Archive for January, 2008
The New York Mets are in the process of acquiring Minnesota Twins ace Johan Santana. The Mets will send the Twins four prospects (Carlos Gomez, Phil Humber, Deolis Guerra, and Kevin Mulvey) if they can reach a long-term extension with Santana. Given what media reports are saying, I think there is little chance that the deal will fall through.
Using my player valuation method, explained in my book, Santana was the 24th most valuable pitcher in baseball in 2007—his worst season since he became a regular starter. In the previous two seasons he was the second most valuable pitcher in baseball (Chris Carpenter and Brandon Webb were first in 2005 and 2006, respectively). It’s no secret that Santana is a stud. What will this bring him with an extension?
Using Olney’s projection of a six-year contract, the model estimates his total worth to be $138 million ($23 million/year)—this accounts for aging and league revenue growth. Essentially, the Mets are signing Santana as a free agent, which is why the Mets gave up so little to acquire him. But the Twins didn’t come away empty-handed; four prospects who have close to zero service time are valuable for rebuilding the team on the cheap. He will earn $13.25 million in 2008, when he will produce approximately $17 million revenue to the team. Thus, the prospects going to the Twins represent the $3.75 million in excess revenue, the right to negotiate with Santana before he hits the free agent market, and the compensatory draft picks the Twins will lose. This is a good deal for both teams, and I can see why the Yankees and Red Sox were unwilling to part with their top prospects.
I look forward to seeing what Santana actually gets. There is no doubt that the Mets are now a much better team. As a Braves fan, this is not good news.
Addendum: You can record your prediction of Santana’s extension at MLB Trade Rumors.
Just before I went to bed last night, a commenter in the previous post (Slugfest) linked to this article in the New York Times. I made a brief comment, but I think this new information deserves a post of its own.
The gist of the story is that Andy Pettitte may testify about conversations with Roger Clemens in which Clemens disclosed past steroid use, which will add some corroboration to McNamee’s Mitchell Report testimony.
Andy Pettitte will soon give a sworn deposition to staff members of the House Committee on Oversight and Government Reform, and lawyers for his former personal trainer, Brian McNamee, say they believe they know part of what he will say.
Pettitte and McNamee talked in 2001 and 2002 about Roger Clemens’s use of steroids and human growth hormone, McNamee’s lawyers, Earl Ward and Richard Emery, said Tuesday.
As a result, Ward and Emery said they believed that Pettitte, who has acknowledged receiving H.G.H. from McNamee in 2002, will provide the first account of contemporaneous conversations with McNamee about Clemens’s use of performance-enhancing drugs in earlier years.
Does “earlier years” mean prior to McNamee’s involvement with Clemens, or does it refer to purported use in 1998, 2000, and 2001? Given McNamee’s plea deal, I suspect it is the latter, because otherwise he would have violated his agreement by not revealing this information to Senator Mitchell.
The big revelation is this.
Emery and Ward said that not only did McNamee and Pettitte talk about Clemens’s drug use on several occasions, but that Clemens might have influenced Pettitte the first time Pettitte asked to use a performance-enhancing drug.
“There was a conversation in the gym where Pettitte came over to Brian and told him, ‘Why didn’t you tell me about that stuff?’ ” Emery said in a telephone interview Tuesday. “It appeared to be after a conversation with Clemens, but he didn’t know what was said in that conversation.”
Ward, in a separate telephone interview, said, “Brian discouraged him at first, and then less than a year later he came back and that is when Brian injected him.”
McNamee’s lawyers are implying that Pettitte used human growth hormone after talking with Clemens. McNamee initially discouraged him from using it, but Pettitte would get the drugs from McNamee during the 2002 season. The reported circumstances regarding McNamee and Pettitte are consistent with testimony on on pages 175 and 176 of the Mitchell Report.
But there is also some incongruous evidence in the Mitchell Report. According to McNamee, Clemens used growth hormone during the 2000 season, did not like it, and did not use it again in 2001.
McNamee concluded from Clemens’s statements and conduct that Clemens did not like using human growth hormone (Clemens told him that he did not like the “bellybutton shot”). To McNamee’s knowledge, Clemens did not use human growth hormone again. (p. 172)
While it is possible that Clemens and Pettitte did have a conversation about using steroids and growth hormone, I think it is unlikely that Clemens encouraged him to use something that he didn’t like. The one possibility is that Clemens said something like “HGH did not do what I wanted it to do, but it could help your elbow.”
