Bruce Murphy
Murphy’s Law

Will A New Soccer Stadium Help or Hurt the Bucks?

By - Jul 27th, 2001 05:10 pm
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The proposal to build a soccer stadium downtown adds another complication to what has become a political minefield around the proposed Bradley Center renovation. Businessman Tim Krause‘s idea to build a state-of-the-art facility based on England’s famed Wembely Stadium has tremendous appeal, would bring a major league soccer franchise to this city, and asks for no tax subsidy. So what’s not to like?

Krause has had to work gingerly to build support for his proposal, not because of its merits, but because it could muddy the already messy efforts to renovate the Bradley Center and bring more revenue to the Milwaukee Bucks. At stake is not just the fate of the Bucks or the development of a big chunk of downtown, but just possibly, the political popularity of Sen. Herb Kohl.

This state-of-the-art facility would bring major league soccer to this city, and asks for no tax subsidy. So what’s not to like?

Let me begin here with a correction. Shortly after yesterday’s story on Herb Kohl was posted, Milwaukee Bucks vice-president of business operations John Steinmiller called me. Steinmiller, who had been on vacation and could not respond to my interview request before the story ran, says the Milwaukee Bucks are organized as an “S” corporation, meaning any team profits or losses flow to the personal taxes paid by the owner, Herb Kohl. This would mean Kohl rather than the team would have been the beneficiary of the approximately $8.5 million tax write-off for player depreciation and would also have claimed any losses or profits the team made.

This also means my estimate of team profits, based on taxes paid, is dead wrong. The Bucks, it turns out, hold U.S. Treasury bonds, whose earnings (as for any “S” corporation) are subject to the state corporate tax. Steinmiller declined to discuss the team’s finances in detail, but assuming the bonds are paying in the neighborhood of six percent interest, the team holds bonds worth around $400,000, and this is what the state tax payments reflect.

Are the Bucks then losing money? As recently as 1998, Steinmiller told the press “we’re operating within our means” and Kohl “really feels you have to operate it as a business.” Steinmiller concedes that until recently the Bucks operated that way but says now, “we’re losing money.” As for entire 15 years of ownership by Kohl, Steinmiller says, “prior to 1998, there were a few losses.”

He also concedes a Bradley Center renovation would increase the value of Kohl’s investment in the team. One source close to the ongoing negotiations says the goal is to increase the team’s annual revenue by $10 to $12 million. According to the rankings of franchises by Forbes magazine, this would bring the Bucks up to the level of a team like the Orlando Magic, which is valued at $165 million, or $34 million more than the Bucks. That’s a nice return for Kohl, so why not make the investment himself?

That gets us into the aforementioned political minefield. Since the Bradley Center is not owned by Kohl, he would be investing in a facility he does not own. This generous gift of Jane Pettit remains a complication, because money can’t be earned selling naming rights to a facility named after her father. Attorney Francis Croak, who represents Pettit, says she “has never interposed herself on anything about the way the Bradley Center is operated,” but both the Bradley Center and the Bucks have been careful about commercializing the building. Mayor John Norquist has suggested an approach that outright clutters the building with signage and sponsors as a way to raise revenue, but it appears this will not be done, out of respect for Pettit.

In other NBA cities, according to noted national developer Michael Hallmark, the teams’ owners are buying up property around the arena to create “a supportive entertainment district.” The Miami Heat is developing themed restaurants and after-hour clubs. Phoenix Suns owner Jerry Colangelo has invested in spin-off development that includes the 5,000-seat Dodge Theater, whose naming rights were purchased by nine Dodge car dealerships.

“Typical arenas in the US can regularly attract 2 million visitors a year,” Hallmark notes. “That drawing power is valuable to many other interests including retail, dining and corporate advertisers.”

There is, in short, a tremendous opportunity here for an entrepreneurial owner. But Herb Kohl is a full time U.S. Senator who has no time for development schemes. “We don’t want to be in the restaurant business,” says Steinmiller. He adds, “It makes sense for operating efficiencies for the Bradley Center to run those things.” That leaves a non-profit entity, the Bradley Center, operating as a kind of lead entrepreneur for the Bucks, and trying to buy up nearby property for possible development.

Other NBA owners are developing restaurants, bars and theaters around their arena. But Kohl is a full-time Senator with no time for development schemes.

But the Bradley Center lacks the capital to make much happen. Enter the Wisconsin Center District, which runs the Midwest Express Center, arena and auditorium, and collects the hotel-motel and auto rental tax. This kind of stealth tax, as opposed to the sales tax collected for Miller Park, could probably be used for the Bucks without causing too much damage to Sen. Kohl when he runs for reelection. But the Wisconsin Center’s board, led by president Frank Gimbel, has made it clear the Bradley Center would then have to be run by the Wisconsin Center.

Milwaukee’s business leaders didn’t want a situation where the Bucks destiny would be controlled by the Wisconsin Center, so they convinced legislators to throw a proposal into the budget to disband both the Bradley and Wisconsin centers and merge them into one. For Gimbel, who has put years of work into overseeing the creation of the successful Midwest Express Center, this would in essence wipe away his achievement. The Wisconsin Center board will doubtless do everything to kill the budget proposal.

Enter Tim Krause, with his soccer proposal. The most intriguing aspect of Major League Soccer is the league owns all the players, TV contracts, etc. and each city’s team operates as an owner/operator. In essence, this means all revenue is shared and there is no handicap for small market teams.

Krause has proposed that the soccer stadium and the Bradley Center join forces, and thus save money on overhead, with joint ticket office, administration and other efficiencies. Krause’s proposal for the stadium also leaves room for a bar, restaurant and other retail, which the two operations could run together. Operating jointly, the two entities might also have more power to cut deals with sponsors and advertisers. All of which could make the Bradley Center more profitable and spin off more money to the Bucks.

That sounds attractive, but when Krause met with members of the Bradley Center board, he was simply adding another piece to a complex political puzzle . “I think the level of understanding of how the soccer stadium could complement the Bradley Center is increasing as we talk,” says Jeff Remsik, a spokesperson for the soccer project. But he admits they have a ways to go in selling business leaders.

The whole political mess could probably be solved if Herb Kohl wasn’t a U.S. Senator. Or if the Bradley Center was owned by the Bucks. Or if business leaders trusted the Wisconsin Center.

But perhaps the easiest solution would be if Kohl was willing to spend the estimated $35 to $50 million needed to renovate the Bradley Center rather than going to taxpayers. In return, he would probably see his team’s net worth rise by some $15 to $30 million, and would reaffirm his heroic status with the populace. And life would suddenly become much simpler for an awful lot of Milwaukee’s civic, business and political leaders.

This article was originally published by Milwaukee World.

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