Monday, August 4, 2014

Real Answers to FAQ on the Bucks' Arena Push

I am a Bucks fan.  I like to write about the Bucks.  

I also am a connoisseur of sports stadiums.  I find them fascinating.  One of the most fascinating parts, at least to me, is how they are financed.  I read the Field of Schemes blog daily.  I read countless local news articles on stadium financing.  I even read lease agreements and financial statements related to stadiums occasionally.

Today, I was linked to the Bucks Arena FAQ on Brewhoop.  Oy, is it bad.  It is written by someone who doesn't follow sports stadiums and stadium financing closely.  It is so bad, in fact, that I have written a Real Answers to FAQ on the Bucks' Arena Push below.  Enjoy.  (And feel free to comment below if I've missed any Qs that are FA).


Do the Bucks need a new arena?

No.

Let me rephrase: Why to the Bucks say they need a new arena?

There are several reasons:

1) The Market


Milwaukee is a bad NBA market.  (Sorry, folks, but we are keeping things Real here.)  There are a ton of sports fans who love basketball, but that's not what the NBA looks for.  The NBA looks for markets that can help draw national TV ratings (which is why Golden State and Boston mean more than Houston and Washington, even though the latter pair are larger TV markets), buy expensive tickets and be attractive to players.  Seattle was a bad NBA market (and maybe still is).  With rare exceptions, Milwaukee is, too.

When a city is a bad NBA market, it creates incentives to move.  The Bucks might be worth more in a city like Las Vegas, Vancouver or even Chicago.  The way a city can counter those market deficiencies is to have the government hand over money in the form of an arena.  Orlando and Sacramento are stinky NBA markets, but those local governments handed over hundreds of millions of dollars in tax money to build new arenas.  The Bucks want Milwaukee to hand over hundreds of millions of dollars so that the weakness of Milwaukee as an NBA market is offset.

2) The Bradley Center Lease

The Bradley Center is generous to the Bucks.  The Bucks did not pay for the arena.  The Bucks pay no rent.  The get a percentage concession revenue from events that are NOT Bucks games.  All good.  

The problem is, the Bucks lease is not generous enough.  The Bucks don't own the lease.  They don't get to collect rent from WWE and Rihanna.  They don't get to create a shell company to do concession sales and then keep ALL of the concession revenue from non-Bucks events.  

The Bucks surely want the Pacers' deal.  Indianapolis paid for almost all of the arena's construction cost.  The Pacers pay no rent.  The Pacers own the lease.  And recently, the city of Indianapolis agreed to even take care of arena operating costs.  (Something that is typically the responsibility of the lease holder.)  

That is why the NBA and the Bucks say that we can't renovate the Bradley Center.  The Bucks want to have the benefits of arena ownership.  (They don't want to actually own the arena, of course.  That would mean paying property taxes.  And nobody wants to be subject to Milwaukee's high property taxes.) 

Wait a minute.  People say all the time that the Bradley Center can't be renovated.  Are they all wrong?

Yes.

The Bradley Center has legitimate limitations that no renovation is going to overcome.  In fact, former NBA commissioner David Stern laid them out quite clearly about six years ago.  The Bradley Center is on a smaller site than most NBA arenas.  The shape of the Bradley Center bowl is problematic.  (Credit to Brewhoop on this one!  They mentioned the shape of the bowl as a problem.  Though they did get the numbers wrong.  They used the hockey numbers [7,500 seat lower bowl with 17,500 total capacity] rather than the basketball numbers [8,717 lower bowl with 18,717 total capacity].)  The lower level is too small (touted in 1988 as a positive because it brought luxury bowes and upper level seats closer to the action) and, more importantly, the bowl is shaped for hockey.  The Staples Center, United Center and Celtics' Arena are all shaped for hockey as well, but at the Bradley Center the angles are worse.  (This is what happens when an arena is built on the cheap.)

