Tennessee taxes visiting players, gives money to Grizzlies, Predators

Grantland’s Zach Lowe explores the strange case of Tennessee’s jock tax, which unlike most such taxes — which are meant to grab a share of salaries earned by visiting athletes playing in your state — is a flat $2,500 per game, up to a maximum of three games a year. And it only applies to NBA and NHL players. And, in a case of Grantland burying the lede a bit, the tax doesn’t actually go to Tennessee at all:

Except the money doesn’t go to the state — another of Tennessee’s jock tax quirks. It goes to the operators of the [Memphis] Grizzlies‘ arena, who happen to also own the franchise, Klempner says. The state doesn’t see a dime, at least not directly. The theory is that arena operators will use the extra cash to spruce things up, draw more celebrated acts, and spend in other ways that will ultimately bring more visitors and money to the Memphis area.

“The state is collecting this money on behalf of a private entity,” [interim head of the NBA players' union Ron] Klempner says.

The Tennessee jock tax, which also benefits the operators of the Nashville Predators arena (who are, surprise, surprise, the owners of the Predators), was first created in 2009 under somewhat mysterious circumstances: contemporary reports don’t mention that the money would go to the arena operators rather than the state. NBA and NHL players have been griping about the tax ever since, though, and it’s no doubt more of those complaints, from Klempner among others, that prompted this latest Grantland story.

It probably shouldn’t be surprising, in any case, given that Tennessee elected officials already gave the Grizzlies owners a non-compete clause that let them drive a neighboring city-owned arena out of business, plus accidentally gave them a parking garage, and gave the Predators owners $2 million a year in sales tax subsidies without telling their city landlords. Maybe Tennessee newspapers might want to start reading the fine print before these deals are actually signed into law, you think?

Memphis Chamber: Grizzlies arena is Grrrr-eat!

The Greater Memphis Chamber of Commerce has issued a study claiming to show that the public construction of the FedExForum ten years ago to lure the Grizzlies from Vancouver has been a huge windfall for the city of Memphis. As My Fox Memphis reported the story:

The construction of the FedExForum was hotly debated ten years ago but with its opening, came an NBA basketball team, countless college hoops games, and more than 100 special events every year.

The Memphis Chamber commissioned a study that said all of that combines for an annual $223 million revenue generating impact.

“I think that settles the argument of whether of not it was going to be too costly for our community to attract an NBA team here,” said John Moore with the Memphis Chamber.

Uh, yeah, actually not. First off, that $223 million in annual “revenue generating impact” is actually economic activity — the sum total of all dollars spent in and around the Forum each year, including “the impact of all spending by the Memphis Grizzlies, by the operation of the FedExForum, and all visitor spending, as it flows through the Shelby County economy” — meaning that a big chunk of it is the Grizzlies’ $67 million player payroll, even if Zach Randolph never spends a dime of his salary in Shelby County. The actual city and county tax revenues generated by the Forum are far less: $5.3 million a year, or less than a third of the annual cost of paying off the Forum’s $250 million in construction debt.

Reading the report itself, it also doesn’t appear that the Chamber accounted for the substitution effect, meaning that much of that $5.3 million in new tax money may just be cannibalized from other spending that would have taken place in Memphis even without a basketball arena. There’s also no discussion of the opportunity cost of missing out on what else could have been done with $250 million in public bonds — the Chamber estimates that the total number of jobs created by the project is 1,534, which comes to more than $150,000 per new job, which on the economic impact scale is somewhere between “dismal” and “vomitous.” At that rate, the city would have been better off selling bonds to hire more schoolteachers, or just cutting everybody’s taxes by $10 million a year.

On second thought, maybe the study really does settle the argument of whether the arena was too costly. Just not the way Moore meant it.

White elephant watch: Arenas that time forgot

When Memphis’ Pyramid arena was set to open in 1991, sports promoter Sidney Shlenker promised: “It”s going to be a monument like the Statue of Liberty or the Eiffel Tower, a signature for the city. The difference is this will have something to do inside it.”

Mmm, not so much. While the Pyramid was initially home to the University of Memphis basketball team, and hosted concerts and like, all those activities fled to the new FedExForum once it was built by the city to lure the Grizzlies in 2004. Shlenker, who promised to repay the city’s construction bonds on the Pyramid from proceeds of events there, instead soon declared bankruptcy, leaving Memphis saddled with the bulk of the $62 million debt. Now Shelby County is debating whether to sell its share in the empty arena to the city, which would only reshuffle the taxpayer deck chairs, while officials hold out hope that a Bass Pro Shops superstore could fill the building. Of course, that idea has only been kicking around since 2005, and city negotiator Robert Lipscomb didn’t exactly sound optimistic it would get moving anytime soon, saying only of the impending county sale: “Well, it’s always easier when you have to deal with one entity as opposed to two.”

Of course, at least Memphis got 13 years of use out of its arena, which is more than Bradenton, Florida can say. The Gulf Coast town’s arena, originally intended for the Gulf Coast Swords minor-league hockey team, never got any further than being partly built before financing fell through in 2005, and construction halted. Now the site is being put up for auction, and the partly built arena will likely be razed, in part because it no longer meets state building codes for hurricane resistance — ironic given that one reason given for building the arena in the first place was as a hurricane shelter.