Another interesting aspect to this case is that Clemens and Pettitte have the same agent, Randy Hendricks. Hendricks is running the public defenses of both clients. I think he would be aware of such a potential revelation, and he would have conducted his defense of Clemens differently if what McNamee’s representatives are saying is true. But, it is certainly possible that Pettitte is going to testify in a way that harms Clemens.
The one side missing from this story is Pettitte’s. I am curious to see how he responds to these claims.
Here is my prediction of what happens. Pettitte will admit to having conversations with McNamee in which McNamee mentioned Clemens’s use of steroids. But, he will deny that Clemens encouraged him to use or that he ever admitted using performance-enhancers. McNamee is hedging a lot when he claims Pettitte “appeared” to have a conversation with Clemens before asking McNamee about growth hormone. McNamee even admits that he has no knowledge of what Clemens may have said to Pettitte. The result is no perjury charges for anyone, and we are back to where we started.
Addendum: I’ve read a few news reports on the “conversation” between Clemens, Pettitte, and McNamee. All are different.
In the NY Times, the conversation happens in “the gym”, and McNamee didn’t hear the conversation.
“There was a conversation in the gym where Pettitte came over to Brian and told him, ‘Why didn’t you tell me about that stuff?’ ” Emery said in a telephone interview Tuesday. “It appeared to be after a conversation with Clemens, but he didn’t know what was said in that conversation.”
In the AP story, the parties are at Clemens’s house, and comes closer to insinuating that McNamee overheard the conversation.
Ward said the discussion he was referring to occurred at Clemens’ house.
“Based on what we know, there was a situation where Andy was speaking to Roger in Brian’s presence, then Andy came over to Brian and essentially said, ‘Why didn’t you tell me about this stuff?’ He referred to HGH,” Ward said.
The NY Daily News also says the meeting occurred at Clemens’s house, and states that McNamee did overhear the content of the Pettitte-Clemens conversation.
During the 2001-02 offseason, according to Ward, Pettitte joined Clemens at his suburban Houston home to work out. Also present was McNamee, the former trainer who last year fingered them as performance-enhancing drug users in the report written by former Sen. George Mitchell.
McNamee overheard Clemens and Pettitte talking about performance-enhancing drugs, according to Ward. Pettitte allegedly then turned to the trainer and said, “Why didn’t you tell me about this stuff?”
In an interesting move, Roger Clemens has fired back at Brian McNamee’s steroid allegations in the Mitchell Report. Using a report of his own, his representatives examine his late-career performance as a pitcher. After reading through the report, I became inspired to do my own investigation. I present my analysis below. I have received no financial compensation, but I will disclose that I do own a Clemens rookie card.
Clemens’s study looks at his performance in reference to the changing playing environment of the league. For many potential reasons (e.g., new ballparks, expansion, juiced balls, etc.) the run environment dramatically changed over the course of Clemens’s career. To combat any bias from this, the authors of the study compare Clemens’s ERA to the average of the league, looking at the difference. It is no surprise that his ERA difference fluctuated quite a bit over the course of his career (p. 6). ERA is inherently a volatile statistic. In fact, in my book I use Clemens as an example of how drastically a pitcher’s ERA can change during a career, and I show that his variation in performance was well within the normal range (p. 165).
What I would like to do is to take this analysis one step further. One of the reasons that ERA is volatile is that it includes the performance of fielders and random bounces of the ball. If we use the novel idea of Voros McCracken’s DIPS, then we can more closely examine the components of Clemens’s performance over his career using factors that were solely in his control. The major defense-independent components of pitcher performance are strikeouts, walks, and home runs. In particular, I would expect Clemens’s strikeout numbers to influence and reflect his decision to use performance-enhancing drugs. Because these statistics occur at different rates, I compare how Clemens performed relative to the league average as percent of the league average.
First, I look at ERA, as percent above league average, using a connected scatter plot and a curve that represents the best quadratic fit of the data.
Though Clemens remains well above average during his career, there is a rise and decline in his performance. Two peaks jump right out: 1997–1998 (ages 34–35) and 2004–2006 (ages 41–43). McNamee claims that Clemens began using steroids in mid-season 1998, and during parts of the 2000 and 2001 seasons. I think the 2004–2006 period is more indicative of steroid use: a period during which McNamee was working with Clemens but claims not to have given him steroids. This is also a period when MLB was testing for steroids.
