Bruce Murphy
Murphy’s Law

Myths About a New NBA Arena

In their zeal to build new, publicly-funded arena, proponents are misleading the community.

By - Apr 16th, 2013 12:49 pm
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BMO Harris Bradley Center

BMO Harris Bradley Center

The good news, a Milwaukee Journal Sentinel editorial noted, is that there is “plenty of time for a deal” if civic leaders want to build a new NBA arena.  Citing a recent forum on the issue sponsored by the newspaper and Marquette University Law School, the editorial noted that Milwaukee has been wise to start this discussion before we face a crisis.

In fact, this allegedly timely discussion has now been going on for more than 14 years. It was back in December 1998, that the Milwaukee Bucks hired Foley & Lardner attorney Ron Walter as a senior executive to help the team concoct a plan to get a tax subsidy to radically renovate the Bradley Center.  Soon there was a Greater Milwaukee Committee task force looking into the plan and beginning in 1999, sports writers began beating the drum for some kind of tax support to bail out the Milwaukee Bucks.

After studies showed it wasn’t cost effective to reconfigure the Bradley Center, the new goal was to build a new arena, and for more than a decade we’ve seen periodic news stories telling us the Bradley Center is now one of the oldest in the NBA and must be replaced. The forum co-sponsored by the newspaper is simply the latest attempt to sell political leaders and voters on a project they continue to resist. In the course of this discussion, we are told many things that aren’t quite true, including:

Pro Sports Venues Have a Huge Economic Impact: That’s how Miller Park and many other sports facilities have been sold. The new model is Oklahoma City, which built an arena that attracted the NBA team once known as the Seattle Supersonics. Oklahoma City used a sales tax to build the arena and make other civic improvements, and has claimed that $357 million in spending generated $5 billion in related investments.

In fact, as a recent study by Milwaukee’s Legislative Reference Bureau found, “the actual number is closer to $500 million, one-tenth of the… cited impact.”  In an amusing section of the study, it notes that Oklahoma was claiming such “related investments” as a federal highway and the rebuilding of the federal building destroyed in the infamous 1995 bombing.

“Overall, publicly-financed sports venues have not paid off economically for the city, county or state governments financing them, at least in the last 15 years,” concluded the LRB report, which got cursory coverage by the JS.

Nationally, there is a consensus by economists that the impact of sports stadiums and arenas is minimal, because most spending on the team is by local residents, most of it would otherwise have been spent on other local offerings, and much of the income generated by the team goes to ballplayers who typically don’t live in that community.

Those studies that find an economic impact are usually by consultants hired by the teams. Thus, Robert Leib wrote an op ed a while back touting the economic impact of the Milwaukee Brewers, and cited a “study” he did. Leib runs Leib Advisors LLC, a Mequon-based sports and entertainment industry consulting firm. His study cannot be found on its website (or anywhere else) and when I requested a copy, Leib didn’t respond.

Pro Sports Have an Intangible Impact: This is the fallback position from the economic impact argument. As the JS editorial put it, “while there may not be direct proof of economic benefit from a new arena, the indirect benefits for marketing Milwaukee across the country… cannot be ignored.” How many people in the world think of Milwaukee because of the Milwaukee Bucks? I’m guessing the number is small and the impact negligible. It’s probably a help to local businesses when recruiting executives, but only in some cases, as just 36 percent of Americans call themselves fans of pro basketball.

Our Community’s Identity is at Stake: It’s about “community pride and prestige,” the JS suggested. “Losing the Milwaukee Bucks would be a terrible blow to the city and region.” It would certainly be a blow to the newspaper, whose readership and revenues are heavily dependent on pro sports. And for NBA fans like me, it would be sad to lose the Bucks. But let’s face it: most of the money spent on pro sports goes to the millionaire owners and ballplayers, not to anyone or any cause in the community. As Ald. Michael Murphy notes, the city of Milwaukee can’t even afford to raze foreclosed homes in the city, so how can it afford to bailout a sports team? “I don’t know if a city that is the fourth poorest city in the United States can keep up with the insatiable appetite of NBA basketball,” Murphy contends.

