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What do Obama and Don Sterling have in common?

2015 January 21
by Victor Matheson

Sounds like the beginning of a bad joke, doesn’t it? However, both have significant concerns about what is arguably the most significant tax loophole for upper income earners – the “stepped up basis” for heirs of appreciated property.

Currently capital gains are taxed at a top rate 23.8%. Thus, if a person buys an asset for $10 and then sells it later for $110, the seller is on the hook for income tax on the $100 gain for potential tax bill of up to $23.80.

However, if a person dies and leaves the asset to his or her children, no capital gains tax is ever paid on that asset and the cost or “basis” for the asset is reset to $110. If the children were to later sell the asset for $210, they would only pay income taxes on the change in price from the time they inherited the asset until when they sold it (i.e $210 – $110 = $100) not the entire appreciation of the asset over time ($210 – $10 = $200). No income taxes would ever be paid for that first $100 of capital gains accumulated by the family.

So what do Sterling and Obama have to do with this? Well, in yesterday’s State of the Union address Obama asked, “Let’s close the loopholes that lead to inequality by allowing the top one percent to avoid paying taxes on their accumulated wealth.”  Specifically, President Obama would change the tax code to require a person’s estate to pay taxes on any accumulated but unrealized capital gains at the time of a person’s death.

And what about Sterling?  One question many people had was why Sterling was so adamant about hanging on to his team when he was uniformly hated by his fans, his players, and the rest of the league following the release of recordings of him making racist comments. Well, Sterling had over 400 million reasons to hang on to his team. Having purchased the team for a mere $12.5 million back in 1981, by selling the franchise to Steve Ballmer last year for $2 billion, the tax bill on Sterling’s sale of the Clippers might come to as much as $470 million, although clever accountants will probably be able to whittle that down a bit. On the other hand, had the 80-year old Donald Sterling died while still owning the team, his heirs would have owed a grand total of $0 in capital gains tax on the franchise.

Under Obama’s proposed tax changes, the $470 million in capital gains tax would have to be paid either by Sterling when he sold or by his heirs when he died. Sterling would have no tax incentive to hold onto the team until his death. Of course, the chance of an Obama tax reform proposal passing under the Republican-controlled Congress is about the same as the Lakers winning the NBA title this year, but this is one tax loophole that deserves to be expelled from the league.

Nebraska Fires Bo Pelini

2014 November 30
by Phil Miller

Nebraska has fired its head football coach Bo Pelini after 7 years as head coach of the Nebraska Cornhuskers.  Despite a 9-3 record, this is unsurprising to me.  Mitch Sherman at ESPN has some stats:

The former defensive coordinator at LSU and Oklahoma, Pelini, in his first head-coaching job, produced notable consistency but little evidence that Nebraska was set to take the next step as a program. It lost 59-24 at Wisconsin on Nov. 15, surrendering a then-FBS record 408 rushing yards to  Melvin Gordon in the latest embarrassing defeat for the program.

Nebraska has lost 10 games by 20 points or more since 2008, Pelini’s first season, and allowed 45 points or more in six games since the Huskers joined the Big Ten in 2011.

Pelini improved to 67-27 as Nebraska’s coach on Friday with a 37-34 overtime win at Iowa. The victory pushed Pelini’s win total past Tom Osborne for the most ever at the school in a coach’s first seven years.

In fact, no coach in the history of a Power 5 program had been fired for on-field performance after winning as many games in his first seven years. Only Alabama and Oregon – first and second this week in the College Football Playoff rankings – can match the Huskers in winning nine games each year since 2008.

He also guided the Huskers to 7 bowls, winning 4.  But despite winning a few division championships (2009 and 2010 in the Big XII and 2012 in the Big 10),  he never won a conference championship let alone a national championship.  For a program that still boast a consecutive sell-out streak (340 games) that dates back to 1962 and five national championships, this simply won’t do.

Frankly, I’m surprised the university was as patient with Pelini as it was.

 

Nth Verse, Same as the First

2014 November 29
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by Phil Miller

The St. Louis Rams want public money to build a new stadium to replace the Edward Jones Dome.  Cue the requisite speculation regarding LA:

To leave St. Louis, Kroenke would need approval from three-fourths of his fellow team owners and prove that the community was refusing to take steps to satisfy the lease.

