Scott Walker releases charts touting Bucks arena, hopes state schools cuts means no one can do math

Still no state legislative hearings on the Milwaukee Bucks arena bill, but lots of other news, or at least stuff to fill up the newspaper and interwebs with:

In short, lots of posturing, very little actual analysis. The most interesting point that could be raised about the Bucks case is that since they rely on national league revenue for their expenses way more than most NBA teams — something raised by a commenter here — a good chunk of the income tax money that Wisconsin collects as a result of the team being there is in effect paid by the rest of the league, not by Wisconsin residents. That means that if the Bucks were to leave, the state would actually lose that money, not see it recirculated into other local activities.

Now, saying that Wisconsin has more reason to subsidize the Bucks to stay than other cities might doesn’t tell us anything about whether $300 million in subsidies would be worth it. Last time I asked an economist about this issue, he estimated that about 27% of the Bucks’ income taxes came from NBA revenue sharing. Given that Walker’s own claims (and nifty Excel charts) say that the state would get three dollars in profit on every dollar in spending, multiplying that by 27% would leave about a 19-cent loss on each state dollar spent. That could be covered by money spent by out-of-towners on Bucks tickets that otherwise wouldn’t get spent — the substitution effect isn’t 100%, after all — but even then, we’re just talking about making the state whole on its $55 million in spending, and there’s another $245 million in county and city money to be accounted for.

In short: $300 million is a lot of money, and it’s pretty much inconceivable that the Bucks are worth that much in actual revenue to Milwaukee taxpayers. Walker, Abele, and all the other pols who put their heads together on this one may have just crafted a plan that doesn’t hit state taxpayers too hard, though, which could be just what’s needed to get through the state legislature.

5 comments on “Scott Walker releases charts touting Bucks arena, hopes state schools cuts means no one can do math

  1. I don’t see this notion of “keep the team payroll low and revenues lower to negative” winning much support from the league, even if it soothes criticisms about substitution.

  2. For anyone interested in the secret meetings behind the arena-deal sausage making, this 6/5/15 video of the recent Common Council meeting is fascinating (online at the City Channel website). Mayor Tom Barrett and other city staff described how they rebuffed some of the Bucks outrageous demands, but agreed to many others…

    Passage by the city board does not seem like a slam dunk, and members of Common Ground, a coalition opposing the deal, were at the hearing in full force.

  3. First, as to the provision that team owners will pay for cost overruns, let’s remember how that played out with the Brewers stadium and the legislative cap on the construction cost. The stadium board evaded the cap by leasing the roof and scoreboard. Those items are technically being rented, and therefore weren’t part of the official construction cost, which is how they stayed within the cap. With that kind of trickery, any “cost overrun” can readily be made to disappear.

    Second, as to the substitution effect, it’s not just about how much subsidy the Bucks receive from the NBA. There’s another, wider, subisdy at issue here, which is the nationwide transfer of wealth from most cable TV customers to those jurisdictions that have sports teams. The high salaries of NBA players are being paid by TV customers all over the country, but only the jurisdictions that have teams can levy taxes on those salaries. Iowa residents pay for NBA salaries in their cable bills, but Iowa can’t tax them. If the Bucks leave, Wis. will switch to being on the losing end of that subsidy equation.

  4. ChefJoe: Well, they don’t actually have to *do* it. They just have to project it. Speaking of which…

    Kenneth: Okay, let’s say we double the amount of non-substituted Bucks spending comes from national sources, to more than 50%. Now the state is actually making money on the deal, though it’s about a third as much as what Walker’s chart claims. (And the city and county are still taking it on the nose.) There’s a problem, though: What happens when the Bucks, presumably, start selling actual tickets to go see games at their brand-spanking-new arena, which is supposedly the point of this whole thing? Suddenly the share of revenue that’s local rises, and it starts substituting for other local spending.

    All of this is conjecture to some degree, obviously. But I feel pretty comfortable saying that when state income taxes are taken into account, this would be breakeven or maybe a bit better for the state, and a massive money loser for the county and city.

  5. Neil,

    Gov. Walker said that the state will get back $3 for every $1 spent. If that was even remotely true, wouldn’t the owners of the Bucks just build the arena themselves and take the 300% profit?