However, as hard as it may be for Saint Louisans to hear, the report had a lot of truth in it, especially regarding Saint Louis’s economic situation. The statement rightfully points out (as we at the Show-Me Institute have written) that, when it comes to population and jobs, Saint Louis really has fallen behind and has yet to turn things around. Saint Louis City has lost much of its population; the city had around 750,000 residents in 1960, and today it’s close to 300,000. From 2000 to 2010, Saint Louis City lost population and Saint Louis County essentially stagnated.

Most of the population growth during that time was in the far suburbs and downtown (which received significant subsidies), and overall, population was stagnant.

The story is equally depressing when it comes to job growth. Saint Louis had anemic employment growth before the recession, and the economy has limped along since then. Despite claims of becoming a tech center, Saint Louis (and especially Saint Louis City) has seen nearly all its employment growth in education and medical services. For these and other reasons, economists (and not just those cited in the statement) forecast continued slow growth in the future for Saint Louis.

The Rams’ statement also claims that the other teams trying to move to L.A. (the Oakland Raiders and San Diego Chargers) would leave healthier economic markets. In this, the team is not wrong. Income and GDP of both Oakland and San Diego are much greater than in Saint Louis. They have more money to spend on tickets, jerseys, and NFL cable packages:

In addition to how things stand today, one has to factor in growth. Even accounting for the deindustrialization of the late 20^th century, Saint Louis is growing much more slowly than San Diego and Oakland.

 While Saint Louis aspires toward building a tech industry, Oakland is a rapidly gentrifying part of the tech-dominated Bay Area economy, and San Diego has the one of nation’s most important bio-tech clusters.

There are many possible culprits for Saint Louis’s lackluster growth, and few easy answers. However, it’s time for Saint Louis to be honest and acknowledge that, yes, of the four markets in play, Saint Louis is the least attractive for the NFL. We also have to acknowledge that without significant public financial “support,” no existing NFL team would consider locating to Saint Louis. But the city’s economy— not Stan Kroenke—is  the real problem. It’s that problem, which affects so much more than sports, that policymakers need to address.  

The post The Unfortunate Truths Behind Rams’ Relocation Statement appeared first on Show-Me Institute.

The battle for the L.A. market is joined! According to NBCSanDiego, the Chargers are working with the Oakland Raiders. Their goal: a new stadium in the L.A. area (Carson, California, to be precise). Of course, their home cities can talk them out of it, for the right price.

It’s not shocking that teams other than the Rams might want to move to Los Angeles. L.A. is the country’s second largest media market, and with that comes a lot of TV money. However, still color me skeptical about the whole thing. I think (and I’m not alone) this is more of a ruse for the Chargers and the Raiders to extract sweetheart stadium deals from their home cities. The Chargers have been trying to get a workable proposal from San Diego for the past 14 years. They’ve even recently published some remarks to the San Diego stadium task force regarding what it wants in any new proposal. Needless to say, it’s quite a lot.

I think the Rams’ L.A. proposal is more serious. Why? Because of Stan Kroenke’s silence regarding the Rams’ latest proposal, or anything for that matter on what exactly he wants in order to stay in Saint Louis. The Chargers are giving San Diego an idea of what it is they’re looking for in a new stadium, Mr. Kroenke isn’t.

No matter the likelihood of the Chargers’ or the Rams’ proposals succeeding, I think that neither team should receive public subsidies. If billionaires want new stadiums, they should pay for them themselves. I don’t think taxpayers should get the bill, especially since there won’t be any economic return to them for doing so.

L.A. seems to be the place to go to for teams that can’t get a new stadium. Will policymakers be scared into throwing more money at teams in an attempt to prevent them from leaving? Maybe, but that doesn’t make it a good idea.

The post The Great L.A. Gambit appeared first on Show-Me Institute.

Don’t look now, but there’s a land rush for the Los Angeles pro football market. Saint Louisans will already be familiar with Stan Kroenke’s plan to move the Rams to a stadium in Inglewood. But now the San Diego Chargers and Oakland Raiders, unhappy that their localities are not coughing up public funds for new stadiums, are also publicizing a plan to move to L.A.

Three teams will not be playing in the Los Angeles metropolitan area, but it allows all three franchises to simultaneously frighten local politicians into spending public dollars on a stadium. From an owner like Stan Kroenke’s point of view, it’s a win-win scenario. If the NFL allows him to move the Rams, his team will instantly gain $1.5 to $2.5 billion in value. And if he can’t (or never wanted to), Missouri has already planned to fund half the costs of a new stadium without any negotiation at all.

