Christmas NBA Game Day is Back: So is Tax Revenue!

Tax News

Following a prolonged lockout that threatened the very existence of a 2011-2012 NBA season, the league is set to open with five high-profile games on Christmas Day. Celtics vs. Knicks in New York, Magic vs. Thunder in Oklahoma City, Clippers vs. Warriors in Golden State, Heat vs. Mavericks in Dallas, and Bulls vs. Lakers in L.A. , headline the December 25 match-ups. While the superstar players need no introduction, we thought it would be interesting to analyze the economic impact of Christmas Day games on the cities involved.

Dollars Per Game

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While no studies have specifically analyzed the economic impact of a single Christmas Day game on a given city, other data gives us an indication. LakersNation.com (citing an Oklahoma City Chamber of Commerce report) states that “every Thunder game pours $1.3 million into the local economy.” This substantial figure is offered as an average, meaning it includes spending and tax revenue for everything from low-profile Tuesday afternoon games against the New Jersey Nets to Friday night thrillers against the Los Angeles Lakers.

On Christmas Day, we can expect that fan interest, turnout, and spending would be considerably higher than average. It’s also likely that the dollars put into the local economy would be higher in a major media market like Los Angeles, Boston, or New York than in a relatively small-market area like Oklahoma City.

Arena Employment

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Another angle to consider are the employees at NBA arenas themselves. Hundreds of workers are needed to serve the many thousands of fans who turn out for Christmas Day games. Per the LakersNation article, “Sacramento officials estimate that its NBA arena employs about 700 workers, including 550 part-time employees.” Many of these employees (like the fans) pay the city for parking fees on game day. They also pay sales tax on food and beverages purchased either at the arena or at nearby stores and restaurants.

On Christmas, arenas are likely to employ even more workers to deal with the expected surge in attendance and fan interest, thus increasing taxes and fees paid by said workers.

City Expenditures

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Though cities undoubtedly reap economic rewards from hosting NBA games, it’s also worth noting that cities spend more money as a result of those games taking place. In a Governing.com article about the impact of NBA games on local tax revenues, Penelope Lemov reminds us that:

“If the basketball team isn’t playing, the city isn’t spending extra money on traffic control and police.”

In other words: the extra tax revenue collected by fans, employees, and teams are offset at least partially by the extra money the city spends to facilitate the games in the first place. Unfortunately most cities do not publicize the exact dollar amounts of these costs, but particularly in big-market cities, they are often substantial.

The Substitution Effect

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Lemov’s interview with Economics Professor, Arthur Fleisher is also quick to remind us of a concept taught in introductory economics courses: the substitution effect. Using the Denver area and the NBA’s Denver Nuggets as an object lesson, Fleisher says:

“Let’s say Denver has 90 percent occupancy, hotels and most rental cars are rented when the Nuggets are here. If they aren’t playing, that opens up space for other visitors. There might be more hotel space and rental cars for visitors who want to ski or do other things here.”

Essentially, this means that no matter how much revenue NBA games generate for a city, those entertainment dollars would likely be spent elsewhere even if the games  were not held. Yet, if we talk about Christmas Day, this sensible argument might not apply. Many of the competing entertainment options (concert halls, ski resorts, etc.) available to consumers during non-holidays are closed on Christmas, leaving sporting events as the only or almost only option.

The Bottom Line

Reasonable estimates have NBA Christmas Day games pouring anywhere from $1 million to $2 million into local economies. These revenues encompass everything from parking fees, food and beverage purchases, to sales taxes. And while these revenues are always offset at least partially by extra city expenditures, it’s worth noting that there are very few competing alternatives for consumer entertainment dollars on holidays like Christmas.

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