How People Who Don’t Like Basketball Support the Kings

Readers of Henry Abbott’s TrueHoop blog might have seen the following today:

Writing about the deal to keep the Kings in Sacramento, at great expense to the city, Dave Berri notes on the Freakonomics blog that 85 percent of economists agree that state and local governments should not subsidize professional sports. Then he explains that “professional sports in North America have evolved into a very odd industry. Typically we tend to think that firms need capital and labor to produce goods; and owners of the firm are responsible for providing the capital. But in sports, much of the capital is provided by the state (see the Baade and Matheson study for how much the public subsidizes professional sports arenas and stadiums). Given this trend, what are the owners providing? In other words, why does Sacramento need the Maloofs (the “owners” of the Kings)? It certainly doesn’t appear to be for managerial expertise.”

My comment at Freakonomics focused on how the NBA is able to get people who do not like basketball to contribute to the sport.  There have been a number of comments at Freakonomics, but I thought I would highlight three observations Andres Alvarez passed along this afternoon.

1. If the city was going to invest in a business to “help the economy” why would they invest in a bad one? It seems odd to ask taxpayers to pay for a business that has been doing terribly and shows no signs of changing.

2. A commenter at Freakonomics made the point people are irrational about sports. He even posited if they split the cost and asked taxpayers to each pay up $250 to save the team, he would gladly pay. Why not do this? If this for the fans and uses public money, why not just say “How many of you are willing to pay an extra X hundred a year for this team?” 

3. Final note: NBA has incentive laden contracts. Why not just build that in? We’ll finance the stadium and IF we see an X growth as your economists projected then good. If not then it’s a loan we expect interest on.

I would add… this entire story illustrates how the NBA uses its monopoly power to extract money from cities.  And this is similar to how the NBA uses its monopsony power to extract money from its players.  Yes, power does matter in negotiations.

– DJ