The Oklahoma City boondoggle
The Oklahoma City Thunder and its fans have made Clayton Bennett and the other owners of the NBA team extraordinarily wealthy.
Bennett purchased the franchise, then called the Seattle Supersonics, in 2006 for $325 million. He moved the team to Oklahoma City in 2008, where it became one of the NBA's most compelling franchises. The Thunder drafted two future league MVPs, Russell Westbrook and James Harden, to play alongside superstar Kevin Durant, and the trio made a run to the 2012 NBA Finals. Since 2020, the team has undergone a successful rebuild, acquiring multiple talented young players, including All-Star Shai Gilgeous-Alexander, along with a massive stockpile of future draft picks. They are, by some accounts, the NBA team with the brightest future.
Today, the Oklahoma City Thunder are worth an estimated $1.875 billion and generate income of about $130 million annually. Those figures are likely to increase after the NBA negotiates a massive new television contract next year, which is projected to be at least twice as lucrative as the current deal.
For Bennett and the ownership group, however, this isn't enough. He is demanding massive new subsidies from the taxpayers of Oklahoma City. If the city refuses to pony up, the implicit threat is that Bennett will move the team to a city that will meet his demands.
Currently, the Thunder play in the Paycom Center, which was built in 2002 at taxpayer expense. When the NBA franchise moved to Oklahoma City in 2008, the city approved over $100 million in improvements, including a "new $3.9 million scoreboard," upgraded "restaurants, clubs, suites," and new locker rooms. In 2019, the city approved another $115 million in improvements, adding 70,000 square feet to the facility for "more restaurants, premium ticket amenities and expansion of the top level ‘Loud City’ concourse." The money would also finance a $10.3 million new practice facility for the team, new seats, and a new scoreboard.
About $70 million of those improvements were put on hold in 2022 when the Thunder ownership indicated they were no longer interested in renovating the Paycom Center. Now, Bennett and the other owners want a brand new arena. In July, Oklahoma City Mayor David Holt (R) warned that the team could leave if the city didn't build the new facility. Bennett originally moved the team from Seattle in 2008 after the city rejected similar demands for a new publicly financed arena.
Previously, Holt said that Thunder ownership had committed to make a "significant financial contribution" to the new arena. Last week, however, plans for a new $900 million arena for the Thunder were finalized. The team contribution would be just $50 million, with taxpayers footing the remainder of the bill. That's about $3,200 for every Oklahoma City household.
Holt claims building the arena would not require imposing new taxes. But that is misleading. The plan calls for a six-year extension of a one-cent per transaction sales tax, which was previously scheduled to expire in 2028. Moreover, the existing sales tax, known as MAPS 4, funds a variety of programs that benefit the city. Initiatives currently financed by the sales tax include:
A "permanent location for the Oklahoma County Diversion Hub," an alternative to incarceration for low-level offenders.
A Family Justice Center, "dedicated to helping survivors of domestic violence and sexual abuse."
"A business support center to help accelerate growth for minority-owned small businesses."
Bus Rapid Transit for underserved communities.
A new Oklahoma City Animal Shelter.
Crisis centers for mental health, addiction, and affordable housing.
Upgrades of 105 neighborhood and community parks.
Four new youth centers with afterschool and summer programming.
Under the proposal, all of the funding currently backing these projects will be diverted to the Thunder's new arena. That means Oklahoma City will either have to stop financing these kinds of programs or raise taxes.
The plan for the new Thunder arena will be formally presented to the Oklahoma City Council on September 26. It requires a majority vote of the nine member council, which includes the mayor, to advance. Some council members are already voicing their concerns. "There are a lot of other things that we can do with that penny that are critical infrastructure needs," Oklahoma City Councilwoman JoBeth Hamon (D) said. "I think we have a lot of competing needs in this city that regular everyday residents have expressed to me that we prioritize, and none of them include almost $1 billion toward subsidizing a new arena."
Several other council members, including Republicans Barbara Peck, Todd Stone, Matt Hinkle, and Mark Stonecipher, have been publicly supportive of Holt's efforts to strike a deal with the team. If approved by the Council, the sales tax extension will need the approval of the majority of Oklahoma City voters in a special election tentatively scheduled for December 12.
