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?

Predators to give up secret $2m tax subsidy in exchange for new tax subsidy?

Very strange story out of Nashville, where the Predators may be on the verge of giving back some of a $2 million a year subsidy that nobody even knew they were getting.

Under a new lease first agreed to in 2007 in order to keep the team in town, the city agreed to give the team a $750,000 rent break, a share of non-hockey revenue at their arena, and kick back some of the sales taxes collected at hockey games to the Predators owners — an amount projected to total $4.2 million a year. However, the Predators apparently also got the state legislature to pass a bill redirecting sales taxes from non-hockey events to the team — without asking or even telling their city landlords.

Predators CEO Jeff Cogen now says that the extra $2 million a year in cash was vital to the team — “It put the Predators on solid financial standing that there is no risk of them going anywhere” — and simultaneously that not getting the extra $2 million a year won’t hurt the team at all — “It will challenge us to operate more efficiently and we are up for the challenge.” Of course, he also didn’t say that he’d agree to give up all the money without getting something back — only that the team is working on a new deal with Mayor Karl Dean that will involve less taxpayer money. So long as there aren’t any more hidden clauses, that is.

Predators’ lease to blow up on Nashville?

I can only partly make head or tail of what’s going on here, but: Nashville Predators executives are scheduled to meet with city officials this week to discuss whether the team is in default of its brand new lease on the Sommet Center. At issue is apparently a lien the federal government has placed on principal owner David Freeman for non-payment of taxes, and a lawsuit the team has filed against The Sommet Group to get out of its naming-rights agreement on the arena.

It doesn’t exactly make sense that the city would declare the Predators in default of their lease at a time when they’re trying to hold them to it, but the Nashville Business Journal has a bit more of an explanation:

Authority members are adamant that they do not want to force a showdown with the team by declaring a default, seeking $50 million in liquidated damages and eliminating the city’s National Hockey League franchise. The issue is complicated, however, by the fact that the team may have the ability to exercise an early termination clause later this year, which would require a payment of just $20 million.

In short, if the authority does not declare a default and team decides to leave Nashville anyway, taxpayers would be out $30 million.

Two lessons here: One, don’t give teams out clauses in their leases unless you want them to be held over your heads as negotiating threats (as we’ve seen before). Two, the NHL really will let just anybody become a team owner.