Fear and loathing in Seattle

NBA commissioner David Stern is putting the screws to Seattle in his attempts to get the community to provide taxpayer subsidies that are lucrative enough to keep the team from departing the “Emerald City” to even greener fields in Oklahoma.

Stern blasts city officials and the overwhelming majority of voters in the city for passing a law requiring (gasp!) that any funds used to help build an arena earn the same rate of return as a treasury bill. “That measure simply means there is no way city money would ever be used on an arena project,” Stern said. Effectively, Stern has just confirmed what sports economists have known all along: taxpayer spending on sports infrastructure is unlikely to provide significant returns on the investment.

In addition, Stern also said that “if the team moves, there’s not going to be another team there, not in any conceivable future plan that I could envision.” Of course, he can’t possibly mean this. The Big Four leagues are full of stories of cities that lost teams and then regained them including New York, Milwaukee, Seattle, and Washington in MLB, Charlotte and New Orleans in the NBA, Denver and Minneapolis in the NHL, and St. Louis, Oakland, Cleveland, Houston, and Baltimore in the NFL. (I certainly may be missing some other examples here.)

Indeed this is a classic example of the time inconsistency problem for which Finn Kydland and Ed Prescott (my graduate school macro professor!) won the Nobel Prize in 2004. Stern would like to threaten Seattle with the permanent loss of their NBA team in order to secure taxpayer concessions now. But should the team move, the NBA has every reason to want to back off its previous threats and relocate a team back into to the area due to the size, location, and income levels of the city. Even having lost a team, Seattle will likely remain a better candidate for a successful franchise than smaller and poorer cities such as New Orleans or Memphis. Certainly Seattle should not fall for Stern’s bluster.

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Author: Victor Matheson

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