Bucks sold, pledge to stay in Milwaukee, also threaten to leave Milwaukee

Former U.S. Senator Herb Kohl announced yesterday that he was selling the Milwaukee Bucks to a pair of New York hedge fund billionaires for $550 million, that he and the new owners would each be pledging $100 million towards a new arena, and that a condition of the sale is that the team will remain in Milwaukee.

All of the above is true. All of the above is also not exactly true. Here’s why:

Marc Lasry and Wesley Edens, the very very rich guys who will be the new Bucks owners, are indeed buying 100% of the team from Kohl, for a price that’s well above Forbes’ $405 million estimate for the team’s value. And while Forbes has a history of undervaluing teams compared to their eventual sale prices, there’s a bit of sleight-of-hand here: Because Kohl is kicking in $100 million toward an arena for a team he’ll have nothing to do with, this can equally be looked at (aside from some tax implications) as Lasry and Edens buying the team for $450 million, and pledging $200 million toward an arena.

Now, about that arena. News reports all say that Kohl made it a “condition of the sale” that the team remain in Milwaukee, but also all indicate that a new arena is a condition of that condition — meaning what he’s actually demanded is that Lasry and Edens continue his policy of promising to stay in town so long as a new arena is built, largely with public money. In fact, Kohl made that explicit in an interview yesterday with Milwaukee Journal Sentinel reporter Don Walker:

 “Ultimately, if we don’t get to a new arena, yes, we will lose our team,” Kohl said. “The money will go away.”

That $200 million combined “pledge,” then, can equally be looked at as a demand for the $200-300 million in money that would be required to pay for the rest of the arena — or else.

Milwaukee chamber of commerce president Timothy Sheehy made an unspecified promise yesterday that “there is more private-sector money coming,” but far from being a “game-changer” as Walker insisted in his lede, this is pretty much the same game as always: The Bucks have owners who say if they don’t get public subsidies for around half the cost of a new arena, they’ll threaten to leave town. The only thing that’s changed is the names of the owners, and their ages (Lasry and Edens are in their early 50s; Kohl is 79). “Milwaukee Arena Shakedown: The Next Generation” isn’t quite as boosterishly sexy a headline as this, but it’d be a more honest one.


25 comments on “Bucks sold, pledge to stay in Milwaukee, also threaten to leave Milwaukee

  1. Put in the most cynical terms, the Bucks were sold to a pair of investors who promised not to move the team right away (Lasry & Edens) instead of a pair who would have moved them right away (Hansen & Ballmer).

    I think MKE will eventually find a way to pay over the odds for a new arena, though. One and two-horse sports towns almost always do.

  2. I love the Journal-Sentinel. I’ve lived a lot of places, read a lot of newspapers, and I have never seen one that does investigative reporting as well. Reading these awful articles about the demands for a new Bucks stadium are that much more jarring because of it. It’s like they just re-write the press release and call it a day. I’m baffled that anyone could support the idea with how little has been said about the plan. Some questions I have that I haven’t seen answered:
    – Where will it be? The comments about Miller Park suggest to me that it’s not going to be in the city center. If that’s the case, why would or should the downtown businesses chip in?
    – What’s going to happen to the other tenants? The Marquette men’s basketball team and the Admirals AHL team both also play at the Bradley Center. The fact that I’ve not heard any comment from either makes me think that they’re going to stay put.
    – What is wrong with the current arena? Having been to a couple games over the past few years, I feel safe assuming it’s not a lack of seats. I’ve heard it leaks in a couple spots, but that’s warrants a repair, not an entirely new building. I’m sure all they want is more luxury boxes, but I suppose, “We super-rich guys want everyone to pay for an arena so some pretty rich people can have nicer seats” doesn’t play that well.
    Oh, one thing that was on the radio last night, but that I didn’t see in the article. 29 years ago, Kohl bought the team for $18M. Now he’s selling it for $550M (or $450M, if that’s how you prefer to look at it). Not a bad return on investment.

  3. @JJG

    Good questions but from everything I hear, the new arena is most likely going to be in a large patch of land just north of the current arena that is bordered by McKinley ave. to the north, 4th av to the west, Juneau to the south and 6th to the east.

