miami Heat tonight at the Chesapeake Arena in the first game of the NBA Finals. And, with the exception of the watch party recipes and James Harden’s beard, the top Thunder-related stories tout the boost—economic and psychological—the team has provided Oklahoma City and the state.

Though there hasn’t been an official economic impact study executed to gauge the Thunder’s payoff, the Oklahoma City Visitors Bureau estimates “direct spending associated with the attendance of the games is in excess of $50 million,” OKC’s News Channel 4 reported last week.

“Destination Marketing Association International estimates every in-town person spends about $65 on game days and out-of-towners, or a person who travels over 60 miles, spends about $216,” the station reported.

And then there’s the team’s intangible value, the thing you can’t put a price tag on. Oklahoma City Mayor Mick Cornett wrote in an OpEd for Oklahoma Gazette: “We became relevant on the pop-culture map” because of the Thunder.

“We’re so used to hearing Oklahoma City mentioned in the national media, we forget that until a few years ago the only national media play we routinely received was on The Weather Channel each spring,” he wrote.

The Oklahoma City Thunder is another quality-of-life amenity, a bigleague entertainment option. As we recruit employers and employees from other parts of the country, they think one of two things as they consider relocation: “I have to move to Oklahoma City” or “I get to move to Oklahoma City.” We believe these types of amenities and cultural opportunities are moving the needle toward the latter.

Even Tulsa is feeling the effects, Fox23 News reported, noting that retailers on the east side of the state are cashing in on Thunder merchandise as all Oklahomans, regardless of what city they live in, rally to support what has become a state team.

The thing is, the impact could be even bigger than we let it be. The state loses millions of dollars a year because tickets to NBA games are tax-exempt. The State of Oklahoma decided to exempt NBA tickets from sales tax in 2006 in an attempt to make itself more attractive to the New Orleans Hornets, who’d temporarily relocated in the aftermath of Hurricane Katrina. The Tax Foundation, a nonprofit research organization, quoted a Sports Illustrated story at the time:

Tickets for the Hornets will be exempt from state sales tax under a bill Gov. Brad Henry signed into law Monday as state officials work to make Oklahoma City more attractive as a permanent home for the NBA team. The Hornets have committed to play most of their home games here this season and next because of damage Hurricane Katrina did to its home city of New Orleans.

“This law is important because it allows us to continue to offer our fans in Oklahoma City the most affordable tickets in the NBA,” team owner George Shinn said at a news conference. Tickets to Hornets’ games start at $10.

Henry said he hopes the Hornets will stay.

The Hornets didn’t stay; however, two years later, Clay Bennett and Aubrey McClendon, along with other Oklahoma City investors, bought the Seattle SuperSonics, renamed them, and brought them to Oklahoma City. And they cashed in on the existing statute that allowed patrons to buy their tickets tax-free.

Using some quick math, you could easily estimate the state’s loss at about $3 million annually. There are 18,203 seats in the Chesapeake Arena, the average ticket price is $52, and the team plays 40 games (although, this season, there were only 33 because of the lockout) at home. That amounts to $37,862,240. That multiplied by the state and local sales tax rates, about .08 percent combined, equals $3,028.979. Or you could take the gate receipts, which Forbes estimates (link above) ring in at about $44 million annually, and multiply that by .08 percent and get $3,520,000.

So who cares? If we’re making $50 million a year off this team, does it matter that we’re missing out on $3 million? It might if you consider that the state legislature tried desperately to enact a tax cut last year that would have cost the state millions. Even in their feeble half-attempt to make the cuts revenue neutral, they found themselves increasing the income tax burden for the low and middle classes.

They promised to end tax breaks to special interest groups, but instead proposed cutting broad-based incentives that benefit many low- and middle-income Oklahomans. Sen. Mike Mazzei, R-Broken Arrow, authored a bill that would have “end(ed) sales tax exemptions for newspapers, professional sports tickets, and various other purchases,” according to the Oklahoma Policy Institute, but it never received a committee hearing.

There’s no denying the Thunder brings money and credibility to the state of Oklahoma, but there is question as to whether or not it’s fair to relieve purchasers of those tickets, mostly members of the state’s upper class, from the burden of sales tax while taxing basic commodities—which some people struggle to afford—like groceries.

Folks willing to spend $50 or $150 or $300 on a basketball tickets can probably afford to pay the 8-percent tax that (should) go along with it.

From the Tax Foundation:

The obvious and simple question is why should the state of Oklahoma give special tax preferences to professional basketball? By providing this exemption on basketball tickets, while maintaining the sales tax on other goods and services, the state is creating a distortion for consumers, leading to overconsumption of NBA tickets relative to other goods. While this may be the goal of the policy, not only should the question of priorities be asked, but other questions need to be asked as well, like whether or not this will really achieve the goal of keeping the team in Oklahoma and if so, what benefits of a pro basketball team remaining in the state would even exist.

One thing is for certain: The empirical evidence is clear that sports teams are constantly over-rated in terms of their economic significance. In nearly all cases, the costs (including opportunity costs) of providing government assistance to professional sports franchies are not worth the benefits.

Holly Wall, News Editor

Thanks to David Blatt, from OK Policy, for his help with this story.