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How To Predict Every NBA Championship With 91% Accuracy

The NBA playoff picture has been set and a cast of familiar teams have once again returned to the 16-team race for an NBA title. Lots of blogs and articles will preview the playoffs and use a mountain of statistics to try and convince you why one team will prevail over another. So which basement blogger do you believe and how do you pick which team out of those 16 will emerge victorious? Easy. Pick a team from a major market (New York, Chicago, LA) or a team from a state with no income tax (Texas, Florida or Tennessee).

Why would I suggest those franchises? Because even though they only comprise 36% of the teams in the NBA, they make up 50% of the playoff teams this year and have won more than 91% of the championships over the last 23 seasons (there's a stat SportVu will never give you). In fact, the only two teams outside of that group to win a title since 1991 were the Pistons (2004) and the Celtics (2008). You could actually narrow it down further to just the Lakers, Bulls and teams in Texas and Florida, but I do have a theory as to why these 11 franchises dominate the NBA.

No other team sport can consistently see one player make as profound an impact on a franchise as basketball. There are only five players on the court at any given time, so one superstar player can make a tremendous difference. As such, free agency becomes all the more important to NBA teams, not just in their ability to attract top talent, but retain it.

When free agency rolls around, players often have a short list of teams they are considering. For almost every superstar player, at least one (and usually more) of the teams they are looking at are located in New York, LA, Chicago or an income tax-free state. Why is that? There are multiple reasons, but let's start with the basics.

Places like Los Angeles, Texas and Florida are warm all-year round or at least warmer than places like Toronto, Indianapolis or Boston. The thought of living in New York, Chicago or Los Angeles may also be more appealing to a typical single NBA player in his early-20s, than a place like Portland or Salt Lake City. However, a major reason may be financial. While the cost of living may be high in major markets, that isn't necessarily the case in Texas and Florida. Weather, quality of life and the cost of living are all small potatoes compared to the financial impact of playing in a major market or an income tax-free state.

If a player is offered a $50 million dollar contract, that could cost them nearly $4 million in state income taxes if they play in cities like Charlotte, Milwaukee or Minneapolis. While the state income tax rate in New York and California is significantly higher, Los Angeles and New York offer other advantages in the form of endorsements. Players on those teams have far more opportunities to earn money (and more of it) outside of their basketball contracts, than players in cities like Denver, Cleveland and Sacramento.

It's not a coincidence if it's been going on for more than 20 years and in the NBA, that is definitely the case. Sure, a team like Oklahoma City may rise up at some point and win a championship, but even when they do, it's a long shot. If some of their key players are free agents after that season, it is unlikely to be repeated anytime soon.

How does the playing field get equalized? I don't think the answer is telling taxpayers to spend money building a new arena. However, I do think it would be interesting to see what would happen if a state like Arizona decided to create enterprise zones for their professional sports teams, exempting those players from paying state income taxes (they're only paying 4.5% in Arizona right now). They already have an attractive climate. Could a tax break be the difference-maker for a franchise that has never won an NBA title in it's 46 years in the league? Does that seem crazy and counter-intuitive to give tax breaks to some of the wealthiest residents of the state? Consider the following:

  • If the recent sale price of the Milwaukee Bucks (the least-valuable NBA franchise) is any indication of the value of an NBA franchise, how much would a city or state be willing to offer in incentives to attract, retain or help grow a business already worth $550 million?
  • Under the current model used to build many new stadiums and arenas, taxpayers in many cities are stuck with paying at least a portion of the cost. In Detroit, taxpayers may be on the hook to the tune of $270 million for a new hockey arena.
  • If the Phoenix Suns payroll is about $58.6 million and 4.5% of that goes to state income tax, we're talking about roughly $2.6 million per year. If attracting and retaining free agents has proven to be an effective way to win an NBA championship, would a city rather spend $270 million or more on a new arena or "lose" $2.6 million a year in tax revenue to accomplish that goal?
  • If they do end up with a championship-contending team at least a portion of that $2.6 million tax loss will be recovered in tax revenue from incremental sales of all kinds associated with increased attendance and interest in the team.
  • Let's also not forget if there's one thing pro athletes have consistently demonstrated over time, it's that they are more than willing to spend the money they make, most of it while they are still playing. If a state waives income taxes for a pro athlete, they'll probably end up spending most of that money in the state anyway, stimulating the local economy and paying plenty of sales tax (5.6-10.7%) and property tax along the way.

Will Arizona or any other state ever decide to take this course of action to help their pro sports team win a championship? Probably not before several other states decide to spend nine figures building new arenas with no guarantee of any playoff success as a result.