Welfare for multi-millionaires
Several new NBA arenas, including the Golden State Warriors' $1.4 billion Chase Center and the Los Angeles Clippers' forthcoming $2 billion Intuit Dome, have been 100% privately financed, a reasonable approach for profitable businesses owned by very wealthy people. Other NBA owners have secured public financing for new facilities. But even compared to these teams, the Thunder deal stands out.
The $863 million Little Caesars Arena, home of the Detroit Pistons since 2017, was built with 63% private funds and a 37% public contribution. The $558 million Golden 1 Center, home of the Sacramento Kings since 2016, was built with 51% private funds and a 49% public contribution. The $524 million Fiserv Forum, home of the Milwaukee Bucks since 2018, was built with 33% private funds and a 67% public contribution.
In contrast, at least 94.5% of the cost of the Thunder's new arena would be paid for by taxpayers. And it could be even more. The arena would cost a minimum of $900 million, but these kinds of projects often go over budget, and any overages would be paid for by the public.
The economics of publicly-financed arenas
Massive public subsidies for popular sports teams are typically justified in terms of the economic impact on the city. The argument is that the expenditures pay for themselves by generating economic growth and tax revenues. The data, however, does not support these claims.
An analysis of 130 studies of the economic impact of publicly financed sports venues, published in February 2022 in the Journal of Economic Surveys, found "very limited economic impacts of professional sports teams and stadiums." Even after "non-pecuniary social benefits from quality-of-life externalities and civic pride, welfare improvements from hosting teams tend to fall well short of covering public outlays." As a result, "large subsidies commonly devoted to constructing professional sports venues are not justified as worthwhile public investments."
A report by the Federal Reserve Bank of St. Louis explains that public funds can generate new revenues for a city only if "the funds generate new spending by people from outside the area who otherwise would not have come to town," or if "the funds cause area residents to spend money locally that would not have been spent there otherwise." In practice, neither of these situations are common. The report found that tourists who attend sporting events are often "in town on business or are visiting family and would have spent the money on another activity if the sports outlet were not available." Locals, on the other hand, usually have a finite amount of money to spend on entertainment and divert money from other activities to sporting events. For example, a "family that buys hot dogs, peanuts, and popcorn at the game would have otherwise spent that money at some other local business, perhaps going out to dinner or a movie."
According to the Michigan Journal of Economics, the economic value of job creation in new stadiums "tends to only go to a few with massive salaries," like star players and coaches. The rest of the jobs are part-time, low-paying positions to maintain and operate the facility. The money spent on sports venues crowds out "public work projects that have a real multiplier effect like by improving infrastructure."
Holt has been claiming that "the direct annual economic impact of the Thunder" is "$600 million and 3,000 jobs." But he has not released the study behind those numbers, which seem wildly out of sync with similar studies of sports teams. A study commissioned by the State of New York, for example, found that the Buffalo Bills generated $25 million a year in additional tax revenue, with most of the money ($19.5 million) coming from state taxes paid by players and coaches. The tax dollars generated by new stadiums often fall well short of the public costs.
Demands for public financing of sports venues are not based on economic reality but, according to the Berkley Economic Review, are a "power play used by these influential teams on local communities that are emotionally attached to sports teams."
We had a similar experience with a baseball stadium in Philadelphia. They put it as a referendum on an election ballot, and it was overwhelmingly defeated. "They" decided that people did not understand the question, reworded it, and put it on the next ballot. Again it was overwhelmingly defeated. At that point, they decided that people were "voting against their best economic interests" and built the stadium anyway. As is usually the case, the athletes and team owners have benefited financially. The rest of us? Not so much.
Similar story here in Atlanta with the Braves baseball franchise. Moved the entire setup in a middle of the night deal from Turner field (South of downtown) to a northern suburb (now called Truist Park) with no public transit access.
It was a sordid sad story. This country is filled with shameless little mini oligarchs.
Thanks Judd...great story and eye opening.