The Bradley Center has other problems that David Stern didn't cite.  The arena floor is at street level. (It's better when the lower level concourse is at street level, like at Miller Park.)  The lower level concourse is at mid-level rather than above the lower level.  (Concourses above the lower level offer a larger distance to walk around [more concessions, more bathrooms] and a view of the arena bowl from the concourse.)  The Bradley Center seating was crammed in, resulting in narrower seats and less legroom than at modern arenas.  There are also reportedly limitations back office space (locker rooms, offices, etc.).

So, the Bradley Center has unfixable problems.  As does Madison Square Garden, Wrigley Field and Fenway Park.  Obviously the Bradley Center is not a beloved civic institution in an ideal location the way those other stadiums are, but it can be renovated to the point where it is great.  The Bucks could knock down the lower bowl and rebuild it, like is happening now at the Citrus Bowl in Orlando.  The Bucks could remove some of those odd-angled upper bowl seats and replace them with large bars, like the United Center did.  A large entrance atrium with a restaurant and gift shop could be added, like in Auburn Hills (where the Pistons have an arena that is just as old as the Bradley Center, but no desire to move).  But, whatever.  The Bucks want a new arena because of the lease issues mentioned above, so at the moment a renovation is a moot point.

Alright, so we're going to build.  Who's going to pay for it?

Herb Kohl is paying $200 million--

Wait a minute.  Stop right there.  Herb Kohl said he's paying $100 million and Wes Edens and Marc Lasry, the new owners, are paying another $200 million.

I'm not so sure.  During the introduction of Lasry & Edens as owners, it sounded to me like their $100 million was actually coming out of the sale price.  The sale price goes to Kohl, so that'd mean Kohl is paying the whole $200 million.

Yeah, but--

Fine.  

Herb Kohl is paying $100 million and the new Bucks owners are paying $100 million.

That's better.  Now, who's going to pay for it?

Either the five counties that are part of the Miller Park tax, the taxpayers of Milwaukee or nobody.

The Miller Park tax, which usually draws about $25 million/year, is more than enough money to cover the $200 million-or-so difference between the $400 million-or-so cost of a new arena and the amount Kohl and the new owners have promised.  Even if the arena costs $500 million, the Miller Park tax would cover it.  

The problem is that the state legislature would have to approve an extension of the Miller Park tax for a new Bucks arena, and thus far there is no political will for that.

If the Miller Park tax is not extended, then that $200 million-or-so in tax money would have to be given to the Bucks by Milwaukee.  The surrounding counties simply aren't going to donate on their own.  Heck, even the surrounding cities may revolt against a county-wide tax increase.  So this will come from the city, or it won't come at all--

Great.  Let's do this.  The Bucks are easily worth $200 million-or-so to Milwaukee, so--

Not so fast.  The Bucks are, in fact, worth something to Milwaukee.  They're probably even worth more than $200 million to Milwaukee.  But a new arena alone isn't going to save the Bucks.

What?  That's ridiculous.  Even the NBA and the Bucks say that a new arena will save the Bucks.

In the early 90's, Seattle thought that a renovation of the Seattle Center Coliseum would save the Sonics.  Indiana thought that building their current arena would save the Pacers, and the team threatened to move eleven years later.  New arenas help, but they are no guarantee.  If the local market doesn't move national TV ratings, can't support high priced tickets and isn't attractive to players, then the team will leave regardless.

So a new arena won't save the Bucks?  Where are you going with this?

Before I was so rudely interrupted above, I was trying to say that even though I think that the Bucks are easily worth $200 million-or-so to Milwaukee, the city needs a change if the Bucks are going to stay.  

Milwaukee needs growth.  It needs people who want to pay a couple hundred dollars per ticket for the best seats.  In short, it needs to stop the brain drain.  Milwaukee keeps losing young, educated professionals.  Young, educated professionals love the NBA.  (At least, some do.)  Young, educated professionals will pay for those high-priced tickets.  (At least, some will.)  But young, educated professionals are not in large enough supply.  Why?  Hard to say.  But I definitely think that one of the reasons is those pesky old high taxes.

