Tuesday, January 27, 2015

Walker's plan for the Bucks needs more blanks filled in

I wanted to say "the plan is far from a slam-dunk" in the headline, but that would be really lame.

I had a good idea that we would be seeing a bill in Wisconsin giving state funding for a new Bucks arena when I saw that Seattle Mayor Ed Murray met with NBA Commissioner Adam Silver last week, and emerged from the meeting saying that he wasn’t planning on the Bucks to head to the Pacific Northwest.
“I actually have to say, that brought clarity to the process for me,” Murray said. “I had the impression that maybe the whole expansion and/or other teams (relocating) might be sooner and more of a possibility.”

Murray had believed the Milwaukee Bucks might be a relocation candidate if the franchise can’t get a new arena deal worked out this year. But he says Silver and others quickly shot that down.

“They were very clear that they see them staying,” he said.
So that likely gets rid of the idea of Seattle stealing the Bucks away (although the people of the Land of Grunge still get to keep the victory they stole over another Wisconsin team from earlier this month. And no, I’m not quite over that one).

Which led to today, when we finally got a look at the Bucks arena deal, including a release from Governor Walker’s office explaining that the provision will be part of his upcoming state budget, with the state putting down money to get the arena built, and the money being paid back through a “jock tax.”
Under the “Pay Their Way” plan, a Sports and Entertainment District would be created to provide bonding authority to pay back a $220 million grant for a new sports arena. The grant will be in the form of an appropriation bond issuance, paid back by projected growth in income taxes from the Bucks, as well as visiting teams, due to salary increases and new TV contracts. No current base revenues would be used to pay for the bonds, and once the bonds are paid off, the tax growth would return to the state.

Without a new arena, the Bucks would likely leave Wisconsin in 2017, costing the state nearly $10 million per year in income tax collections alone. In addition, if no action is taken on the current Bradley Center, the state is still on the hook for as much as $100 million in maintenance and debt service costs, but without an anchor tenant to drive sales and bring business to the arena and local area.

If the Bucks are sold, the revenue from that sale would first go to pay back these appropriation bonds.
The projections of increased NBA revenues and a higher salary cap (with higher “jock taxes” going with it) make sense. ESPN’s Zach Lowe has consistently mentioned the impact of the league’s new TV contract and the likely huge increase in the cap that’ll result from that, and I’ll direct you to an article he wrote in November talking about what those numbers may look like, under the umbrella of a larger article on the Golden State Warriors’ plans.
No one knows what will happen to the cap in 2015-16 and 2016-17, the first year of the league’s mammoth new national TV contract, but the league’s most recent projections for 2015-16 remain in the range of $66 million to $68 million, per several league sources. It appears unlikely the league bakes any of the anticipated TV money into the cap figure a year early, meaning the 2015-16 cap will sit right around where the NBA had projected it.

But the Warriors were smart to structure the [Klay Thompson] deal this way, since the league’s finances are so fluid. The league and players’ union have only just started discussing “smoothing” proposals for the TV money that would have the cap increase in similar year-by-year increments instead of shooting up in a single season — that 2016-17 campaign.

Who knows where those talks will lead? If the TV money flows in without any smoothing scheme, the cap could jump from about $66.5 million in 2015-16 to somewhere in the $90 million ballpark the following season — an unprecedented one-year spike. The league would like to spread that jump over several seasons so teams can plan with some certainty and one class of free agents — those hitting the market in the summer of 2016 — don’t get to cash in on a once-in-a-lifetime bonanza while their peers sit out.
Theoretically this would also raise salaries for the Bucks (especially if they continue to improve), and some of this money would funnel back to the arena authority in the form of the jock tax. If done right, perhaps that $220 million (plus interest) could be paid off sooner than 2045.

Where I disagree with the Governor’s assessment is the assumption that if the Bucks left, that the $10 million in income tax revenues would leave with nothing replacing it. It would hurt, just like the loss of any large employer would hurt, but it is na├»ve to think there wouldn’t be demand to have some other businesses slightly benefit and expand to take the place of those dollars that would go to the Bucks. Plus, the Bradley Center would still likely exist and hold events without the Bucks, including games for Marquette basketball and Milwaukee Admirals, concerts, and other private events. But I do agree that the BC would seem like a white elephant without having the NBA team there, and it would be difficult to sell the facility and/or its land to someone else to get rid of the large amount of state costs that the facility would require.

And there are two other important details to sort out. The first deals with the site and a final projected cost of the project- neither of which we have seen yet. If you put together the personal investment from new Bucks owners Marc Lasry and Wes Edens of around $150 million, along with $100 million from former owner Herb Kohl and money from naming rights, and add it to the $220 million from the state, that might well be enough to take care of the $400 million to $500 million that was originally estimated to pay for the arena. But we don’t know where that arena would be and how it fits together with the overall development plan of downtown Milwaukee. This is a bigger piece to me than the financing, because I want the arena to be a “hit” that fires up even more development around the area that it’ll be built on, and could be a spectacle that has a major impact on the vibe in the blocks around the area where it exists (the bland-looking BC doesn’t really do that right now).

Of course, the other problem is the state’s huge budget deficit, currently at $2.3 billion and counting. While the Milwaukee Business Journal’s Rich Kirchen points out that Walker’s proposal would enable the state to keep $6.5 million of player taxes, with the rest being diverted into the new arena fund, that $6.5 million won't cover all of the taxes that players and other Bucks employees would pay. You may remember this memo from the Legislative Fiscal Bureau that came out in November upon request from Assembly Speaker Robin Vos asking about how much a “jock tax” would produce for the 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.
So if that number were to hold for 2015 (for the sake of argument), the state would still be down $4.2 million from what it currently gets from NBA players and related personnel, which would add another $4.2 million to the state’s budget deficit. And obviously that number would grow as player salaries and related income grows, which widens the money that would have to be made up. Now, maybe the potential loss of the team and the high-priced employees make that a worthwhile trade, but let’s not pretend that the state’s treasury won’t have money taken out of it, because it will.

In addition, when you combine the fact that this proposal comes out the same day that we get details about Walker asking for a massive cut to the UW System in the same budget, it leads to this telling screenshot. And this picture should make anyone wonder about what the Gov's real priorities are.

Oh, who am I kidding? I KNOW what this guy's priorities are. And they don't involve anything that bettering conditions for most of us in Wisconsin.

But I still am agnostic on the Bucks arena issue, because I want to see the site plan, and how this’ll all work together. It may yet still be worth the investment, but given the direction of where this deficit-ridden budget is heading, it seems like a very hard sell. If the 99% of us are going to have to sacrifice services, wages, take-home pay and quality of life (even more than we already have in the last four years), it sure looks like bad form to have the government shelling out for 1%er ballplayers and team executives at the same time.


  1. The math doesn't work if the only repayment source is additional revenue. Annual debt service on $220MM at 2.5% over 30 years is $10.4MM- which would require $165MM+ of salaries. Annual interest of $5.5MM will require an extra $88MM of salaries to generate the additional income tax revenue.
    I await a realistic proposal.

    That said I support the new arena but they will need to use a portion of the lost revenue to service the bond payments.

  2. Given the rising NBA salary cap, I can see the math adding up. But it also means that money is being taken out of the state treasury, so the state has to make up the difference in other taxes and/ or cuts.

    But show me the budget bill , and a site plan, and I'll have a better thought of whether this is a good idea.