The Bucks are Losing Money: This is a standard way to sell a community on bailouts. In reality, no pro sports owner ever loses money. Yes, Bucks owner Herb Kohl has probably lost some money in some years, but every owner always recoups this when the team is sold. Kohl has seen the franchise’s value rise 16-fold, from $19 million when he bought it in 1985 to an astounding $312 million today, according to the latest analysis by Forbes magazine. And that still leaves the Bucks franchise dead last among NBA teams. But the team’s value would rise dramatically if a new arena that generates more revenue is built. In short, Kohl, who has offered to help pay for the arena, could probably recoup his contribution immediately as the franchise’s value increases.

And Kohl’s occasional years of losing money could be banished by the NBA’s new revenue sharing plan. “When fully phased in by the 2013-14 season, it will see a stunning $140 million in additional revenue sharing coming into play compared with last year,” as Street & Smith’s Sports Business reports. Most of that money, it notes, will go to the seven neediest NBA teams, including the Bucks, who could get as much as $16 million per team per year.

The Bradley Center was Free: The argument is made to let us know how lucky we taxpayers are, compared to those in other cities, and to soften us up for paying for the next arena. It was a relative bargain, but city taxpayers did pay significantly.  The city built the Bradley Center’s parking structure and also paid for some infrastructure. With interest on the bonds for this, former comptroller James McCann once calculated the full cost for taxpayers at $33 million. In addition, the old MECCA arena, then run by the city, was required to hand over 15 percent of all proceeds from its bookings to the Bradley Center for the new facility’s first 10 years of operation. This protected the Bradley Center from competition, allowing it to funnel more revenue to the Bucks while reducing revenues for MECCA arena and thereby increasing its costs for city taxpayers. All told, former Mayor John Norquist once estimated, the total subsidy for the Bradley Center might have been as high as $50 million.

More recently, state taxpayers have been tapped: Under Gov. Scott Walker, the state funneled $5 million to the Bradley Center for improvements in 2012 and under Gov. Jim Doyle the state gave the Bradley Center $5 million in 2009.  The taxpayer bill for the Bradley Center is now up to $60 million.

A New Arena Would Help Other Teams, Too: You see this sort of argument from sport writers like Dennis Krause, who contends  that a new venue would help the Marquette basketball team and the Milwaukee Admirals hockey team. But the Bradley Center works just fine for both. And much of the revenue generated by both teams actually goes to the Bucks, who pay no rent and are heavily subsidized by the Bradley Center. This is only about bucks for the Bucks, who need a bigger arena with more revenue generating amenities.

A Regional Tax is Needed: Sure, that would be fairer, as most fans come from beyond Milwaukee County, but realistically, what are the chances? The Green Bay Packers are almost a religion in Wisconsin, yet the team asked only Brown County to contribute to a new stadium (and a referendum there barely passed), because team officials undoubtedly knew other counties would resist. Attempts to tax other counties in the Milwaukee metro area run into the incredible political polarization now raging in Wisconsin, on top of the long-time resistance of suburbanites to any tax support for Milwaukee County venues (the zoo, the art museum, symphony or public museum) that actually draw most of their attendance from beyond Milwaukee County.

Action is Needed by Civic Leaders: In truth, there has been action by civic leaders, as local businesses stepped forward to spend money to support the Bradley Center. There is clear support for a new arena from the Metropolitan Milwaukee Association of Commerce, the media (both the JS and Business Journal) and other civic heavyweights. What is really missing is support from political leaders.

Recall that Miller Park had support from Gov. Tommy Thompson, Mayor John Norquist and Milwaukee County Executive Tom Ament. Today, Walker and Milwaukee County Executive Chris Abele opposed extending the Miller Park sales tax to pay for an NBA arena, and Mayor Tom Barrett called it a “dead issue.” No politician has stepped forward on this issue.

At the recent forum, Assembly Speaker Robin Vos (R-Burlington) said that any call for tax support would need to poll people through a referendum. He surely knows voters would kill the idea. Wisconsin residents voted against a subsidy for the Brewers ballpark and baseball is far more popular than basketball.

So are there any bright spots here, any way to build support for a new arena? Just two that I can see. The Oklahoma solution has gotten many excited because it was part of a broader plan that levied a sales tax for many civic improvements, including a new library, parks upgrades and other civic improvements.

But the difficulty is making it both broad enough to get voters’ support yet not too expensive. Oklahoma’s NBA arena (which began construction in 2002), ultimately cost $191 million; a new arena today is likely to cost $350-$500 million.