Ahh, I see where you're going with this.  Milwaukee's taxes are high, so--

Yes.  Milwaukee's taxes are high, so there needs to be a way to raise $200 million-or-so in tax money without raising taxes.

$200 million-or-so in tax money without raising taxes?  How is that possible?

By re-purposing an existing tax.

Oh.  Interesting.

Milwaukee collects about $25 million per year in tourist taxes (restaurants/bars in downtown, rental cars, hotels).  Those taxes are currently spent on the Wisconsin Center District.  That is the organization that supports the Milwaukee Theatre, the MECCA Arena and the convention center.  Two of those things are redundant, and could be torn down with almost no loss to the city as a whole. (And be careful.  Entrenched parties will tell you that you can't tear down the Milwaukee Theatre because the bonds have yet to paid off.  Don't forget to ask those entrenched parties, "why?".  The Milwaukee Theatre can absolutely be torn down and it will actually SAVE the city some money.  Taxpayers will no longer be on the hook to pay for staff and maintenance for the Milwaukee Theatre.)  The convention center is not completely redundant, but it is certainly less important than a new Bucks arena.  A new Bucks arena means forty large crowds downtown and (hopefully, someday) countless other Bucks fans occupying sports bars and restaurants like during Packers games.  The convention center doesn't draw any big conventions AND YOU DON'T WANT IT TO.  Being a convention city sucks!  Ask Indianapolis.  Ask Jacksonville.  Ask San Diego.  (OK.  San Diego is far from sucky, but that is not because of ComicCon.  It's because of the weather and people and geography.)  

I don't need any more convincing.  I'd rather have a new Bucks arena than the stuff the Wisconsin Center District supports.  But why not have both?

Having both means higher taxes, and--

Oh, yeah.  That's right.  High taxes = brain drain = Bucks move even with a new arena.  So what else is there?

Location?

Yes.  Where will the arena be built?

Where *should* it be built or where *will* it be built?

Judging by your didactic nature, you clearly want to answer the former.

Glad you asked.

The Bucks arena should be built in the Miller Park parking lot.  My choice is Helfaer Field, but people seem to like Helfaer Field.  But there are ways to make space.  I know there are parking spots needed for Miller Park and I know that an extended Bucks playoff run (WHICH WILL HAPPEN, DANG IT!!!) would lead to scheduling conflicts, but it really is the best place.

Blah, blah, blah.  OK, buddy.  You had your say.  Now tell me where it actually will be built.

The Milwaukee Business Journal laid out six possible locations for a new arena, and they seem on point.  But the emerging favorite is at the site of the current MECCA arena and Milwaukee Theatre.  We already discussed how those two buildings are redundant drains on Milwaukee's tourist taxes.  We didn't talk about the fact that they are closer to Wisconsin Avenue than the Bradley Center.  Milwaukee politicians want to invigorate the Wisconsin Avenue area, and a new arena at the site of those two old redundant buildings may be just the ticket.

What about Grand Avenue Mall?  That's right there on Wisconsin Avenue.  

Absolutely.  And if it were politically feasible to tear down the MECCA arena and Milwaukee Theatre without building a new arena where they currently sit, then Grand Avenue Mall would work. But that's not reality.  Local politicians do not want to turn two buildings that hold fond memories into rubble without having something standing in their place.  

OK.  So, we don't need a new arena, but the Bucks say we do and they're what counts.  We could get it paid with the Miller Park tax, but instead it will probably be city of Milwaukee taxpayers.  And it'll have to be built in a sub-optimal location because everybody wants it downtown, but nobody wants a pile of rubble downtown.  That it?

Yep, pretty much it.

Wait.  I have a few more.

OK.

What about naming rights?

