Econ 101: The Arena Edition

I’m not an economist but I can fake it when necessary. And it’s necessary for understanding the Dec. 12 election in which Oklahoma City voters will be asked to hand over a billion tax dollars, give or take, to build a new arena that will largely benefit the Oklahoma City Thunder.

Many of the arguments in favor of public subsidies for sports team are economic ones. Most of these assume the team will not come to or stay in our city without such subsidies. They further assume having the team will improve the local economy by bringing people from around the world to see games and by employing people as players, coaches, trainers, and office workers. Those attending games will visit restaurants, stay in hotels, and maybe visit a shop or two. These activities in turn generate taxes that pay for public safety, roads, and schools.

Appealing as these arguments are, both theory and reality show that they are wrong and that the Thunder has insignificant impact on Oklahoma City’s economy.

First, let’s think about how an economy expands. It’s alarmingly simple: you must get people from outside your town to spend money inside your town. Oklahoma has some notable examples, the primary one being the petroleum industry. We are among the nation’s largest producers of oil and gas but not one of the country’s larger consumers. So, when someone in Chicago fills their tank, some portion of the money will find its way to Oklahoma because Oklahoma companies found, extracted, and transported the petroleum to market. That money supports jobs, rural communities, and public services across the state.

Second, let’s figure out whether the Thunder constitutes economic development. The organization does bring money from across the nation and the world as well. Pro sports teams don’t release their financial statements but there’s a decent internet industry making estimates. Combining a few of these, here’s some plausible numbers on OKC’s revenue picture:

• Total revenue is likely between $250 and $300 million in a year, according to Forbes and several other sources.

• Of that, no more than $60 million comes from ticket sales, using ESPN attendance reports and $90 for the average ticket. Adding perhaps $25 million from merchandise and local sponsorships, $85 million [around 40% of revenue] comes from the Oklahoma City area and from those who travel here for games.

• The Thunder organization brings in the rest of the revenue, around $160 million, from broadcast and other national revenue.

If that outside revenue gets spent in Oklahoma City, then it’s economic development. But most of that revenue leaves town. Forbes estimates the team’s pre-tax profit at $50 million. Let’s assume generously that 10% of the profits are spent here; many of the owners are local but few need any additional spending money. So that’s $5 million added to our economy. Of the $200 million to $250 million remaining revenue, the majority – at least $155 million – goes to player salaries. The players also pocket a lot of their money and most spend the offseason somewhere else, but they do live big lives, so let’s assume they somehow drop a million each in town ever year, totaling $15 million if you throw in some coaches. It’s safe to assume that half of the company’s remaining $70 million spending is local, for things like advertising, staff, taxes, and other basic operating needs.

So that totals $55 million [$5 million from profits, $15 million from players, and $35 million from local spending] each year. But remember that the vast majority of the $85 million in tickets, merch, and sponsorships comes from local sources.

If they were to leave over unhappiness with the arena or any other reason, Oklahoma City residents and visitors would still find ways to spend that $85 million, and a lot of it would be spent locally, where it would circulate and quite possibly contribute more to local growth than the Thunder.

So, the Thunder’s net contribution to the economy is minimal and probably negative. Add in another $1 billion of local money for the new arena and it isn’t even close.

Other cities have found that arenas don’t pay off and that there’s little or no economic benefit to having a professional sports team of any kind. A 2022 study summarizes 30 years of research very well [J.C. Bradbury, D. Coates, and B. Humphreys, “The Impact of Professional Sports Franchises and Venues on Local Economies: A Comprehensive Survey,” available at https://ssrn.com/abstract=4022547]. Nearly all these studies find that the value added by the team, including impacts on civic pride and quality of life, is smaller than the cost of public support for the team, so such support is a bad economic choice. A study of new NBA facilities alone, which tend to be smaller and cheaper, found some with positive impacts but more with negative ones.

Even claims that an arena can help certain sectors of the economy or the neighborhood where it’s built aren’t always true. A new arena doesn’t help build the hospitality sector of the economy. In many studies, hospitality employment has been lower after new arenas are built. A 2019 study in Oklahoma City showed that the Thunder boosted sales of restaurants and hotels within a mile of the arena but that sales of other entertainment businesses fell.

The Thunder didn’t increase incomes or employment, it just moved them around.

Having a major league team is a big deal for public officials and chambers of commerce, but the economic impact is less than the egomaniac impact.

A study of major-league sports impacts in every city from the 1960s to the 1990s found that having a team and/or a new facility was associated with lower area income and wasn’t related to income growth at all. Another found that a team leaving or entering the market had no economic impact on either city involved.

There’s some evidence that’s the case with the Thunder. The year the Sonics moved to Oklahoma City, our metro area had 36% of the population of Seattle’s and OKC’s per capita income was 21% less than Seattle’s. Ten years later the population was still 36%, but the income gap had swelled to 34%. The Thunder can’t be blamed for our weak income growth, but if they’re helping, it’s not visible.

The biggest impact of the proposed arena deal isn’t on the overall economy but on who wins and loses. The proposed revenue source – the sales tax – is regressive, meaning that low-income people pay a higher share of their income in taxes than those who make more.

Oklahomans making less than $20,000 a year pay 9% [one in every $11] of their income in state and local sales taxes. Those making $100,000 pay about a third of that amount, 3.6%.

Those who pay the most for the arena will be those who benefit the least. The billionaire owners and millionaire players who enjoy the new digs won’t notice their increased sales tax bill, nor will it matter much to those who attend games. It costs nearly $200 for a family of four to attend a game and sit in the cheapest seats. So, you’ll find a lot more upper-income families than lower- and middle-income families sitting in those shiny new seats.

By design, most Oklahoma City residents won’t participate in a vote that’s a couple of weeks before Christmas and all alone on the ballot. Those who do vote will make their decision based on any number of factors.

One factor that everyone should ignore is the fear that the Thunder owners will take their ball and go to Las Vegas or wherever if they don’t get a new place to dribble it here. Probably, they won’t. If they do, Oklahoma City’s economy will be just as strong and a little more equitable without them.

Vote on your vision of what’s best for your family and community, not the fear factor that’s only important to those who want to reach into your pocket for more tax subsidies.