Tuesday, November 18, 2014

Bucks arena- jock tax ups and downs, and JournalComm's big payoff

In light of last week’s attempted shakedown of billionaire Milwaukee Bucks owner Marc Lasry by pissant Assembly Speaker Robbin’ Vos, (leading to Lil’ Vossy getting skewered by Bruce Murphy today at Urban Milwaukee), let’s get back to talking about the prospects for a new Bucks arena.

When the change in ownership happened last April, Lasry and fellow new Bucks owner Wes Edens indicated that they would pay $100 million out of their own pockets toward a new arena, and outgoing Bucks owner Herb Kohl said he’d chip in another $100 million himself. There are also indications that naming rights and/or other investors could contribute another $100 million toward the project, making the total private investment reach $300 million. The rest would likely be made up by some kind of public funding or incentives, and estimates indicate that the total cost of a new Bucks arena would be between $400 million to $500 million, which means the public would be on the hook for $100 million to $200 million.

With that in mind, the Wisconsin Legislative Fiscal Bureau released a report last week which looked into the possibility of using what’s known as a “jock tax” to pay for the public funding side of the Bucks arena. I mentioned the jock tax issue in relation to the Bucks arena a few months ago, but what it basically does is split up the salary of athletes and other entertainers into the number of days they are in a given state, and then taxes them accordingly.
As an example, assume that an NBA player that is a resident of Florida has 210 duty days in a year, and two of them are in Wisconsin. In this case, the player’s allocation percentage would be 0.95% (2 divided by 210). Therefore, 0.95% of the player’s compensation for services rendered as a team member would be taxable in Wisconsin. If the player’s total compensation for services rendered to the team was $2 million, then $19,000 of that compensation would be taxable in Wisconsin. However, if the player was a resident of one of the four [tax] reciprocity states (Illinois, Indiana, Kentucky or Michigan) none of his compensation would be taxable in this state.

This office obtained information regarding NBA players and other employees who were potentially subject to Wisconsin income tax as of December, 2012. After conducting a search of tax returns filed for tax year 2012, the Department of Revenue indicates that these individuals, in the aggregate, paid state income taxes of approximately $10.7 million in that year.
The LFB then projects out how this may work in terms of generating funds for a new arena, which they assume will be built by the state borrowing the money and then paying back the costs via the jock tax.
…Assuming a flat, 20-year repayment structure on the bonds issued for a new stadium facility for the Milwaukee Bucks, $10.7 million in annual revenues associated with the estimated amount of existing state income taxes on NBA players and other employees subject to the state’s individual income tax could support approximately $150 million in state general obligation bonding, based on current interest rates. The total 20-year cost to repay the $150 million in general obligation debt would be $214 million, which includes $64 million in interest costs.
$150 million toward the arena would likely be enough to make the project whole, and with the NBA’s salary cap likely to go up significantly in future years due to the huge TV contract that it signed last month, that also makes it likely that a jock tax would add even more than $10.7 million a year down the road, meaning that it would pay for any overruns, or the jock tax could be retired in less than 20 years.

Now here’s the downside to any type of jock tax being put in place – the state wouldn’t be levying any additional tax on these NBA players and personnel, it’d merely funnel the money into a separate account that can only be used toward a Bucks arena. It essentially would decrease the revenue available for state government, since those millions of dollars can’t be used for other General Fund needs like it is now. So while it would keep the general taxpayer’s money out of the funding equation for the Bucks arena, what’s concerning to me is that this move would still have statewide effects. The $10.7 million+ of lost revenue would result in cuts elsewhere, or it would have to be made up through some other kind of tax increase or other form of added revenue. And when we may have an estimated $2.5 billion budget deficit already in the next budget, adding to the red ink might not be a great plan.

The location of a Bucks arena is obviously another key component to this question. It was reported by Milwaukee Magazine’s Jim Owczarski last month that the team is considering a purchase of the current Journal Communications building across 4th Street from the Bradley Center and the building next to it on State Street, with the arena possibly facing the Milwaukee River across 3rd Street. Owczarski quotes the local Milwaukee alderman in the story as seeming to prefer the JournalComm site to building on the site of the old Bucks arena at the MECCA (now known as the UWM Panther Arena).
An arena that has sightlines to the green space of Pere Marquette Park and the river is appealing to the Bucks ownership group.

Fourth District Ald. Robert J. Bauman said that while he has no direct knowledge of any negotiation between Journal Communications and the Bucks – "I don't know that specifically, but I'm not surprised – it's a logical area of exploration for them" – he did say Journal Square makes sense as a location for a new multi-use facility.

"If that site is big enough by itself, then I think that's a very viable option," he said. "If they have to span 4th Street and also demolish the (UWM Panther) Arena, as well – that's going to be a big, big political argument.
Putting the arena in that spot definitely could look cool if done right, Owczarski has a new blog post up today that gives an idea of how the arena might look, with the arena floor perhaps being underground.

The corporate side of this potential deal has some intrigue as well, as the soon-to-be-merged Journal Communications likely could use the money from a potential sale of its headquarters, and JournalComm needs Bucks games on AM620 to keep listeners in winter. This is especially true considering that the soon-to-be-Scripps-owned Station of Sykes now has no Badger sports, which means at least a 2-month gap of no major sports programming between the end of Packer season and Opening Day at Miller Park if the Bucks leave.

When you put these two items together, it’s no surprise that JournalComm’s paper and media have been pushing hard for this new Bucks arena, as they stand to get quite a payoff from it (yet another reason not to trust their outlets). But given that the 2017 deadline is approaching for the Bucks to have an arena deal in place, or else the NBA could buy the team back and likely would move it elsewhere, we will get to find out soon enough just what the entire package looks like, who’ll be paying up, and who’ll be getting paid off.

No comments:

Post a Comment