Eh, barely means anything.  Maybe $5 million per year, if we're lucky.  And it doesn't matter anyway.  Edens and Lasry will use the naming rights to offset their $100 million contribution.

What?  That's not fair.  Why do Edens and Lasry get to keep naming rights money to offset their $100 million.  That means it's not really $100 million.

You clearly don't follow stadium financing closely.  That's just how it happens.

Well, dang.  Speaking of other places, can we just replicate Sacramento's or Oklahoma City's model?

That's the tricky thing: No.

Sacramento and OKC had no arena.  No place for the aforementioned WWE and Rihanna to play.  Or, at least no place downtown.  Milwaukee has a downtown arena.  It may be further from Wisconsin Avenue than some people like, but there is a solid argument out there that if NBA arenas really do spawn nearby development, it would've happened already.

So what?  Why does it matter if a new downtown Bucks arena won't spawn new development?

Because that's what this thing is being sold on.  Milwaukee gives the Bucks $200 million-or-so in tax money, and in return the Bucks give Milwaukee the spark for new development.  Win-win.

But it's not like the Bucks mean nothing.  If they leave it'll hurt, right?

The Bucks leaving would hurt.  Supply-side economics tells us so.  "Supply-side" is a fancy way of saying, "if you build it, they will come".  It means that NEW wealth (not just the shifting around of money from West Allis to New Berlin) is created when people create demand by creating supply first.  For example, in 2009 nobody knew they wanted an iPad.  Apple created new wealth for the world by supplying the iPad; thus creating demand for it.  

Stop talking supply-side economics.  The Bucks arena, remember?

Right.  Anywho, the fact that the Bucks are doing business in Milwaukee as a private entity does create wealth.  It's impossible to calculate exactly how much wealth they create, but they create some.  The problem is, they are unlikely to create the kind of wealth that's being advertised.  If the Bucks leave for Las Vegas, the Grand Avenue Mall will still get repurposed.  The Journal headquarters will still get made into a hotel--

Wait a minute.  You're starting to sounds like an anti-Bucks person.  How is downtown going to get re-developed without the Bucks there?

Look, I want the Bucks to stay.  I also want to keep it honest.  Repurposing the tax money that goes to two redundant buildings like the convention center, Milwaukee Theatre and MECCA arena is a good thing.  I'm all for that.  I'm just saying that downtown is going to be re-developed anyway.

What makes you think that downtown will be re-developed even if the Bucks leave?

The Bradley Center isn't going to just be torn down if the Bucks leave.  Marquette is not going to stop playing basketball if the Bucks leave.  Concerts and other touring events will not just ignore Milwaukee if the Bucks leave.  There is tremendous opportunity to make Milwaukee's downtown less about a mall and a newspaper's headquarters, and more about hotels, condos, restaurants and nightlife.

You mentioned Marquette there.  Why aren't they contributing?  Or the Admirals, even?

Here's a dirty little secret about the arena debate: Marquette and the Ads don't want a new arena.  The Bucks owners want an arena with 2,000 to 2,500 fewer seats so that they can fill the arena (and also charge higher ticket prices, I'm sure).  Marquette doesn't want that.  The Bucks owners also want a seating bowl designed for basketball.  That means it'd be too small for hockey.  The Ads would be stuck playing in an arena where only 2/3 of the seats have a full view of the ice.  


That's a pic of Barclays Center, the Nets' new arena.  See that black tarped area to the upper right?  Those are retracted seats and seats without a full view of the ice.  The Admirals will have that same problem at a new arena.  And it completely kills the possibility that Milwaukee would ever get an NHL team.

Whoa, whoa, whoa.  Nobody told me that if the Bucks get a new arena, then Milwaukee would never get an NHL team.

Look, that dream has been dead for a while.  You can always root for the Kings.

(That was the winner in overtime of game 7.  We won the cup this year!  Someday--)

Shut up.  I'm a Blackhawks fan.