The other bright spot is Herb Kohl, a nice guy who is rare among pro sports owners in his willingness to contribute to the arena. That will help sell any deal, but it also creates an ironic strategic problem. The retired U.S. Senator just doesn’t seem to have it in him to threaten to move the team or sell to an out-of-town owner. That‘s admirable, but it removes one of the key ways that sports owners convince a community to show them the money.

Categories: Murphy's Law

21 thoughts on “Murphy’s Law: Myths About a New NBA Arena”

  1. David Ciepluch says:

    New sports complexes are not built for the average citizen of Milwaukee with a family median income of $32,000 annually. The vast majority may rarely attend professional ball games. These venues are luxury items constructed with special boxes so very wealthy can sit in exclusion from the common people. While new sports facilities and the teams that are attached to them are nice to have, we have many other problems where tax dollars need to be allocated – transportation, road and bridge reconstruction, education, foreclosed and abandoned property re-development, etc. Let a ticket luxury tax and box holders pay for this luxury item that so few of us actually use and benefit from.

  2. Ben Butz says:

    I do think the civic pride argument holds some weight in this discussion. Although, it is not the main factor, having professional sports team in your city does help build prestigious.

    But I do have an issue with just handing over a huge amount of money to help a team that could potentially do the same thing to the city in another twenty years.

    If a tax or other government subsidy was used to construct a new facility for the Bucks, I think it would be fair for the city or state to require the Bucks to give some equity in the team to a non-profit, much like the Packers. I wouldn’t propose a majority stake, but as was pointed out in the article, even bad teams have increased in value dramatically over the years, so if the city or state is going to basically be an investor in the team, why shouldn’t we reap some of the rewards of the investment?

    With even a minority ownership stake, the city or state could at least make something back if the team ever decided to move in the future.

    Not sure if the NBA would approve the deal, but would love to at least hear their response.

  3. duncan says:

    There is exactly one true reason any new replacement arena gets built. It’s not to have better sight lines or shorter lines at the bathroom. It’s not to provide more food options or better seats or more cupholders or provide a better game day experience.

    The real reason is: To separate more cash from fan’s wallets, end of sentence, full stop.

  4. Nate H. says:

    I’m in general agreement that the use of tax funds to build a new arena is not a very good deal for taxpayers. However, I do think you understate the value of prestige/intangible benefits. The fact that 36% of people are NBA fans is a point for the intangible benefits, not against. In the country, that’s over 100 million people! Millions watch NBA games every night, millions more watch Sportscenter and see the “Milwaukee” on the screen everyday. It keeps us in the public consciousness of sports fans. It’s like a commercial for Miller beer. It may not convince you to go out and buy a case right then and there. But after you see Miller 50 times, you may decide to choose them over their competitor the next time you find yourself in a liquor store. Our sports teams provide a lot of “free” advertising to Milwaukee. Whether the value of that justifies tax expenditures on a new arena is a completely open question, but there is a real intangible benefit that we should take seriously when working through this issue.

  5. David Ciepluch says:

    Great suggestion by Ben for local ownership and possibly other investment ownership bundles. And Duncan is correct – more money from the fan base.

  6. dohnal(Wis. Conservtive Digest says:

    CATO institute did a vry good study and basketball team are not worth it. This community will not spend 500 million dollars for a new Arena when this one is such a poor franchise and it will not get much better. At present a large number of seats are almost given away and a new, bigger arena would just have more unused seats. WE have Marquette, UWM and that is enough basketball. Try another sport.
    The only question, that we must ask, is how can we spend 500 million that will benefit this metro area the most, in jobs and in things for everyone. Basketball is not it.
    As long as no one wants to build more choo choo trains.

  7. Gee says:

    The idea of we-the-taxpayers paying for a building for the Bucks, and for Herb Kohl to make even more money when he sells the team — well, the idea is so bad that it is historic. Why? Because I actually find myself in agreement with Robin Vos.

  8. Richard says:

    Congrats Bruce – yours is a welcome but lone voice in this debate. We live in a city that can’t afford good schools, has horrific infrastructure problems as well as an abysmal public transportation system yet sees it’s self-appointed civic leaders petition for a new playground for overpaid athletes. Although I’m a fan of the Brewers, Bucks, etc., asking the poorest of the poor to pay for another boondoggle is pathetic. Why not pay for the facility via ticket taxes and parking taxes so the cost causers pay?