In terms of his strikeout rate, Clemens shows a trend of slow rise and decline during his career.
Again, there is a spike in 1996—1998; however, his performance drops considerably in 1999, and only in 2002 does he strike out batters at a similar rate again. Clemens shows clear signs of aging in his ability to strikeout batters.
Clemens’s age profile for walks is strange, and it is the only area in which he improved dramatically as he grew older.
During the first half of his career his walk prevention decined—with the exception of 1997, when he was outstanding in every aspect of the game on his way to winning the Cy Young—but after bottoming out in 1999, he showed slow improvement. Could this be the sign of an aging veteran who is using knowledge and finesse to make-up for the physical effects of aging? Walks are something that tend peak later for all pitchers. This could be due to pitchers’ choosing to compensate for physical deterioration or just a product of learning. I find it interesting that as Clemens’s strikeout power waned he improved in this area—the area in which I expect steroids would be least helpful.
Clemens’s home run prevention fluctuates wildly throughout his career, with a barely discernible rise-and-fall aging trend .
As we saw with ERA, there are two spikes in 1997–1998 and in 2004–2006. I’m not sure there is much to glean from this area of performance.
In summary of the data, there is no doubt that Clemens is a good pitcher who had some excellent years late in his career. Only the spike in 1998 fits with McNamee’s testimony; and, this doesn’t seem like a time that Clemens would consider using drugs. Also, the more remarkable late-career spike occurs when Clemens was in his 40s—after McNamee was not giving steroids and MLB had implemented random drug testing. Next, I want to consider the possible motives at the time McNamee claims Clemens used the drugs.
In the Mitchell Report, McNamee claims that Clemens first expressed interest in using steroids on, or just after, a road trip to Florida, during which Clemens pitched on June 8. Here are Clemens’s performance statistics from his first start until when he allegedly indicated to McNamee that he wanted to start using steroids. As a reference point I include how much better or worse than he was than league average at the time. While these are excellent numbers, Clemens may have demanded more of himself, so I include his performance from 1997 (overall and relative to the league) as another benchmark.
ERA K9 BB9 HR9 1998 Clemens 3.27 9.18 4.32 0.32 4/1--6/8 Lg Avg. 4.66 6.39 3.43 1.10 % > Avg 29.77% 43.57% -25.95% 71.36% 1997 Clemens 2.05 9.95 2.32 0.31 Lg Avg. 4.57 6.43 3.50 1.10 % > Avg 55.26% 54.71% 33.80% 72.10%
His ERA was higher than it was in 1997, and he was walking more batters; but, his strikeouts and home run prevention were similar. It looks like Clemens’s problems had more to do with control than power. After June 8, he cut his walk rate to 2.83 per nine innings and increased his strikeout rate to 11.09 per nine innings. I don’t see Clemens—a 15-year veteran at that point—looking at a .500 record and a slightly higher walk rate and thinking, “I need some steroids to get back on track.” It is possible that the walks were a function of fatigue and possibly he wanted steroids to help him recover quicker and go deeper into games. This is what McNamee claims, but I think we would observe performance declines in strikeouts and homers in the early part of the season if this was the case. Clemens appeared to get his command back, which lowered his walks and increased his strikeouts. Steroids could have also helped, but the issue is explaining why he would choose to start using when he seems to be performing up to recent standards.
Clemens’s second supposed use of steroids occurred during the 2000 season as a member the New York Yankees. According to the Mitchell Report, McNamee alleged that “during the middle of the 2000 season Clemens made it clear that he was ready to use steroids again.” He claims to have administered steroids and human growth hormone, each four to six times, during the second half of the season. Though we do not have the exact timeline, looking at the first-half performance should be sufficient to see how Clemens was performing up to that point.
Half ERA K9 BB9 HR9 First 4.33 8.47 3.76 1.22 Second 3.15 8.12 3.64 1.08
Clemens’s first-half ERA was better than the league average and his performance in 1999. His strikeout and walk rates (7.81 and 4.31) were also better than the previous season. It was his worst year at preventing home runs, but I doubt this one thing would be enough to motivate Clemens to use. Again, this seems like an odd time for Clemens to begin using performance-enhancers. And even if he did take performance-enhancing drugs, they did not appear to have much of an effect.