Nixon’s efforts negate that argument for now, but it hasn’t stopped speculation that Kroenke has his sights on the more lucrative Los Angeles market, where some say the team would be worth twice what it’s worth now.

At $930 million, Forbes ranked the Rams last in the league, compared to the Chiefs at $1.1 billion and No. 1 Dallas at $3.2 billion.

Kroenke only added to the conjecture when he bought 60 acres in the Los Angeles suburb of Inglewood last winter. Then on Nov. 6, the same day Nixon made his announcement, Rams representatives met privately with that city’s mayor.

It’s a nice bargaining chip, at least to be mentioned by media outlets, that LA place.

Several teams that can exit their lease deals are considered possible transplants — the San Diego Chargers, St. Louis Rams and Oakland Raiders. All three have historical ties to Los Angeles — the latter two franchises were once based in the city, and the Chargers played their inaugural season in Los Angeles in 1960.

I’m glad that tactic wasn’t successful up here in cold, snowy Minnesota.  Wait.  What (see the third to the last paragraph)?

See here for an old post of mine at Market Power regarding how St. Louis originally got the Rams in the first place.

Morocco lost the Cup of Nations over irrational fears about Ebola

2014 November 14
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by Victor Matheson

(Co-authored by Ann Sheehy, Department of Biology, College of the Holy Cross.)

The Africa Cup of Nations, the continent’s mini-World Cup, is played every two years by the national teams of 16 African countries who have competed in a series of qualifiers to play in the final tournament.

Like the World Cup, the tournament site moves between various host countries and, until earlier this week, the 2015 games were scheduled to kick off in Morocco on January 17. On Tuesday, however, fears that the Ebola outbreak in west Africa would spread to Morocco led the country to abandon its plans to host the upcoming event after having its request to postpone the competition by a year denied by the Confederation of African Football (CAF).

CAF is now scrambling to find another country to hold the finals and has expelled the Moroccan team from further participation in the tournament. Morocco’s refusal to host the tournament, which pandered to the worst fears about this disease, is based both on bad science and bad economics.

It is completely reasonable for any country to want to take appropriate steps to prevent the spread of the Ebola epidemic which has so far killed more than 5,000 people, primarily in the west African countries of Liberia, Sierra Leone, and Guinea. The Africa Cup of Nations, however, is an unlikely candidate to promote the further spread of the disease.

From an epidemiological standpoint, since Ebola victims are contagious only once they show symptoms, the disease is not likely to be spread through attendance at football matches. Those showing symptoms will be too sick to travel, and those well enough to travel will not be contagious. Even if a fan travelled to Morocco during the 21-day incubation period for the disease and then began to show symptoms, the fact that the disease is only spread through contact with bodily fluids, not casual contact with other fans, means is unlikely to be a significant source of transmission.

The case against a delay in the tournament is even stronger. Thus far, the overwhelming majority of victims are either those living in poverty with little or no access to sanitation or routine medical care, or people engaged in primary health care provision. Neither group is likely to have the time or the resources to make the 2,000 mile journey from the disease epicentre to Morocco this coming January.

Finally, like most boosters’ claims about the economic impact of major sporting events, Morocco’s estimates of the number of visitors that the event would bring were wildly optimistic. Morocco’s sports minister Mohamed Ouzzine said the country was expecting an influx of between 200,000 and 1m fans. The idea of one million arrivals from infected countries is scary indeed but also completely laughable.

The 2006 World Cup in South Africa, a tournament with twice the number of teams, a much higher level of prestige, and entrants from the wealthiest, most populous, and most football-mad countries in the world, resulted in an increase of roughly 200,000 visitors to the country. There is simply no way a minor continental tournament will draw even close to the same number of fans as the world’s premier sporting event.

And in footballing terms, of the three countries at the centre of the outbreak, Liberia has already been eliminated, and both Sierra Leone and Guinea are longshots to make the final slate of 16 teams. Without their teams in the tournament, there is little reason for fans from the infected countries to make the long and expensive trip to the Cup of Nations. Even if Guinea, the team with the best chance to advance, were to make it to Morocco, the number of additional arrivals from this afflicted country is more likely to measure in the dozens than in the thousands.

In the end, hats off to the Confederation of African Football for not succumbing to an irrational fear of the disease. Now the hard work of organising a new tournament in another country in less than two months begins.

