As a sports nut attending St. Olaf College in rural Minnesota, I jumped on the Timberwolves basketball bandwagon during their peak Kevin Garnett years of 2002 to 2004. But with or without Garnett, the franchise has been hopeless. Between 1989, when the team entered the N.B.A., and this season, the Timberwolves have the worst record in the league.
It might be easy to lay the blame for the team’s woes on the owner, Glen Taylor, or their coaching carousel, but I blame the state. After all, Minnesota’s aversion to winning is not restricted to basketball. In a state synonymous with hockey, neither the Wild nor the Stars (while in Minnesota) has won the Stanley Cup. Same for the Vikings and the Super Bowl. The Twins did win the World Series, but that’s the exception to the losing rule.
Why all the losing? After becoming an economist, I wondered if there might be a more systematic economic explanation. Eventually, after years of research and number crunching, I found the answer. Or at least a culprit: state income taxes.
Minnesota has one of the highest top marginal income tax rates for any state at 9.85 percent. For most normal people — i.e., non-sports nuts — this is a worthy investment in great public services. Minnesota is routinely listed as a place with an excellent quality of life, including a strong public education system and a well-maintained parks system. Some of the happiest people in the country — even some long-suffering Minnesota sports fans — call it home.
To test my theory, I 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. I then computed how much taxes predict winning for each league in every year while controlling for other factors such as population, income, franchise age and local amenities (i.e., weather).
Results of the analysis show that higher taxes consistently predict worse performance in every league — not just the N.B.A. but also Major League Baseball, the N.H.L., and the N.F.L. over the past 20 years. The findings do not change if I use championships or finals appearances instead of regular season wins, and no single city, team or year drives the results.
It’s in the N.B.A. that I find the largest effect. If Minnesota eliminated its income tax, the Timberwolves might win two to five more games each year. This may not sound like much, but the price for victories is quite high. Last summer the Washington Wizards signed Bradley Beal to a five-year, $128 million contract, and if things go well, they should expect him to contribute two to five wins per season. I find a much smaller effect in M.L.B., which has no salary cap, where a similar income tax change for the Twins would result in winning only about one more game each season.
These results should provide some good news for other long-suffering fans in Buffalo, Sacramento, Oakland, Washington, or all of Canada. It’s not your fault (entirely). Your teams have essentially been playing with ankle weights against teams from Florida, Texas, and Washington State. I am also sure that if you ask Jerry Jones and Mark Cuban under oath, they would admit some of the Cowboys’ and Mavericks’ continued success is because their players pay no state income taxes.
Several other factors connect the income tax effect to my theory. Comparing player salary to player value measures provides evidence that higher-taxed teams in baseball and basketball pay more for players of similar quality, suggesting tax compensation is real. The income tax effect also relies on the assumption that players and teams are responding to income tax rates when negotiating contracts. This explains why the effect arises only in the wake of collective bargaining agreements in the late 1980s and early 1990s that allowed players to become unrestricted free agents and have teams compete to sign them.
The income tax effect could also be explained if people in low-tax states such as Texas and Florida just enjoy sports more and support their teams more and this translates to more winning. But I found that in college football and basketball, where athletes are not paid and should not care about income tax rates, teams from lower-tax states do not perform better than teams in higher-tax states.
The gut reaction of die-hard sports fans to hearing that their team is worse off because of income taxes would be justification enough to eliminate income taxes all together. Heck, we might even push for income subsidies instead if it might bring a championship to Minnesota.
But the real solution lies within the salary cap rules intended to level the playing field in the first place. Why not attack the imbalance at the source? Adjusting the salary cap or luxury tax using expected post-tax instead of pre-tax dollars eliminates this competitive advantage.
Do that, and I can return to just blaming the cold weather as the reason the Timberwolves are staying home during the yet another N.B.A. playoffs season.