    Not sure about the other tenants but most Buck fans seem to think that Marquette will follow while the Admirals will stay put. Not sure how credible they are or if they’re taking guesses.

    I actually agree on the current arena. I think it just needs a major renovation but according to Silver, Kohl and the rest of the NBA owners, the arena lacks square footage needed for necessary revenue in small markets. Since the Bucks don’t have a lot of corporate sponsors and since they lack the type of tv and radio contracts that you see from bigger market teams, they need to rake in revenue from the arena. That means larger concourse space so you can have concessions on both sides of the concourse as opposed to just one and things of that sort. I don’t know how much difference that makes in the grand scheme of things and like I said before, I think they could have a major renovation like they will be doing in Minnesota.

  4. I forgot to add something regarding the sale price. I’m thinking that the difference between $18 million and $550 million accounts for Kohl’s willingness to throw a lot of money into the new arena. A lot of people are confused as to why Kohl would put up so much money for he team he only has a minority interest in but when looking at that increase, he is in position to help out a lot and save the tax payers.

    OTOH, if they really are still looking for $200-$300 million from the public, they are in for a rude awakening. My best guess is that it’s posturing and leverage at this point. When push comes to shove, I see some room for compromise or at least hope so for Buck fans.

  5. Never having been at the Bradley Center, I cannot judge for myself. However, I seem to recall people raving about it when it opened, how it was leaps and bounds beyond anything that the old Mecca could offer.

    As a warning to Milwaukee fans, much the same was said about the rebuilt Key Arena in Seattle when it was reopened in 1995.

    Best-case scenario would be to renovate Bradley and keep the Bucks where they are.

  6. “I think it just needs a major renovation but according to Silver, Kohl and the rest of the NBA owners, the arena lacks square footage needed for necessary revenue in small markets.”

    The new revenue from all that added concessions space would never be worth the $400-500m construction cost of a new arena, though. So in saying “the Bradley Center lacks the necessary revenue,” the Bucks are really saying, “We want to make more money, but we don’t have the gall to just ask Milwaukee for an annual cash grant like the Pacers, so how about you just launder it through a giant arena construction project instead?”

  7. @Trueblood

    Ah, thanks for the info. I remember when I first moved here, they were considering turning that parcel of land into a movie theater. I guess it would make sense to put the new arena there. You’re definitely right, though. $200-300M will be a very tough sell, especially when the outlying counties are totally unwilling to pitch in, and I’m pretty sure Milwaukee is going to get saddled with the bill for the courthouse repairs and renovation. If the NBA and the Bucks need either a new arena or better television and radio contracts to be profitable, maybe they should put a product worth watching on the court.

    As to the second post, remember, Kohl is only pitching in $100M. That brings the increase in value down to $432M.

  8. So is it correct then that if another city offers to provide an additional $100M + $1 in subsidies, then the new owners would likely relocate?

  9. I think it’s correct to say that if Milwaukee doesn’t come up with another $200-300m, the new owners will threaten to relocate.

    This is blackmail, not a bidding war. It’s a subtle but important distinction.

  10. @ Neil deMause

    But they’ve also simultaneously also stated to every other market what their opening bid should be though, right? Seems like it would be hard to know what’s going on without knowing their intent – the $100M offer by Kohl seems like it would provide him with CYA in Wisconsin if the team moves and I’m not sure why the new owners should care how their perceived in the region.

  11. Yeah, I guess Kohl can say that his $100m is contingent on the team staying in Milwaukee, so if it ends up moving, well, he tried.

    Clearly the new guys are going to try to get arena money in Milwaukee first, then can start shopping around for alternatives if it’s not forthcoming. But really, that’s the same thing Kohl has been saying all along — all this sale does is give names to his bogeymen who’ll steal your team if you don’t cross their palms with gold.

  12. It’s too bad that the Bucks don’t have the cache of that NFL team to the North. They get away with printing “commemorative” stock certificates for $250 a pop when they need to raise some millions.

