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Yes, it’s the first of the year, the time when we start thinking about our own personal taxes with April 15 lurking. But taxes are something that the world of sports thinks about all year round. From ticket taxes to taxes on contracts, it can mean the difference between a good year and a great year, and the difference between a star outfielder going to Texas, or New York.
First, the outfielder: Shin-Soo Choo, a free agent this past offseason, turned down a seven year, $140 million deal with the Yankees, then days later signed a seven year, $130 million contract with the Texas Rangers. Not that $10 million means that much when we’re talking about hundreds of millions of dollars, but why would someone sign for less money?
The short answer: taxes.
The Rangers’ $130 million deal is worth almost $17 million more, since Texas has no state income tax. In addition, the Rangers play a lot of road games in Seattle and Houston, where visiting players aren’t subject to a tax on their earnings. Less money for taxes, more money in Choo’s (and his agent’s) pocket.
In the NFL, being the host for a playoff game not only means home field advantage for the hosts, it also means an opportunity for extra revenue. Taxes on ticket and tourism spending can give a boost to the local economy and visitors’ bureaus as well. A year ago, when the Redskins and Ravens were both in the playoffs (what a difference a year makes!), Maryland enjoyed a double dose of post-season ticket sales and, it was estimated, a combined economic impact of between $20 million and $40 million.
“This is mostly disposable income or entertainment dollars that would have been used in some other way,” said Dennis Coates, an economics professor at the University of Maryland, Baltimore County. “It really represents a shifting of money in the economy, not new money.”
The tickets sold to these extra games means extra taxes to the local governments. For example, each Ravens ticket carries a 10 percent admissions and amusement tax. The Maryland Stadium Authority (MSA) receives 80 percent of that, with the remainder going to the city. The authority’s chief financial officer, David A. Raith, says MSA will get about $400,000 for each regular season game, but more for playoff games, because the ticket price is higher.
The city of Cincinnati and Hamilton County also see a financial boost from an NFL post-season game. A county ticket tax brings in 25 cents to Hamilton County for every ticket sold, which means if the Bengals’ Paul Brown Stadium sells out, the game generates more than $16,000. In addition, the city of Cincinnati collects about $49,000 from payroll taxes on each of the players’ salaries. (During the season, the salary tax is based on one-seventeenth of the player’s paycheck, but in the playoffs, it’s from the actual game check-in this case, $23,000 for each Bengal for winning the division, and $21,000 from each San Diego player for winning the wild card.
As for economic impact, the Sage Policy Group Inc. estimates the impact of a playoff game is around $20 million, on the belief that fans spend more to support a winning team, whether it’s on a hotel or pre-game meal, or a new jersey or shirt to commemorate the event. Also, more fans are more likely to come from out of town to go to a special game, like the NFL playoffs. The University of Cincinnati Economics Center estimates a Bengals home playoff game means an extra $14 million for the local economy.
For a regular season game, a study commissioned by the NFL Players Association in 2010 resulted in a $20 million impact per game. Perhaps more realistic is a University of Minnesota study showing an economic impact of about $9.1 million per Vikings game.
Earning home field advantage is something every team tries to earn. It, more often than not, pays off on the field, and in the local economy.
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