This article was originally published on The Conversation. Read the original article.

“The City That Said No to Baseball”

2014 September 30
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by Skip Sauer

In 1998, the Brewers left their old stadium in Chandler, Arizona, for Maryvale Baseball Park in Phoenix. Was that a blow to the economic development of Chandler? Not exactly, as Richard Williamson describes in an informative article published in The Bond Buyer.  The city appears to be thriving.  It “is in great fiscal health”, it’s “high-tech city hall has won architectural awards and anchors a revitalized historic downtown,” and population has increased 30%, to 240,00 (see slide 10) since the Brewers departed after “relatively contentious” negotiations.  Chandler’s bond rating has increased from AA- to AAA , moving in the opposite direction of sports-intensive Glendale (from AA to BBB-plus).

According to the article, the Brewers are have started discussions with Peoria — to the northwest of Glendale — about developing a new facility there.  The folks in Peoria, already the Cactus League home of the Mariners and Padres, might do well to look at the example set by their neighbors in Chandler.

This is a rare news story where the opportunity cost of stadium investment is vividly illustrated.  Thanks to Adam Pope for sending it.

“Why Wrigley is Suddenly So Empty”

2014 September 3
by Phil Miller

From the Wall Street Journal (HT Mark Stratton):

On a Wednesday night in late July, the Chicago Cubs played the San Diego Padres at Wrigley Field in front of an announced crowd of 30,718. Er, make that in front of 30,718 sold seats. The number of people in those seats was considerably smaller—about 19,000 by one published estimate.

The evening was unusually chilly for midsummer, and the Cubs and Padres were (and are) both well out of the playoff race, but the lagging attendance fits a pattern for the Cubs of late—one that stands in contrast to the surging crowds of the previous three decades, when the team was often equally bad and the weather similarly unpredictable. Since 2009, ticket sales are down almost 6,500 a game. Where have all the Cub fans gone?

It’s because of a change of owners and the subsequent change in objectives.  With the Tribune, the party atmosphere and Wrigley Field were marketed heavily and the company was able to create brand loyalty.

The success of Tribune (which owned Chicago magazine, where I was editor until 2011) reflected a series of smart marketing moves. Among them: The company turned Cubs games into programming fodder for superstation WGN, which introduced the team to a vast national audience. Tribune hired as announcer Harry Caray, a graceless blowhard who nonetheless aroused an enormous fan following. Under savvy marketing chief John McDonough, the club celebrated the glories of lovely but age-worn Wrigley and cycled through a variety of promotions designed to put people in the seats (Beanie Baby days!).

To declare yourself a Cubs fan was to place yourself in a vibrant community—people with the heart to embrace a loser. In the current language of marketing, the Chicago Cubs became a brand with soul, an entity that represented a portfolio of sympathetic qualities, including loyalty, perseverance, humility and tradition.

The new owners, the Ricketts family, has made building a consistent contending team from the minors up, and that has meant gutting the major league roster for minor league talent.  They have been sacrificing current quality for future quality.  The Cubs have definitely been very bad of late, and with the third highest average ticket price of $44.16 according to the article, you have two big ingredients for empty seats.

In the spirit of full disclosure, I am a Cubs fan and have been so since the ripe old age of 19 in 1984 when the Cubs finally made it to the playoffs for the first time since 1945.  There have been some good years and some awful ones.

The past few season have been brutal to watch, but I still try to follow as many games as I possibly can.  But I like where this club is headed.  Starlin Castro and Anthony Rizzo, current injuries not withstanding, look to be solid players for several more years.  Plus the young kids who have been brought up, Jorge Soler, Arismendy Alcantara, the strikeout-prone-but-still-exciting-to-watch Javy Baez, and the surprising Kyle Hendricks give a this Cubs fan a reason to hope.

The Cleveland Browns’ Strategy: Write This Down

2014 August 12
by Skip Sauer

Interesting story in today’s WSJ (ungated). The subtitle is “Why Cleveland Prefers Pen and Paper to Technology; ‘To Write Is to Learn’.” The idea is that active learning trumps passive attempts to absorb information being delivered to you. This resonates with me, as I can remember when I first posted lecture notes on the web. To my surprise, student performance in my Money & Banking course actually dropped. Part of the Browns’ approach is shaped by Coach Dave Mike Pettine’s experience (his father was a high school teacher), and part by academic findings. One recent paper mentioned in the article, “The Pen Is Mightier Than the Keyboard” seems worth checking out.