The third instance at which McNamee accuses Clemens of steroid use occurs in August 2001. This would have been an odd time to ask for help considering that he was performing better than the previous season in all areas, and he would ultimately win the Cy Young award.
ERA BB9 K9 HR9 2001 (Apr-July) 3.58 2.79 8.92 0.91
That is the last time McNamee would document Clemens’s steroid use, even though he would continue to train him; thus, McNamee claims that the second late-career bump was clean. In 2002 and 2004, Clemens would post strikeout rates of over one per inning—something he had not achieved since 1998. His walks steadily improved, and 2004–2006 were excellent years for his ERA and home run prevention. He would win the Cy Young in 2004, and he came in third in 2005. Some of this may be due to his travel arrangements and short seasons, but he would pitch over 200 innings in 2004 and 2005. This is also a period of drug testing; thus, all signs point to Clemens’s performance being natural.
Another tool is used in the Clemens report is a comparison to other great pitchers: Nolan Ryan, Randy Johnson, and Curt Schilling. Again, this doesn’t prove that he’s clean, but it does show that such continued excellent performance is common enough to be expected by natural means. I was surprised to see one comparison not included, John Smoltz. Since returning to the Atlanta rotation in 2005, he has been one of the most dominant pitchers in the game, ranking among the league’s ten most valuable pitchers from 2005–2007 (ages 38–40). This is another example of an exceptionally talented ballplayer who loves playing the game and has a strong work-ethic.
There is also the possibility that Clemens used steroids throughout his career, and that other pitchers having late-career success have all been aided by performance-enhancing drugs. I find both to be unlikely, especially the former. If Clemens continued employing McNamee several years beyond the last time the alleged steroid injections occurred, why would he go somewhere else for his steroids? Or, why would McNamee lie to say that Clemens was clean during this period?
This in no way proves that Clemens didn’t use steroids; he is right when says he can’t prove a negative. Others may interpret the data differently than I do. But, the more I look into these numbers, the more I am convinced that McNamee is the one who is lying. Until I see some other corroborating evidence—I wonder what is in those seized 2004 drug tests—I have to conclude that Clemens pitched without the aid of steroids.
The Baseball Economist has gotten a new cover for the paperback edition. It will be released on February 26. This edition has the new low list price of $15—most online stores sell it for around $10—and is updated to include 2007 player values for every player.
Here is a list of some of the topics discussed.
- Why are there more hit batters in the AL?
- What happened to the left-handed catcher?
- What are the best/worst managed organizations in baseball?
- Putting a dollar value on every player in MLB (updated to include the 2007 season)
- How good is Leo Mazzone?
- Big cities vs. small cities
- Scouts vs. stat-heads
- Is MLB a Monopoly?
A question that people often ask me is: if human growth hormone doesn’t enhance performance, then why do athletes use it? My response has been that athletes don’t have the proper information. My guess is that men like Kirk Radomski are spreading false information to push their product.
In the next issue of Time Magazine, Sylvester Stallone weighs in on his own use of testosterone and GH. It is a prime example of how informed users may be.
Playing a guy who acts with only his eyes and his biceps is harder than playing a fast-talking, earnest boxer, especially on a 61-year-old body. Which was one of the reasons Stallone wanted to do it. He pumped up to a freakish 209 lbs. (95 kg); in Rambo II he weighed only 168 (76 kg). And, he insists, he did it without steroids, though with the help of a prescription testosterone. “HGH [human growth hormone] is nothing. Anyone who calls it a steroid is grossly misinformed,” he says. “Testosterone to me is so important for a sense of well-being when you get older. Everyone over 40 years old would be wise to investigate it because it increases the quality of your life. Mark my words. In 10 years it will be over the counter.” He was in such great shape, it freaked out his co-star, Julie Benz. “I’m a runner. I sprint. And I’m extremely competitive. And he blew past me every time. And he doesn’t run at all. He’s that focused,” she says. [Emphasis added]
HGH isn’t nothing. It won’t help you play sports, but it has serious effects on the body. Has he looked in the mirror lately? I’ll give him the benefit of the doubt that he was referring to its strength benefits.
But, it is his comments about testosterone that blew me away. Testosterone isn’t a steroid?
