Monday, April 20, 2015

Bucks arena in major jeopardy? Seems so

Two intriguing articles on the Bucks arena have hit in recent days that seem to indicate that the new facility is far from a sure thing. As a result, NBA basketball is looking less likely to be around in Wisconsin in 2 years, barring major changes in heart at the State Capitol, or in the hearts and minds of state voters.

What really set off the alarm bells for me was when I read this article today from ESPN's Brian Windhorst on how the NBA won't accept much foot-dragging on the arena, and wants a decision to be made sooner than later. Windhorst goes into detail on how the always-contentious issue of public funding for a pro sports facility has an extra level of emotion in Milwaukee, with memories of the battles that led to Miller Park being built in the late '90s (culminating in a recall of a state senator who supported the Miller Park tax), and the present-day conflict between the GOP-led state government and the Dem-run City and County of Milwaukee. Windhorst says that the NBA would have no problem with allowing the Bucks to move if a new building isn't going up.
This is the essential conundrum of being a local politician bargaining with a national sports league. The options are all difficult. And in this case, the answers have to come almost immediately. When a New York-based group led by Wesley Edens and Marc Lasry bought the Bucks from former U.S. Sen. Herb Kohl in April 2014, the deal included both a carrot and a stick to encourage local politicians to put the Bucks at the top of the political priority list.

The carrot was hundreds of millions of dollars toward the stadium. A nice benefit, but not enough to get the building completed. The stick was a clause stating that if an arena is not in place in Milwaukee by the start of the 2017-18 season -- an ambitious schedule -- the NBA has the right to buy the team. League insiders suggest a sale and relocation is the next logical step. The team would be worth more, by most analyses, in another city. NBA commissioner Adam Silver visited Milwaukee last November and made it clear at the time he wasn't carrying a big stick, saying "I didn't come here to announce deadlines." But, according to league sources, the NBA office -- having learned through the years that pledges and promises have little value until ground is broken -- has made it clear to all parties it will enforce the out clause if shovels are not digging quickly. The NBA has communicated it could give on the schedule a bit, but only in the case of true progress. The league isn't threatening consequences; it's guaranteeing them.
Windhorst says that the Bucks would likely move to Seattle in 2 years if a deal cannot be struck, as the Seattle Metropolitan Statistical Area is twice the size of Milwaukee's, and has lacked NBA basketball since the SuperSonics left for Oklahoma City in 2008. Other possibilities include two markets close to Milwaukee's size- Las Vegas and Louisville - who lack any teams in the major 4 pro team sports as of this time.

Windhorst also goes over the financing numbers, and where a gap has appeared in recent weeks after Senate Majority Leader Scott Fitzgerald and other state legislators said they were looking to reduce the amount of money the state would chip in toward the project compared to what was in Gov Walker's budget proposal.
It is projected the new Bucks arena will cost $500 million. With a combined $250 million from Kohl and the Bucks' new ownership, the proposal is a 50/50 split between public and private money. It is similar to the arena being built in Sacramento, California, where the city avoided the Kings moving to Seattle when a partnership was struck that saw the city invest $255 million and the Kings pledge $222 million. Gov. Walker has proposed $220 million through bonds issued by the state. The legislature, however, is fighting him on it and is proposing a deal for much less: $150 million. The city has offered $25 million in the form of infrastructure and land but no cash. The county hasn't offered a formal plan as yet but is expected to offer a package in the range of $25 million, as well.

That leaves a major shortfall -- between $50 million to $100 million -- and no one is offering to fill it, including the Bucks' ownership, who lawmakers have more than hinted should fund the solution. It is in this hole where the Bucks' future probably is going to be decided.
It sure doesn't look likely to be the City of Milwaukee that'll be the ones to cough up more funds than they are already offering. Milwaukee Alderman Bob Bauman gave a revealing interview in Milwaukee Magazine last week regarding the City's side of financing the Bucks arena, and the general political state of play on the issue. Bauman may be quite a prickly guy if you're on the wrong side of him, but he's also extremely knowledgeable on the ins and outs of policy, and few will shoot straighter on what's really going on. This interview is no exception.
[Bauman]: Everybody’s acting undercover here, not just the city. The Walker plan on paper is just fine. The understanding was that the City would come up with $25 million and the County would come up with $25 million, and we basically said, that we can handle. Now, the state’s going to change the deal, where it’s not $200 million, it’s $150 million. That creates a $100 million dollar gap. The City can’t handle that. It just can’t. And I think that’s exactly what (Assembly Speaker) Robin Vos and (Senate Majority Leader Scott) Fitzgerald intend to have happen.