For Missourians, local officials have essentially locked residents into two possibilities: 1) approve around $400 million in public dollars for a new stadium, or 2) lose the Rams. Of course, the Rams might move regardless and Kroenke might demand more than $400 million to stay, but that’s what comes from committing the state to half the costs as the opening offer.

This situation is a perfect example of how poorly local officials fare when they bargain for taxpayers against billionaire-owned sports franchises. Where Stan Kroenke can credibly appear ready to leave the Saint Louis market without firm public subsidies, local officials declare how necessary the Rams are to the state. While Kroenke can strengthen his position and fail to negotiate, local officials need to be seen as trying their hardest to make sure Saint Louis is an “NFL city,” even when that means negotiating against themselves.

In essence, Stan Kroenke can look at this like a business negotiation. But local politicians are not spending their own money and have to be concerned about portraying an image of effectiveness and bolstering civic pride, making them poor bargaining agents for regional economies.

Even when there is no threat of a team leaving a lucrative market, pro teams can still reap public subsidies by threatening to move to different municipalities in the metro area. While it might not hurt the Chicago regional economy one bit if the Bears played in Rosemont (a nearby suburb), it would hurt the city’s tax revenue as recreation dollars flow to a different part of the region. Whether the team’s option is moving across the country or the county, pro franchises almost always have the best alternative to a negotiated agreement vis-à-vis local governments.

The best bargaining tool local officials can have is a skeptical voter base that understands that pro franchises do not create economic development or urban regeneration. Residents can vote against public dollars for entertainment venues. That constrains the local officials and sends a clear message to the NFL that Saint Louis is a great sports market, not a great mark.

The post Why Cities Are Bad at Bargaining With Sports Teams appeared first on Show-Me Institute.

Like most people, NFL players have to pay taxes on their income. A team located where income tax rates are lower theoretically could offer contracts that are lower in nominal dollars but allow the players to receive higher take-home pay (for the purposes of this post, I am not taking into consideration deductions and tax loopholes, nor am I factoring in cost-of-living adjustments).  Which team’s players have the lowest income tax burden in the NFL? Well, there a couple of things to consider. First, what is the state and local income tax rate for where the players play their eight home games? Next, what is the state and local income tax rate for each of the team’s divisional foes (the players will travel for a road game against each of their divisional opponents)? The other games on a team’s schedule change from year to year, so the combined burden the players face will change somewhat from year to year.

So, for the 11 games (out of the 16 total) that a NFL team has on its schedule every year, is there a noticeable difference between the income tax burdens that the players on different teams face? From my calculations, there is (basic calculations —I only used the top marginal rate, so these numbers do not take into account the lower rates for the lower brackets and these numbers are slightly higher than they really would be). Take, for example, the Houston Texans. A team member who plays a game in Houston would pay no income taxes at either the state or local level. Therefore, for the eight games played in Houston, a Houston player will pay no income taxes. A Houston player will pay no income taxes for the road games in Jacksonville and Nashville, and $1,973.13 for the one game in Indianapolis. Therefore, the total income tax burden for a Houston Texans player making the median salary for these 11 games is $1,973.13. In contrast, a NFL player making the median salary would face a state and local income tax burden of close to $46,000 if he played for the Oakland Raiders (9.3 percent tax rate for eight games in Oakland and one game in San Diego plus the 4.63 percent and 7 percent rates for the games in Denver and Kansas City, respectively). Multiply that figure by 53 (the total number of players on the active roster) and the burden on a team’s players can increase substantially. If you used the mean salary ($1,900,000) instead of the median salary, the burden also increases.

Would this tax burden make much of a difference? I cannot say definitively (I am not an economist), but if one team had to pay a couple of million dollars, which counts against the cap, to just the income taxes, while another team only paid $100,000 or $200,000, I can tell you which team I would rather own.

The post Another Way To Keep Score? appeared first on Show-Me Institute.

You see, unlike most industries, where workers are free to solicit offers from a range of potential employers before choosing the one most to their liking, NFL teams have a collusive agreement: Only one NFL team at a time may negotiate with the best of the rookie class. This relieves teams of the need to bid against each other for these young players, meaning that the players are stripped of most of their bargaining power when negotiating their initial contracts. However, the practice has also resulted in unanticipated negative consequences for teams. Thus, the limitations that the current NFL drafting system imposes on teams and rookie players distorts the laws of supply and demand, resulting in an inefficient allocation of resources.

