Monday, July 6, 2015

Today's Bucks arena bill festivities

I tried to catch some of the hearing on the new and improved Bucks bill today, and here are a few items I noticed (well, as much as I could. I do have a real job).

I noticed that the officials called in to testify in favor sold the arena more as the centerpiece of a larger development around the current Bradley Center. That certainly makes it an easier sell than just a sports arena, as the added development can be in use for more than just game days, and there definitely is some space available to do so around the Park East. And even with the arena not a sure thing, Dave Reid of Urban Milwaukee put together a couple of recent news articles and noted that Bucks owners and related real estate owners are buying up plots of land in downtown Milwaukee around where the new arena would be.

Bucks president Peter Feigin was definitely selling that "stimulator" argument in his testimony, which gave a very interesting look at the economics of running an NBA team. Among the items Fegin claimed and noted that the team needs a new arena for a few reasons-

1. The Bucks rank last or next-to-last in the NBA in 52 of 55 metrics for revenue, and the Bradley Center's setup of having more seats in the upper deck than the lower bowl is out-of-date, and makes it harder to get major concerts to play the BC (Feigin added that concerts are big revenue generators for arenas vs the everyday Bucks game).

2. Given this subpar economic performance, Feigin said the NBA wasn't going to accept one of its franchises staying on the low end of business for much longer. Feigin added that the league was serious about buying the team back from its current owners and moving it in 2017 if an arena was not built, likely to Las Vegas or Seattle. When pressed by State Sen. Jon Erpenbach if there was a "drop-dead" time that the league needed to know if a new arena was starting, Feigin said they needed an answer as soon as possible, but ultimately admitted a final decision didn't have to be made until October or November.

3. Feigin says the Bradley Center holds about 170 events a year now, and would hope to hold 200 in a new arena, and added that no tenant makes money at the Bradley Center other than the Bucks. In a related note, if the Bucks were to leave, it seems that Marquette basketball and the Milwaukee Admirals would likely have to figure out rental arrangements from the Bradley Center district and/or the state, or play somewhere else, as both currently pay rent through a sublease with the Bucks to play at the BC.

4. Feigin argued that one of the reason the arena needed taxpayer funding as opposed to other self-supporting measures like seat licenses is that there isn't enough high rollers in Madison to pay big ticket prices for good seats. Feigin also indicated that a ticket surcharge would "repel visits", even though the Legislative Fiscal Bureau later estimated that a $1 surcharge per ticket would raise $1.0 to $1.1 million a year for a new Bucks arena, which means what Feigin realy means is that a ticket tax would lower the Bucks' profits by having them keep less of the face value of a ticket (since fans pay the tax-included ticket price they see on the face and decide on that). Using the LFB's math, a $3.50 surcharge would likely account for the entire state share of $4 million a year for the next 20 years.

5. The only unbelievable part of Feigin's testimony was when he said "NBA teams don't make money, and it's even harder in a small market." Given how the salary cap and team revenues are set to go crazy in coming years (I'll mention why below), I have a hard time buying that one.

A large debate during the hearing was about whether a new arena would really add that much economic activity to the Milwaukee area, or if it would merely displace other entertainment spending. Department of Revenue economist John Koskinen gave strong support to the arena, and said that past studies which show new arenas merely replace other entertainment spending don't take into account the digital changes of the last 15 years, as a large amount of a team's revenue stream is Internet-related, and that goes into the state from all over the globe, not just on-site in Milwaukee. It's an intriguing point, especially given the exploding amount of broadcast and other media revenue fees that NBA teams will collect in the coming years, and Koskinene argued that the Bucks shouldn't just be thought of as a local sports team, but a "global entertainment business." I'm not sure I buy all of that argument, but I will say the man has a point.

Koskinen also added that he was "100% confident" that the state's enhanced revenue collection measures and lower fees will allow it to get the $4 million a year in uncollected debts that Milwaukee County needs to make up their end of the bargain. I'm still quite skeptical of that, and it's easily the most tentative part of the deal (and could ultimately leave Milwaukee County losing millions in shared revenue if the funds don't come in).

On the subject of player salaries, the Legislative Fiscal Bureau estimated the current take of Wisconsin income taxes for Bucks players, team personnel, and visiting players (who pay for the number of days they are in the state) is a little over $6 million. Logically, this number would go up as the league's salary cap goes up in the next few years (and the Bucks recent signing of Greg Monroe for 3 years and $49.5 million probably gives the state a nice little boost for this year). This is a centerpiece of the "cheaper to keep em" argument involving the Bucks arena, as the state would get the benefit of the higher income taxes in years to come with a new Bucks arena.

