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1 WILLAMETTE SPORTS LAW JOURNAL FALL 2012
Owners Playing it Safe: A Law and Economics Explanation of Why
Sports Franchises Relocate
Arjun Sivakumar
INTRODUCTION... ..........................................................1
A. Overview ............................................................. 2
B. Tangible Benefits ....................................................... 4
C. Intangible Benefits ....................................................... 5
I. A Law and Economics Explanation for Relocation. ...................................7
A. Distortionary Effects of State and Local Taxes on Sports Franchises: A Numerical Example..... 7
B. Specific Effects of State and Local Taxes on Sports Franchises ................ ........ 9
1. Income Taxes....................................................... 10
2. Sales Taxes ......................................................... 11
3. Property Taxes ....................................................... 12
II. How a Revenue Neutral Income Tax Carve-Out Can Prevent Relocation.......... ........ 12
A. Why an income-tax carve out is effective .......................................... 13
B. Why an income tax carve-out is fair ........................... ..... ........... 14
C. Alternative Solutions.................................................... 14
CONCLUSION ....... ....................................................... 16
INTRODUCTION
Twelve sports franchise relocations have taken place over the last twenty years in the four major
North American professional sports leagues.' Events leading up to these relocations generally unfold
according to a common pattern, beginning with a team's stadium lease agreement expiring or nearing
expiration.2 The team typically asks the city in which it is currently located for public financing in order
to construct a new stadium.3 Locally generated revenues are the most important source of income in the
professional sports industry today, and a modem stadium is the crucial component to achieving this goal.
Other cities then enter the process by bidding-that is, making their own offers of public financing. A
competitive bidding process is virtually certain to occur because the supply of sports franchises is
severely restricted by the leagues, creating an artificial shortage of professional sports franchises in the
market.
1 Major League Baseball [hereinafter MLB], National Basketball Association [hereinafter NBA], National Football
League [hereinafter NFL], National Hockey League [hereinafter NHL].
2 Stadium lease agreements carry large termination fees and thus are often not broken until they are near expiration,
as communities see these provisions as crucial to protect the benefits from any investment they make in the
franchise. See Paul M. Anderson & W. S. Miller, Sonic Bust: Trying to Retain Major League Franchises in
Challenging Financial Times, 21 J. LEGAL ASPECTS SPORT 117, 118 (2011). Virtually all recent sports franchise
lease agreements include covenants guaranteeing that all home games will be played in the home arena for the
duration of the lease. Id. (discussing NBA's Miami Heat and Phoenix Suns, who have such a provision in their
stadium leases).
3 Id. (stating that NBA franchises have reaped $5.6 billion in public financing for arenas in the last two decades).
Andrew E. Borteck, The Faux Fix: Why a Repeal ofMajor League Baseball's Antitrust Exemption Would Not
Solve its Severe Competitive Balance Problems, 25 CARDOZO L. REv. 1069, 1096 (2004) (discussing how local
revenues account for approximately 80% of team revenues on average).
Thomas A. Piraino, Jr., The Antitrust Analysis ofJoint Ventures After the Supreme Court's Dagher Decision, 57
EMORY L.J. 735, 789 (2008) (discussing the effect of the leagues' refusals to expand has been to create an artificial
shortage of sports franchises).
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Owners Playing it Safe](ViewImageLocal?handle=hein.journals/wlmsplj10&div=1&collection=&method=preview&ext=.png&size=3)
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