Testosterone is a steroid hormone from the androgen group. In mammals, testosterone is primarily secreted in the testes of males and the ovaries of females, although small amounts are also secreted by the adrenal glands. It is the principal male sex hormone and an anabolic steroid.
Definition of testosterone from The American Heritage Medical Dictionary:
A steroid hormone and the most potent naturally occurring androgen that is formed by the interstitial cells of the testes, and possibly by the ovary and adrenal cortex, may be produced in nonglandular tissues from precursors such as androstenedione, and is used in the treatment of hypogonadism, cryptorchism, carcinomas, and menorrhagia.
It’s hard to be this badly informed, especially when you consider that the guy built a career off of using the stuff. Maybe the reporter misunderstood him. I wouldn’t be surprised, because it must have been difficult to decipher a collection of grunts and snarls.
Thanks to Craig Calcaterra for the pointer.
Yesterday, the Atlanta Braves avoided arbitration with Rafael Soriano by signing him to a two-year $9 million contract. The deal buys out one year of arbitration and one year of free agency. I think the Braves overpaid; but, I tend think relievers are overvalued in the market right now.
Soriano was requesting $3.4 million through arbitration, while the Braves countered with $2.4 million. Based on his last two years of performance—I normally go with three, but he was hurt in 2005—I have him valued at around $3.5 million per year. I think that the Braves would have won this, but this is not all that relevant.
The big difference comes in 2009, when he will make $6.1 million—almost double what I have him valued at. I would have preferred for the Braves to have taken their chances in arbitration, and looked elsewhere for cheaper relief next season. I’m not sure that Soriano would get that much money on the open market. I also am a bit concerned about Soriano’s ability to hold up. There was a stretch last year where he was awful. Even if he pitches at his best, I think this is a poor use of resources.
In my haste to criticize Gwinnett County’s adoption of a vehicle rental tax to help fund its new Triple-A baseball stadium, I did not properly interpret the proposal. Fortunately, a reader pointed out my mistake, because it turns out that I was giving the county too much credit.
The 3% tax does not apply to all rentals in Gwinnett County: it applies to rentals in unincorporated localities of the county. What is the difference? The difference is that 20% of Gwinnett’s population live in incorporated areas.
Here is a population breakdown of the Gwinett’s 15 incorporated localities.
|Town||Population (2006)||Fun Facts|
|Lilburn||11,542||Home of Jeff Francoeur.|
|Lawrenceville||28,851||Larry Flynt was shot here.|
|Duluth||25,838||Home of Brian McCann and Nick Green.|
|Buford||10,868||Future home of the Gwinnett Braves.|
The map below highlights the incorporated areas within Gwinnett County.
While 28 total renal agencies are currently located in taxable areas, the map shows how easy it is to dodge the tax—you don’t even have to leave the county. Also, I expect many of these 28 locations to relocate to incorporated areas or neighboring counties that do not have this tax. I cannot see how this is going to raise a much revenue.
It is also amazing to see how clueless the government officials are in this whole affair. Thanks to another reader for sending me this article from the Gwinnett Daily Post.
“It takes the burden off the local taxpayers,” Commissioner Bert Nasuti said of the car rental tax, which is also in place in Atlanta to fund improvements made to Philips Arena in the late 1990s. “The reason you do that is so you don’t raise taxes.
“There’s almost no place in the universe that doesn’t have a rental tax,” he added, referring to large cities. “It’s been a part of the finance plan all along.”
Nasuti said he views the car rental tax as similar to the hotel-motel tax, which is charged mostly to tourists and goes to pay back the bonds used to build the Arena at Gwinnett Center.
How is this not a tax increase on Gwinnett residents? It is rare that anyone other than a Gwinnett resident would rent a car from this area, especially after adding a tax. But that is not how Gwinnett officials have been thinking about this.
Lisa Anders of the Gwinnett Convention and Visitors Bureau said the county would still remain competitive with Atlanta for rentals.
In addition to the 3 percent tax for those who rent cars at Hartsfield-Jackson International Airport, another 10 percent surcharge is added to pay for a planned car rental agency location, she said.
“There are a lot more car rental places in Gwinnett than most people think,” Anders said, adding that many hotels and car dealerships have rentals as well as stand-alone facilities in the Duluth area.
