Column: Do Taxes Affect Winning In Professional Sports?May 18, 2017
“There are three kinds of lies: lies, damned lies and statistics.”
Attributed to many.
The phrase quoted above is often used to describe the persuasive power of numbers, particularly the use of statistics to bolster a weak argument. Which brings us to Erik Hembre, Assistant Professor of Economics at the University of Illinois at Chicago.
Dr. Hembre grew up in the great state of Minnesota rooting for his favorite team, the NBA’s Timberwolves. The ‘Wolves entered the NBA in 1989 and since their inaugural season they have the worst record in the entire league. The ‘Wolves aren’t the only professional sports franchise in Minnesota without a championship. Neither the NHL Wild – or their predecessors, the Stars – nor the NFL Vikings have ever won their league title. The only exception is MLB’s Twins who won World Series titles in 1987 and 1991.
As an Assistant Professor, Dr. Hembre, like all junior members in academia, is required to conduct research in order to obtain tenure, the equivalent of lifetime employment. For one of his research projects Hembre concocted a theory that goes like this: His favorite team has never won a league title; Minnesota has one of the highest marginal tax rates in the country at 9.85 percent; ergo, the Timberwolves’ failure to win an NBA title is due to the high income tax rates assessed in Minnesota.
Then Hembre set out to prove his theory by - you guessed it - using statistics. He gathered data on the outcomes of every professional sports game over the past 40 years as well as data on state and local tax rates each team member faces. Then he attempted to compute how much taxes predict winning for each league in every year while attempting to control for other factors such as population, income, franchise age and weather.
If that all sounds confusing, it’s SOP – standard operating procedure - in the hallowed halls of academia. But as Shakespeare said in Hamlet, therein lies the rub. There are two types of research: The kind that will earn you tenure and the kind you can use. The former, by definition, is useless. Hembre’s results, that higher tax rates consistently predict worse team performance in not only the NBA but in every major league team sport - MLB, the NHL and the NFL – are not only unsupportable, they make no sense. And we don’t need statistics to prove it. A little common sense and a quick glance at the record books will suffice.
California has the highest marginal tax rate in the country at 13.3 percent. But that exorbitant rate didn’t prevent the Los Angeles Lakers from winning 11 NBA titles since 1968-69, the first year after they moved from – oops! – Minneapolis. Nor did it prevent the San Francisco Giants from winning three World Series in the past seven years; or the San Francisco 49ers from winning five Super Bowls since 1989. Not to be overlooked are other California professional sports teams – the Anaheim Ducks, San Diego Chargers, Oakland A’s and Raiders, Los Angeles Dodgers, Kings and Rams, Los Angeles Angels of Anaheim, and Golden State Warriors - that have won league titles, in some cases, multiple titles.
Hembre ignores another fact: The law requires athletes to pay taxes in the state where their income is earned, not necessarily the state of their residence. Athletes on Minnesota teams pay tax on half their salary to foreign states, some with higher tax rates than Minnesota, some lower.
Here’s a novel theory: Winning has more to do with team ownership, management, coaching and talent than it does with lower tax rates.
As a card-carrying member of academia, I’m not here to bash a fellow academician. In fact, I’m not embarrassed to say that Dr. Hembre has probably forgotten more about statistics than I’ll ever know. What I do know is that statistics are no substitute for facts and common sense. In the absence of both, statistics become nothing but lies.