Presentation on theme: "Sports Tim Zimmer, Indiana Department of Workforce Development (DWD)"— Presentation transcript:
Sports Tim Zimmer, Indiana Department of Workforce Development (DWD)
Tax Policy and Professional Sports Do State Taxes Influence Performance
Background National Basketball Association –Sports and entertainment enterprise –Annual revenue in excess of $4 billion (5) Revenue –Tickets –Merchandising –TV Distribution of Revenue is Governed by the Collective Bargaining Agreement (CBA) –Currently in negotiation –Hard Cap (in relation to many other sports)
Background Salary Cap –CBA (governs split of league revenues) –Cap provides maximum that a NBA franchise can spend on salaries Salary Cap Helps Mid/Small Market Teams? –Limits large markets –Contributes to parity of play More exciting games, more exposure, and higher attendance Higher probability of playoffs –Does it work? Kaplan, 2004 (3) Rosen and Sanderson, 2001 (7) Szymanski and Kesenne, 2004 (9)
Background Salary Cap Emphases Other Incentives –Examine other influences on team success Do State Taxes Influence NBA Team Success? –Alter incentives in the accumulation of talent Players Coaches Management
Variables / Data 11 Years of NBA Team Performance Data –Team winning percentage –2000 through 2010 (6) 11 Years of State Income Tax Data –2000 through 2010 (10) –Top marginal tax rate included –Canadian team excluded –One team moved, new state tax rates applied –Lagged one period as decisions are make prior to season Lagged Team Success –Prior success and stable teams –Lagged 3 periods
Variables / Data Coaching Change –Binary for season of coaching change Lagged Coaching Change –Binary lagged one period –To account for time needed for adoption on new schemes Lagged Coaching Change –Binary lagged one period –To account for time needed for adoption on new schemes Yearly Binary Variables
Variables / Data Draft Squared –Drafted players can alter team –1 st pick award 30 points decreasing by 1 for every subsequent pick –Points are then squared Reflects the non-linear nature of decreasing player ability in the short term Lagged Draft Squared –Allows for player maturation Metro Size –2000 Census (11) –Free agents and the lure of Bright Lights/Big City? Player Injury –Assumed normally distributed in large sample
Variables / Data Summary Statistics (non binary)
Methodology Ordinary Least Squares (OLS) Winning Percentage for NBA Team is Estimated Using the Following Model
Results Year –Insignificant Lagged Winning Percentage –1 st most significant and positive –2 nd less significant and positive –3 rd significant and negative Parity and limited window? Coaching Change –Significant and negative –Lagged coaching insignificant
Results Draft –Insignificant –Lagged insignificant Metro –Insignificant State Income Tax –Significant and negative
Conclusions Results Indicate –Prior years are good predictors With possible parity effects taking hold in third year Small window of opportunity –Coaching change seen as negative in short term –State Income Taxes Negatively Influence Winning Percentage Affect a NBA Franchises to acquire ability in Management/Owners, Coaching and Players If Parity Is Desired Outcome –NBA could adjust individual team salary cap with index to compensate for taxes and/or cost of living CBA implications
Next? Method Transmission –Management/Owners –Coaching –Players Through Free Agency? – Choice Modeling Study concluded with 2010 data –Who made 2011 Finals? What was the common link?
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