Don't worry.  The rubber match is this year.

Hell yeah.

Back to the Bucks' arena.  We've been here a while.  Lightning round.

OK.  More or fewer luxury boxes in the new arena compared to the Bradley Center?

Fewer.

Better or worse cheap seats?

Better angle (more on the sidelines), but worse elevation.

How much will the best tickets (not counting courtside) cost?

$250 per ticket (season ticket price), but that includes all food and non-alcoholic beverages.

How much will the cheapest tickets cost?

$12 per ticket for season tickets.  $20 to $50 for single games.

$50 is the cheapest ticket for some games?!?

There's always StubHub.  Few things beat the energy inside an NBA arena when the stars are in town, and the Bucks new owners know that.

How much will the cheapest lower level tickets cost?

It'll be a huge lower level, so it won't be equivalent to the furthest lower level seats at the Bradley Center.  But the cost will be $45/ticket for season seats and $60 to $125 for single games.

Dang.  We're giving the Bucks $200 million-or-so in tax money and then we have to pay these higher ticket prices to watch the games?

No.  You can still watch the games.  If you're on the Internet and you're a Bucks fan, chances are you're not buying tickets right now from the Bucks, anyway.  (Burn.)  

(But true.  A major problem with the Bucks' online fan base is that they either don't go to games or they buy from StubHub, which usually undercuts the Bucks' face value price.)

When will this arena open?

2019 is my guess.  Or maybe never.  The A's have been in Oakland with no long-term lease and a supposedly unsuitable stadium for well over a decade.  The Bucks could be the same.

What?!?  You're telling me we might not need a new arena to keep the Bucks in Milwaukee?

Alright, that was the last question because I need to hit happy hour.

Yes.  The Bucks will probably stay in Milwaukee even if they don't get a new arena.

People have all sorts of reasons why the Bucks will positively, definitely, assuredly move if a new arena isn't built.  Let's debunk them:

"The Bradley Center is unfit to be an NBA arena."

It ain't condemned.  This is purely a canard.

"The Bucks' lease is up in 2017."

So?  Their lease was up in 2011.  Next question.

"The arena doesn't have club seats."

Actually, it does.  Rows A through H of the middle three sections of the lower bowl already include entry to a floor-level club.

"There isn't enough concession and retail space."

True!  But solved if a $50-70 million entrance atrium is build by the northeast entrance.

"They need amenities, like a restaurant."

True!  But, again, solved with an entrance atrium.

"The NBA can buy back the Bucks in 2017."

Ah hah.  The biggest canard of them all.  The fact that the NBA included the OPTION to buy back the Bucks for $25 million more than the new owners paid if progress on an arena is not made by 2017.

First of all, Lasry and Edens are keeping this team.  There is no guarantee that NBA franchise values will continue to rise.  When Dan Gilbert bought the Cavs in 2005, he paid $375 million.  When Michael Jordan bought the Bobcats in 2010, he paid $175 million.  (And Charlotte is a LARGER market than Cleveland.)  NBA franchise values do not just go up and up and up.  Right now there is a bubble, and that is why Herb Kohl sold the whole thing.  In 2017, there will probably not be a bubble, and nobody will be paying more than $575 million for a business that draws $109 million/year in revenue.  (To put that in perspective, a friend of mine works for a tech company that is worth only $1.02 billion.  They drew $263 million in revenue last year.)

People say that the NBA is getting a new TV deal and that it'll be worth all of this extra money, but I'll believe it when I see it.  This ain't the NFL, folks.  

Even if I'm wrong and franchise values aren't part of a bubble right now, the NBA is going to let Edens and Lasry keep the team.  Good owners are hard to find.  They're not going to kick these guys out.

So, there you have it.  Some real answers to frequently asked questions about the Bucks' arena push.  Now, let's hope the next time I post here it's about how the modern version of Bird & McHale is going to be Jabari Parker & Greg Monroe.

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