As soon as we heard the legislature changing the deal, we don’t know what they’re willing to offer at this point. Do we have the capacity to make (a $25 million) contribution? Yes. Do we have the political will? That remains to be seen. Do we have the capacity to make a $50 million contribution? No, we don’t. We just plain don’t...

I have a perfect solution to all this, but the state will never go along because it involves raising taxes.

Allow Milwaukee County to levy a dedicated one percent sales tax that funds transit, parks and recreation, cultural institutions and the construction of a new arena. And there’s no state subsidy. And that would remove $74 million from the Milwaukee Country property tax levy to boot. It takes the park system off the county property tax levy, it takes all the cultural institutions off the county property tax levy, it takes public transit of the county property tax levy and it funds the arena with no state subsidy. All the state has to do is say, “OK, Milwaukee County, raise your sales tax one penny.”
And remember, County voters approved of such a 1% tax in an advisory referendum in 2008, but a County Exec named Walker urged the Legislature not to allow it, and it never happened.

Bauman adds that he thinks the GOP-run Assembly won't pass a bill to allow Milwaukee to raise non-property tax revenues toward a Bucks arena, and as a result "this all goes south and the Bucks move," which Bauman says will give the GOP and talk radio the excuse to blame Mayor Tom Barrett. Of course, it's past policy from the GOP-run state government that has led to many of these financing problems, not only in dumping more of the burden of the arena onto them, but in disallowing the tools that would allow the city and the county to get the revenue to comfortably generate funds and spend more toward the project. Instead, the State Legislature has consistently tied the City and the County's hands with limitations on sales taxes and shared revenue payments from the state, then complains when those levels of government decide to pay for police, fire, and streets over neglecting those services and jacking up the tax rates of locals to help pay for a basketball arena.

And last week's Marquette Law School Poll doesn't seem to indicate there's much of an appetite for shelling out state funds to the arena (doubly interesting since Marquette basketball may well play in the new arena). The MU Poll asked about the reduced-cost plan floated by the State Legislature of $150 million to be borrowed (they didn't even ask about $220 million Walker wants to borrow), and the answer was an overwhelming "HELL NO!"
Seventy-nine percent oppose borrowing about $150 million to support a new arena for the Milwaukee Bucks, with 17 percent supporting the proposal. In the Milwaukee media market, 67 percent oppose funding for an arena and 29 percent support it. Those views vary by less than 2 percentage points among the City of Milwaukee, the surrounding suburban counties of Waukesha, Ozaukee and Washington counties, and the seven other southeastern Wisconsin counties included in the media market.

In the rest of the state only 9 percent support borrowing for an arena, with 88 percent opposed.
Oddly, the funding question for the Bucks arena will not likely be affected by new revenue estimates that come out in a couple of weeks, because there is very little debt payoff that is to be made over the next two years on the arena (the Legislative Fiscal Bureau estimates this number at $2.8 million). But given what Windhorst and Bauman have hinted at, the big decisions regarding the Bucks arena and the team's future are likely to be decided in the next few months, and if the developments of recent weeks are an indication, this arena may be moving further away from being reality as the deadline get closer.


  1. The legislature sabotaging the arena deal to stick it to MKE and blame Barrett makes a lot of sense, but I don't see how Lasry/Edens/Dinan would just let that happen.

    If the Bucks move to Seattle (etc.), it will be preceded by the NBA exercising its option to buy the team for $575M. It won't be Lasry/Edens/Dinan moving the team or selling directly to a new owner. So L/E/D would at best stand to make $25M on their $550M investment after 3 yrs -- a 1.5% annual rate of return. And it could be worse than that in the likely event that the Bucks are operating at a loss -- they were 27th in attendance this yr, the Larry Sanders buyout was an unexpected expense, and they've sunk money into new staff, new office space, the logo/uni redesign, and planning/designing/siting the new arena.

    You don't buy a pro sports team (or become a billionaire) without having a pretty good sized ego, so if it came down to Lasry/Edens/Dinan coming up with another ~$100M for the arena or having a high-profile professional failure on their hands and scuttling 3yrs of effort for essentially zero return, I'd think they'd cough up the money. Of course they want as much public funding as they can get, but with how the league is involved here this isn't the archetypical owner-demands-new-arena-or-they-will-move-the-team scenario.

  2. Good thoughts, lufthase- unless the league has to raise it's asking price because all NBA teams get more money due to the explosion in TV revenue that's coming (which is why the salary cap goes way up in 2016-17).

    That also could mean the owners get big money for that year, and they pocket the profits and then sell the team back.

    Very odd signals going on right now, with Nygren and Sykes trying to blame Barrett for not sinking in even more to this project without giving MKE the tools to make up the revenue, and then Feigin saying a decision had to be made in the next 2 weeks, despite the fact that budget deliberations won't be done by then.

    We'll see what develops from today's meeting