However, that "cheaper to keep them" argument fell flat when the Legislative Fiscal Bureau backed up a Leg Council memo to Rep. Knudson a couple of weeks ago, and said the state didn't have to pay anything to the Bradley Center's upkeep if the Bucks left (or even if they stayed). Furthermore, the new Bucks bill gives the team a $10 million earmark for maintenance in 2016-17, even with the BC being taken down right after that.

There are a lot of other things I could hit on, but this post is already long enough on detail (watch Wisconsin Eye to see the whole thing, State Sen. Lena Taylor goes OFF at one point because the Wisconsin Center District isn't one of the invited guests at the hearing). All in all, I can at least see the points in favor of the project if you're considering it on its own, and Milwaukee Mayor Tom Barrett made a good point that supporting $250 million of taxpayer dollars for this "public works project" (Barrett's words) leveraging with more private funds, and leading to further development doesn't sound so bad.

Well, until you read this other headline from today, which relates to the $250 million in cuts to state aid to the UW System, as part of budget that GOPs on the Joint Finance Committee passed last week. UW-Madison may be getting the largest dollar amount of cuts, but it's UW-Milwaukee that'll be feeling the most pain.
UW-Madison is better positioned to absorb the cut, and will be able to make up some of its budget shortfall with other revenue streams, including raising tuition for nonresident and graduate students starting in the fall.

However, UWM has seen a drop in enrollment, and doesn't have as many options in making up its share of the state cut.

UWM is expected to get a larger share than any other campus of the $25 million in state funding that the Legislature's Joint Finance Committee restored from Gov. Scott Walker's proposed $150 million cut to the UW System this coming fiscal year.

But UWM's operating base budget — which includes all revenue streams and not just state aid — ultimately will be reduced by 5.1% ($31.8 million), while UW-Madison will see a 0.75% ($20.44 million) reduction.
The you combine it with the attempted takeover and privatization of Milwaukee Public Schools, and I find myself in agreement with the excellent article written by Andy at Wisconsin Soapbox.

NO WAY CAN I SUPPORT THIS BUCKS ARENA BILL UNTIL THEY STOP SCREWING WITH MPS AND CUTTING UWM. Since that won't happen with this arrogant anti-Milwaukee crew in charge at the Capitol, put me down as a "No" vote.


  1. Good analysis again.

    A few points to consider: The so-called development around the arena may be nothing but parking facil mostly facilities and new Bucks offices/gum for about a decade.

    The "entertainment mall" is brazenly designed to siphon money being spent on Old World Street and Water Street. It's not just economic "substitution effect." It's alpha-dog-eat-dog cannibalization, with the city rigging the game by giving the Bucks a $30M garage to tear down to the completely unneeded mall. Now they're paying top dollar to take over Third St. properties after they're offered 30 acres of prime public land for $1...

    It's disgraceful and Barrett is acting all clueless: He said "The Bucks told me I had to come up with $47M and I came up with $47M." Famous last words: I was only following orders...

    Also, state economist said the Bucks (very optimistically) would bring in $299 million in income tax. Meanwhile. the public would pay at least $400M, just in bonding & interest payments. That does not count all the free land, the parking garage and forgone income from it (at least $15M) plus forgone property tax, etc. Def not cheaper to keep 'er...

    All pols drinking the Bucks Kool-Aid.

    Also, Admirals already have been told to find a new place to play. MU's rent will go sky-high. No net gains in sight for anyone but the Bucks. And we're 'sposed to feel sorry that they won't get as filthy rich as some team owners. It's "creative destruction" foisted on gullible pols and biz folks.

    Meanwhile, all other state funding has gone down in flames. Thank god for straight talk from Hudson and Carpenter!

    1. I've also had worries about cannibalization of 3rd Street businesses, and that's why I'm happy that any new bars/ restaurants will have to pay property taxes like any other business. And it's definitely not a sure thing that those businesses and parking structures will bring in any more revenue than we get today.

      The Admirals part is especially intriguing with me, because there have been rumors the new arena wouldn't even have ice! Not only does that cut off the chances of a future NHL team, it also would likely kick the Admirals into the MECCA once the BC is torn down...if they'd even exist at all.