  9. ken lamke says:

    (1) i don’t think anyone today is pushing the economic development argument, certainly not at the journal sentinel-mu law school forum. the leading academic expert at the forum was dead against public funding.
    (2) arguments about public funding ultimately benefitting millionaire players and, in most cases, multi-millionaire owners, have merit but that’s the way the nba world works.
    (3) i didn’t take notes and can’t quote them, but i did not hear the county executive or county board chairwoman reject the notion of a 1% countywide sales tax that would produce $130 mil a year and could fund an arena and county functions such as transit, parks and cultural facilites. county voters approved a similar advisory referendum, minus an arena, 52-48 in 2008 under favorable turnout circumstances.

  10. Matt says:

    Its fine and true to say that “Those studies that find an economic impact are usually by consultants hired by the teams.” You might be a little more balanced if you were to follow up by noting that most of the studies not finding an economic impact are written by Andrew Zimbalist. He’s the guy to hire if you’re opposed to a stadium.

    For a more positive (albeit anecdotal) comparator than Oklahoma City I suggest one look at St. Paul. That deadass area of town is now booming since the arrival of the Excel Energy Center (and pro hockey). Much like 3rd Street and Water Street are now. That area will be hit hard if the Bucks disappear. And lets not pretend they won’t if the stadium is not replaced.

  11. Bruce Murphy says:

    Matt, besides Zimbalist, others who’ve concluded there’s little impact include Roger Noll at Stanford, Brad Humphreys at Un of Illinois, Dennis Coates at Un of Maryland, Bill Beyers at UW, former Milwaukee Robert Baade at Lake Forest College, Marc Levine at UWM, the Cato Institute. There are many more, and I suspect that many are sports fans, which is what drew them to the field.

    And unlike consultants hired by sports teams they aren’t paid to come up with a particular result.

    As to Water Street, I suspect it will thrive as long as Milwaukee has college students.

  12. Jim says:

    I support the idea of building a new Bucks stadium, ideally by continuing the Miller Park tax. I think there are ancillary (sp?) benefits. That said while I beleive it is worthwhile, facts and studies indicate that is likely not the case. I will suspend my beleifs and accept the facts.

  13. Tom J. says:

    Anyone who thinks it’s a good idea to pour more public money solely into a stadium for non-publicly owned sports teams should look at what’s happened down in Miami.

  14. Mike Bark says:

    I think this comes down to how important people deem the Milwaukee Bucks to be and I don’t think most people really care one way or the other.

    The Bradley Center is still more than a nice enough venue to host Marquette, the NCAA tournament, major concerts, and the Admirals. If we build a new stadium does that change anything for the other teams or attract concerts that otherwise aren’t stopping here? Probably not.

    So it comes down to the economic benefit of the Bucks playing 41 games there. I just don’t think the enthusiasm is there for that. If you go to a Bucks game it has all the excitement of a funeral. It’s a dead crowd where most of the people are sitting in some corporate seats.

    The economic impact of a NBA team has always been suspect in my mind. The sports bar right across the street can’t even stay in business. Even if the Bucks drew a sellout for every single game they would have attendance of 750,000. That’s nothing to sneeze at, but it’s far from the amount of people the Brewers draw. In a poor year the Crew will draw better than 2,000,000. And not only do the Brewers have a huge attendance advantage they draw from all over the state and region bringing people into the Milwaukee area. The Bucks don’t have anything approaching that appeal. For what it’s worth Seattle just lost a team and they seem to be doing fine.

  15. Eric says:

    As an Oklahoma City resident, I have to correct how others have been interpreting our storylines. OKC has never claimed that the sports arena (now Cheseapeake Energy Arena) alone was responsible for the $5 billion impact. That number is NOT based on any economic impact study per se.

    The tax package the sports arena was a part of, MAPS (short for Metropolitan Area Projects), included renovations to the concert hall, convention center, and dams to create riverlakes downtown, a downtown library, and downtown ballpark, among other projects. When it was passed by voters late 1993, Oklahoma City had been at a low point in its history. There was negative momentum from the oil bust of the 1980s, the city looked miserable with unimproved civic structures, and residents had little faith in the city government.