Ms. Anders belief that rental prices in Gwinnett will be competitive with the fees at the airport completely misses the point: people who don’t have cars are not going travel from the airport to Gwinnett County—about 30 miles—to rent a car. Is the county assuming that current rental rates will stay the same and that the number of rental branches will remain at 28? I’d love to see the assumptions that the county is using to project $500,000 a year in revenue.
Introducing a car rental tax on unincorporated areas of Gwinnett County to raise revenue is like using a bucket full of holes to bail water. It is unfortunate that the deal has been done and the county is on the hook for a lot of money. It’s time for the county to figure out a better way to pay for the stadium.
Apparently, Gwinnett County is in a bit of a pinch to build the stadium quickly.
The county is under soft April 1 deadline to begin construction, according to its agreement with the Braves, who will as part of the deal relocate their top minor league affiliate from Richmond to play in the park. The agreement requires the county to make “reasonable best efforts” to commence construction by that date.
The agreement doesn’t give the same flexibility on completion. The stadium is supposed to be done by March 1, 2009.
While the Braves agreed to seek a road trip to start the season, possibly giving the county a little more time to finish up work at the ballpark, the agreement warns that the Braves “will suffer substantial damages in the event the stadium is not completed on time.”
While a private developer would have to wait for [Development of Regional Impact program] review completion before doing any development or construction work on a project, [Atlanta Regional Commission] has never had a case quite like this one, Reuter said.
“I’m not sure that we’ve ever had a case where a local government’s on a clock like that,” he said. “I would think we would try to do whatever we could to not hamstring them. I would think we would try to work with them to make it happen.”
Milk costs more at a convenience store than a grocery store because customers are willing to pay for convenience. Call it the 7-11 principle. In the same way, if you want a construction project finished quickly, it is going to be more expensive than with a more flexible timetable. You have less time to seek competitive bids, wait for convenient delivery of equipment and materials, or solve unforeseen problems. The original $45 million cost estimate was low to begin with. Given the time constraints, I expect overruns to be higher than usual. I will not be surprised if the project exceeds $60 million.
The articles also reveals some other interesting information about the surrounding retail space.
Gwinnett Center General Manager Preston Williams, who is managing the construction effort, said his office and Lawrenceville developer Brand Morgan, who sold the land to the county and intends to build a retail complex around the stadium, are working on the DRI application. But he couldn’t say when it would be complete.
The developer who sold the land was in on the deal and he held onto surrounding land that has certainly increased in value. Well, at least they didn’t buy it and give it to the Braves.
I am sure glad I don’t live in Gwinnett County. This is absolutely embarrassing.
The Gwinnett County Commission voted unanimously Tuesday to approve a tax on vehicle rentals to help pay for the county’s new baseball stadium.
The $600,000 a year the tax is expected to generate will help pay off $33 million in debt the county will incur to build a stadium for the Atlanta Braves’ top minor-league baseball team. [Emphasis added]
Kudos to the Gwinnett County Commission for having the guts to support something that is clearly an AWFUL policy decision with almost no public discussion or debate. All of the secrecy that surrounds this move makes it clear that the fix was in for this deal long ago.
While Gwinnett residents were celebrating the holidays, the commissioners were meeting behind closed doors to get the Braves to Gwinnett. And like the Grinch, the Braves took everything, including the log for the fire. The Commission played the part of Cindy Lou Who—the naive two-year-old who is willing to believe the intruder was doing her a favor by taking her family’s Christmas tree. Here is how I imagine that the deal went down.
Commissioner 1: How will we pay for this stadium? We’ve given the Braves every last revenue stream that isn’t symbolic: tickets, concessions, advertising, sponsorships, even the concessions at the limited number of events that we are allowed to hold?
Commissioner 2: Well, some cities tax rental cars?
Commissioner 3: Is that a good idea?
Commissioner 4: Man, I really want the Braves to have team here.
Commissioner 5: Then it’s unanimous!
If the commissioners had paused a moment to look at the evidence, they would see what a horrible idea taxing rental cars is. In 2006, economists William Gale and Kim Rueben conducted a study of the car rental tax in Kansas City, and the results are not supportive.
Using complete Kansas City customer data from Enterprise Rent-A-Car (the largest car rental company in Kansas City and the country), we tracked all of the company’s rental car transactions in the Kansas City market between January 1, 2002, and June 30, 2005, and employed a simple and robust difference-in-difference methodology to obtain several key results.
The methodology seems sound to me.