Written on a keyboard

Judge Wilken’s Decision in the O’Bannon Case…

2014 August 8
by Skip Sauer

in favor of the claim of the plaintiff, Ed O’Bannon. Her determination is that NCAA rules (again) are in violation of antitrust law. Here is the conclusion from her 99 page decision:

CONCLUSION
College sports generate a tremendous amount of interest, as well as revenue and controversy. Interested parties have strong
and conflicting opinions about the best policies to apply in regulating these sports. Before the Court in this case is only
whether the NCAA violates antitrust law by agreeing with its member schools to restrain their ability to compensate Division I
men’s basketball and FBS football players any more than the current association rules allow. For the reasons set forth above,
the Court finds that this restraint does violate antitrust law.

To the extent other criticisms have been leveled against the NCAA and college policies and practices, those are not raised and
cannot be remedied based on the antitrust causes of action in this lawsuit. It is likely that the challenged restraints, as well as other perceived inequities in college athletics and higher education generally, could be better addressed as a policy matter by reforms other than those available as a remedy for the antitrust violation found here. Such reforms and remedies could be undertaken by the NCAA, its member schools and conferences, or Congress. Be that as it may, the Court will enter an injunction, in a separate order, to cure the specific violations found in this case.

The clerk shall enter judgment in favor of the Plaintiff class. Plaintiffs shall recover their costs from the NCAA. The
parties shall not file any post-trial motions based on arguments that have already been made.

IT IS SO ORDERED.
Dated: August 8, 2014 CLAUDIA WILKEN
United States District Judge

This will take some time to digest. Judge Wilken does not pretend that she has the last word on this, but it appears at first reading to be a clear-eyed, monumental decision. Read it, and see where you come down on the issue.

Call for Papers for Missouri Valley Economics Association

2014 July 17
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by Phil Miller

Michael Davis of Missouri University of Science and Technology and I are arranging North American Association of Sports Economists (NAASE) – affiliated sports economics sessions at the Missouri Valley Economic Association (MVEA) conference in St. Louis this October from the 23rd through the 25th.  For those unfamiliar with the MVEA, the relaxed atmosphere and late submission deadline make it a good opportunity for everyone, including graduate and undergraduate students, to present at.

In addition, papers presented at the MVEA conference can be submitted to the MVEA’s journal, The Journal of Economics, MVEA for $25, half off the normal submission fee.

If you have a sports economics paper you would like to present in St. Louis please email Michael a title and full contact information including affiliation, email address, mailing address, phone number, and fax number.  The deadline for submissions is August 12th.  Michael’s email address is davismc@mst.edu .  Here is the NAASE website and here is the MVEA’s website.

Brazil and tourism during the 2014 World Cup

2014 July 17
by Victor Matheson

According to a statement by Aloisio Mercadante, Brazilian president Dilma Rousseff’s chief of staff, “We lost the trophy, but Brazil won the World Cup. He said that according to figures released this week by Brazil’s federal government, the World Cup was a triumph for the country’s transportation and tourism industries.

As reported by CNN, “according to government figures, 1 million foreign tourists visited Brazil during the month-long event, far exceeding its pre-Cup projection of 600,000 visitors coming to the country from abroad. About 3 million Brazilians traveled around the country during the event, just short of the expected 3.1 million.”

If this is true, this would be unprecedented increase in tourism due to a mega-event. Brazil only welcomed 342,000 foreign visitors in total in June of 2012, so an increase up to 1,000,000 would be huge if the data holds up. By comparison, South Africa experienced about a 200,000 increase in international visitors during the 2010 World Cup, Germany experienced an increase of 700,000 overnight stays in 2006, and no effects on tourism could be identified for France in 2008. For the Summer Olympics in Beijing and London, overall travel to Beijing and the UK actually fell during the month of the games compared to the previous year.

While Brazil has been quick to announce their good news, the country has been much less forthcoming with the actual source data. Annual tourism data for Brazil is only available in a form that allows decent comparisons to past periods up to 2012. At this time the World Cup data is only available in limited press releases. Based on the limited data released by the Brazilian government, the event looks like a huge success. Time (and data) will tell whether these initial positive findings hold up.