    The successful completion of these projects, combined with a collective will forged with the bombing, instilled a faith and pride in the city that became infectious and spurred other developments and helped keep corporations that would have left the city if that negativity persisted. That follow-up investment from the private sector encouraged the public to keep improving city assets.

    When a few of those remaining companies shot into the Fortune 500, there was a perfect storm to attract the Thunder. And yes, the resurgent development of downtown convinced the state and federal governments to move the interstate (a huge psychological and physical barrier) south to further encourage development to the river neighborhoods. None of this would have happened if the local residents didn’t have the faith to take a gamble on that MAPS package.

    So did the sports arena alone spur $5 billion in investment? Of course not. But that MAPS package it was part of raised not only funding for capital projects, it raised civic and political capital, every bit of which is responsible for that $5 billion figure.

  16. Chris says:

    Comparing Seattle’s fortunes to Milwaukee is disingenuous at best. Seattle is a world-class city with tremendous natural amenities, a thriving creative class, great job scene, and multiple professional sports franchises. In the grand scheme of things in Seattle, losing their NBA team was nothing more than a road bump because there’s so much else to fall back on to absorb the blow. That’s not the case in Milwaukee. Don’t get me wrong, I love this city, but it’s no Seattle… And guess what — Seattle wants an NBA back in their town.

    I’m fine with people putting the arguments out there debating the pros and cons of a new stadium. But conjecture like this offers no value to the conversation: “I’m guessing the number is small and the impact negligible. It’s probably a help to local businesses when recruiting executives, but only in some cases, as just 36 percent of Americans call themselves fans of pro basketball.”

    You better believe these things matter when it comes to attracting and retaining talent. Especially in a place that can’t match what the Seattle’s of the world have to offer.

    There’s no perfect answer to the questions being raised in this article. But when I boil it down to one question — “Do I want to live in a major league town?” — the answer is an emphatic, Yes.

  17. Stacy Moss says:

    Why don’t we (the public) be the adult and say to Herb Kohl, “I know you want a new
    arena but first you have to finish your homework — field a team that will give Oklahoma
    a run for its money.”

  18. David Ciepluch says:

    Chris and Eric bring up a number of excellent points. One of the main themes is you have to have a comprehensive approach at overall improvement that includes transportation, roads, surrounding area, wrapped with a positive political, community, business and media cooperation and the will to come up with solutions. A basketball sporting complex is one item of many and how do you resolve funding it while we languish in so many other areas. We have a state political system that has made war on the local community with a divide and conquer attitude. This used to be a state that had a general sense of cooperation and trust. That well has been poisoned in this point of history making.

  19. Stacy Moss says:

    Dear Matt,

    Matt…….Did you know that you are a Marxist?

    I think it is important to note who funded the study. BUT that, in itself, is not a good argument for or against this or that unless you believe all knowledge is warped to serve its master.

    We should stay alert to those stubborn things called FACTS that rise above the noise or he said she said….. Newton for example, and Darwin. (Yes Evolution does exist. Note how politicians views are “evolving” today according to the laws of Natural Selection.

  20. Bill Sell says:

    Not pretending that I (or anyone) can speak for the whole electorate on a new tax. But the whole electorate did speak for itself in 2008 for a tax swap (cutting property, raising sales) for parks and transit. And almost as soon as we spoke in favor, the doors slammed shut. Governor Doyle vetoed the legislature’s decision to include the tax in the Budget. And the Dems, in charge at the time, could not find the will to override this foolish mistake.

    We already squandered our citizens’ good will on sports only to see the sun never setting on our obligation to the Brewers. Is it a wonder we’re skeptical of leadership here?

    Altogether now, from the top: let’s listen to voters, let’s protect the essential infrastructure our city needs to grow its economy, and after the heavy lifting we will have reason to be called a first class city.

  21. Joe says:

    I think there should definitely be a larger plan in the works that would benefit more people. The Park East area is the ideal spot for an entertainment district. The arena can be combined with a convention center to attract more visitors to Milwaukee. Look at Echo Arena in the UK as an example of a combined arena/convention center. This could change the landscape of a mostly abandoned part of the downtown. It could be a spark that generates construction in the neighborhood. There is already development occurring in the Brewery (hotel, apartments, etc). The Park East and Brewery could merge into that entertainment district.

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