First, the Kansas City car rental excise tax is borne by consumers in the form of higher total costs for renting a car. That is, the tax is passed forward from firms to individuals in the form of higher prices. This is an expected result in a highly competitive industry with historically thin margins. Because the overwhelming majority of renters at neighborhood branches in Kansas City, Missouri, are local residents, it is local residents who are bearing almost all the burden of the car rental tax imposed at these branches.
A rental car tax doesn’t tax outsiders, the burden is almost entirely local. And taxing residents whose cars break down is difficult to justify. “These people are having such a bad day, so what does it matter if it gets a little worse?” is about as good as I can do.
Second, we find significant customer sensitivity to the car rental tax. The imposition of the car rental excise tax reduces the number of rental customers in taxed branches by 9 percent relative to untaxed branches. Perhaps the best evidence of customer sensitivity to the heavy tax is that people who lived in ZIP codes that are close to taxed branches changed their behavior dramatically, reducing demand for rentals by between 41 percent and 50 percent and the demand for rental car days by between 69 percent and 86 percent.
We also document that overall rental car behavior shifted from Missouri to Kansas. This implies that the imposition of a specific car rental excise tax actually reduced Missouri’s state sales tax receipts by driving customers across the state line in search of less costly car rentals. [Emphasis added]
If you are not familiar with Atlanta, it’s basically an agglomeration of many counties. There is rarely a trip when I don’t cross a county line—on my way to the airport I pass through four counties (Cobb, Fulton, Douglas, and Clayton). Gwinnett residents are going to figure out how to circumvent the tax quickly. This poses several problems.
First, it is difficult to raise tax revenue when citizens can avoid purchasing the good being taxed easily. It will be simple for residents to rent cars from the seven counties surrounding Gwinnett. According to Gale and Rueben, tax avoidance in Kansas City actually lowered tax receipts.
Second, this is inconvenient and costly for Gwinnett residents. Let’s say you want to rent a $100 car for a five days, which will result in $15 in taxes paid ($500 * 3%). Residents ought to be willing to spend up to $15 to avoid paying this tax, most of which will be borne by the inconvenience of driving across the county line. Citizens end up paying a tax implicitly, except the county isn’t getting any revenue from it.
Third, this will harm the rental car industry in Gwinnett. As people rent fewer cars, rental offices will shrink fleets, trim employees, and possibly move across the county line to accommodate the rising demand in other counties. I thought the goal of this project was to increase commerce?
This tax isn’t bad because it’s a tax increase—although, that is a legitimate reason not to like it—it is bad because it distorts behavior in a way that drastically alters the market. The county would have been better off increasing the general sales or property taxes. Of course, those taxes would have required direct voter approval.
Gale and Ruenben conclude.
In summary, car rental taxes appear to be inconsistent with basic principles of good taxation, and recent efforts to raise car rental taxes appear to be the product of politically expedient but empirically flawed notions of who bears the burden of the tax.
A rental car tax is a poor tax instrument to use for funding the stadium even before we take into account the silliness of introducing a rental car tax in Gwinnett, specifically. I wish that county commissioners hadn’t been in such a rush to make this deal. If they had held public proceedings in advance, they could have avoided such simple mistakes.
This leads me to wonder, why was this deal done covertly? The Braves had no reason to keep this a secret. In fact, they had every reason to flaunt it. Typically, teams like to play localities against one another in order to garner additional perks. The silence from the Braves indicates to me that the organization believed all along that this was the best deal it could get. I mean, all that was left is 50% of parking, 10 non-Braves events events (which will have to compete with Braves, who plan to lease the stadium out on off-days), and tiny portion of naming rights. Publicizing its parameters would only lead for Gwinnett to reduce its offer after taxpayers saw what was being given up.
Maybe Gwinnett should alter it’s iconic water towers to read “Secrets Live Here” and “Gwinnett’s Tax Burden Is Great”.
ESPN’s Peter Gammons has something nice to say about Sabernomics in his roundup of blogs that he reads.
The fact is that we all know more about baseball because of the proliferation of creative thought. Run through Baseball Think Factory, The Baseball Analysts, Squawking Baseball, Sabernomics, Beyond the Box Score, Dan Agonistes, John Sickels’ minorleagueball.com. For everything, Deadspin. [Emphasis added]
Cool! Thanks, Peter. I like your stuff, too.