If you will, join me in a thought experiment. Several teams this year would like to add a promising young quarterback to their roster. Right now, the Rams are in the best position to do so because they hold the first pick in the draft — and they are widely expected to select Sam Bradford, a Heisman Trophy-winning quarterback out of the University of Oklahoma. If another team (such as the Cleveland Browns, Oakland Raiders, or the Buffalo Bills) wants to be sure it has a chance to secure Bradford’s services, their only option is to negotiate a trade in which the Rams would give up the number one draft slot in exchange for players and/or draft choices offered by the other team.

Why would the Browns, Raiders, or Bills make this trade? Because they place a certain value on obtaining Bradford as a player. The problem is, even though Bradford’s particular skills and attributes are the reason he is so highly valued, he will not personally get to realize the return on the value he offers. As I point out below, Bradford’s rookie contract will have roughly the same parameters, regardless of which team selects him. But a team that trades up to get him would, by doing so, demonstrate its willingness to pay not only the size of that rookie contract, but all the additional costs that they would be sinking into the trade. And the recipient of the additional largess would not be the individual creating the value, but rather the Rams, whose only contribution to the transaction was being a particularly awful team last season. This arrangement is clearly not fair to Bradford.

But even if the Rams valued Bradford most highly, it is extremely unlikely that he could maximize the value that should result from demand for his services. As the draft system currently exists, there is an informal pay scale imposed on teams and players that depends on the slot in which a player is drafted, rather than the value that the team believes it will realize as a result of employing the player. The pay scale is determined both by a set, limited amount of “rookie pool money” and the contracts signed by the previous year’s set of rookie players. Very rarely can either teams or players deviate from this pay scale, although it is not uncommon for them to try.

Last year’s draft provides an excellent example. Matthew Stafford, the first player selected in 2009, signed a contract guaranteeing him more than $41 million. The Rams drafted second and ultimately agreed to pay Jason Smith $33 million. Kansas City chose third and guaranteed Tyson Jackson $31 million. These transactions demonstrate how the pay scale usually works. But interesting things then happened with four of the next six players selected. The Seattle Seahawks, picking fourth, chose Aaron Curry, a player many regarded as being the best in the draft and a potential number one pick. The Seahawks ultimately ended up guaranteeing Curry $34 million — more money than either the second or third players selected. In the meantime, the Oakland Raiders used the seventh pick in the draft to select the first wide receiver taken last year, Darrius Heyward-Bey. This was a highly unusual pick for two reasons: First, most experts figured Heyward-Bey to be only the third- or fourth-best receiver available. Second, the Raiders guaranteed him $23.5 million — significantly more money than would normally be expected for the seventh selection in that draft. Heyward-Bey’s contract had a direct effect on contract negotiations for two other rookie players. The Cincinnati Bengals selected Andre Smith with the sixth selection, and, after Heyward-Bey signed, Smith demanded to be paid more money than the player selected after him. Meanwhile, the San Francisco 49ers had used the 10th overall selection to take Michael Crabtree, who was almost unanimously considered to be the best wide receiver in the draft. Despite being selected three spots lower than Heyward-Bey (and, despite Heyward-Bey’s unusually large contract), Crabtree demanded to be paid as though he were the first receiver selected.

Both Andre Smith and Michael Crabtree ended up refusing to report to their teams (the only kind of real leverage afforded to rookie players) in order to get the kinds of deals they wanted; neither was ultimately successful. Smith missed several weeks of training camp before settling for $21 million guaranteed — which, accounting for the fact that he signed a four-year contract rather than the five-year deal more commonly given to high draft picks, is about what would have been expected given the slot in which he was selected. Crabtree, on the other hand, refused to join the team until well into the season, eventually signing for a guaranteed $17 million — slightly less than was given to the player selected ninth, and slightly more than was given to the player selected 11th. In both cases, the negotiations that resulted from the NFL draft and its resulting “slotting” system cost both the players and the teams weeks of distraction and invaluable time with which to prepare for the upcoming season.

A much more efficient system would have the teams bidding against one another. The most-desperate team would likely secure the player most likely to meet their needs because they would be willing to sacrifice more than any other team to sign that player. A slightly less-desperate team would be able to sign the next-best prospect, and so on, until teams were no longer willing to pay the amount a player demanded. Thus, players would realize the full market value resulting from the demand for their services, and teams would be able to maximize their utility by focusing on the players they most wanted to employ, rather than just those who happened to remain on the draft board. Freed from the restrictive confines of the “slotting system,” teams and players should be able to come to mutually agreeable contracts well before training camp begins, eliminating the hassles and lost opportunities that result when teams and players are limited in their freedom to negotiate with other prospective partners.

The law of supply and demand maximizes efficiency in free markets — and the NFL could help to maximize its own efficiency by abandoning its current, anti-competitive labor model in favor of a model more closely resembling a free market.

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