  13. It’s extortion, not blackmail. Nothing is secret that the Bucks owners are hiding.

  14. On Bradley Center it did get raves from the media but it was cheaply made and you felt it from the first event you attended. I’m a supporter of renovating it but I do think that the lower bowl would have to be knocked down like at MSG.

  15. I’m between Chicago and Milwaukee somewhat frequently and as such have the opportunity to visit both the Bradley Center and the United Center with some regularity. While the latter is certainly a heckuva lot nicer, the BC is located in about as perfect a spot in Milwaukee as you could ask for — within five blocks of arguably Milwaukee’s best bar and restaurant scene on Water street. Further, it’s a perfectly cromulent arena — no obstructed views, boxes at the back of the lower level and a bar/lounge pass for those sitting courtside. I can’t help but think that simply using the $100mm from Kohl + the $100mm (?) from the new investors to renovate the BC is a far better use of resources.

    Very disappointed at how this is being reported, BTW. “Oh, how nice of them! They’re willing to actually use some of their own money to build a new arena and are [i]only[/i] asking for $xx in public funds!” I mean, I understand the various incentives at play, but still…

  16. Ben: Having now read several web treatises on the difference between blackmail and extortion, the only thing I can say with certainty is that no one agrees what the difference is.

    http://www.dailywritingtips.com/extortion-and-blackmail/
    http://en.wikipedia.org/wiki/Blackmail
    http://www.quickanddirtytips.com/business-career/legal/what-difference-between-extortion-and-blackmail

  17. Neil:

    I am unfamiliar with the forward tax implications of these types of donations in general, and particularly in Wisconsin…

    Nonetheless I am wondering if Kohl’s “generous gift” of $100m might be related to delayed tax implications arising from Ms. Bradley’s original gift of $90m to fund the present building? Is the Bradley centre a publicly owned building? As I recall it is… so there may be some requirement that that donation be preserved in some form, lest tax issues (dating back to 1988) arise – for either Mr. Kohl or Ms. Bradley’s estate.

  18. Neil,

    Noted. I’m still thinking that “blackmail” should include extortion plus the threat of revealing something.

    Keith,

    I agree and I wish Kohl would have given renovation a real look. I’m a Bucks STH but at this point I’m expecting them to leave Milwaukee. I don’t see the incentive for the new owners to renovate when they can just relocate if they don’t get a new building.

  19. “It’s too bad that the Bucks don’t have the cache of that NFL team to the North. They get away with printing ‘commemorative’ stock certificates for $250 a pop when they need to raise some millions.”

    Well, ChefJoe, I’m one of those people who spent $250 for a share in “that NFL team to the North” (you know, the one with 13 NFL titles and 50+ years of consecutive sellouts), and they’re not “commemorative”…I get a voting ballot every summer.

    Unlike places like Milwaukee (and everywhere else), we Packer fans actually OWN our team. We don’t have a Bob Irsay, Art Modell, Clay Bennett, Georgia Rosenbloom, Al Davis, et al, who’ll move our team when they don’t get their way. It’s kind of nice knowing that every day the sun rises, our team will still be in Green Bay. That alone was worth sending the $250.

  20. @Guilty Bystander, the non-tradeable nature and huge restrictions (no person may buy more than 200 shares, but the original share holders had the same restriction followed by a 1000:1 split meaning two people own 200,000 shares) have received notable attention on the value of the stock. http://blogs.wsj.com/totalreturn/2012/01/13/are-the-green-bay-packers-the-worst-stock-in-america/

    Personally, I think the way to stop owners from moving teams is to have the league/team collectively own the stadia. There’s little business sense in abandoning $500 million dollar facilities that can be rehabbed although I guess you could setup some sort of odd rotation schedule (hello London). However, the money the NFL would need to get to pay for construction costs could impact ticket prices and hit at the profit lines.

  21. “However, the money the NFL would need to get to pay for construction costs could impact ticket prices and hit at the profit lines.”

    There is no possible way that construction costs would impact ticket prices. Unless you really believe that team owners right now are thinking, “Should we raise our prices? It’d make us more money, but we don’t have any debt to pay off, so skip it.”

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