Miami celebrates subsidizing suddenly-crappy Heat by laying off librarians, cops

Now here’s a lede, courtesy of Bloomberg News:

Last month, Miami politicians approved a $19 million subsidy for the professional basketball arena. Six weeks later, they turned to a grimmer task: deciding how many police and librarians to fire.

It’s not quite fair to blame Miami-Dade County’s $64 million budget hole, which could require 700 layoffs, on the Heat arena subsidy deal, since that’s only costing the county $19 million in subsidies over 20 years (and more like $6 million in present value). Still, it’s not helping any, and does point up not only that it’s easier to get public money if you’re a rich guy with a sports team than if you’re actually working for the public, but that sports subsidies can often paint future elected officials into a budget corner. As Holy Cross sports economist Victor Matheson tells Bloomberg:

“You can’t stop your debt payments without actually declaring bankruptcy,” he said. “But you can cut the number of police officers and teachers and librarians and firefighters.”

But at least Miami fans can now rest easy that they can keep watching LeBron James for another, um, whoops. Heat owner Micky Arison sure timed that subsidy demand right, didn’t he?

Cuyahoga exec: We never said LeBron was worth $500m/year

I was traveling much of yesterday, but in the afternoon I received an email from Richard Luchette, the press spokesperson for Cuyahoga County Executive Ed FitzGerald. Luchette said that, contrary to widespread media reports, FitzGerald’s office never meant to imply that LeBron James’ return to Cleveland would add $500 million to the local economy. Rather, he said, the estimated economic benefit of LeBron’s return will be more like $53 million, bringing the team’s total impact to $500 million.

It looks like the blame here mostly goes to some terrible reporting in the initial story by Bloomberg News, which cited FitzGerald’s economic development director Nathan Kelly as saying (in its paraphrase) that “a more robust Cavaliers with James playing increases the total economic impact to about $500 million a year with direct and indirect spending,” but in its lede interpreted this as meaning “the return of the star forward to his hometown Cleveland Cavaliers will have a $500 million a year impact on the local economy” — and doubled down on the wrong with a headline stating “LeBron James’s Return to Bring Cleveland $500 Million a Year.” Though Kelly certainly could have been clearer — I haven’t been able to find a direct quote of how he brought up the $500 million figure in Monday’s press conference — and taking two days to clarify a misstatement that was all over the Internet on Monday wasn’t great work on FitzGerald’s part either.

In any event, $500 million in total annual economic impact for the Cavs is still pretty implausible: The team currently only sells $30 million worth of tickets, remember, and much of that spending would take place elsewhere in Cuyahoga County even if the Cavs played entirely before empty seats. Even if you add in spending on concessions, LeBron souvenir jerseys, hotels for fans who travel from out of town just to see Cavs games (do such people really exist?), and a multiplier for all the money that LeBron-souvenir-jersey vendors will go out and spend at local stores, it’s hard to see getting anywhere near $500 million. I’m still hopeful that Kelly will get back to me with his calculations, though, so stay tuned.

In any event, this is a great cautionary tale about economic impact statements: You can make “economic activity” numbers say just about anything you want them to, and then the press will get it wrong anyway. But at least FitzGerald got on the telly.

Ohio official says LeBron’s return worth $500m, or $50m, or something with a “5″ in it, anyway

Early yesterday, the office of Cuyahoga County Executive (and Ohio gubernatorial candidate) Ed FitzGerald, he of the “win tax,” announced that FitzGerald would be giving an afternoon press conference on just how much money LeBron James’ return to Cleveland would mean to the local economy. FitzGerald had previously claimed that county ticket tax receipts measurably went down when LeBron left four years ago — not too much of a surprise, since people stopped going to Cavs games and presumably did something else not subject to the ticket tax — so the only question was how huge a number FitzGerald was going to come up with.

The answer: $500 million. Per year.

That certainly sounds crazy, but let’s do some rough math and figure out just how crazy. The Cavs had about $145 million in total revenue last year, about $30 million of it via gate receipts, the rest from concessions, cable fees, and so on. Let’s assume that every single Cleveland fan were to double their spending as a result of LeBron’s return — buying twice as many tickets, twice as many hot dogs, twice as many cable contracts. Let’s further assume that 100% of that money would otherwise have been spent outside of Cuyahoga County if not for LeBron, because we all know how many attractions there are in the distant Cleveland suburbs. And then let’s apply a multiplier of 2x, just for the hell of it, under the assumption that all money spent on Cavs games is recirculated in the local economy, because surely NBA players cash their paychecks and immediately spend them at the local Dave’s.

This would get us a yearly impact of $290 million. Still not half a billion.

Or to look at it another way: Last year the Cavs sold 710,000 tickets, and had 132,000 go unsold. Even if the team were, let’s say, to double ticket prices next year, each of those 132,000 new attendees would have to spend $3560 apiece on their visit to a game in order to generate $500 million in economic activity.

Fortunately — or unfortunately, depending on your perspective — it’s not clear that FitzGerald himself believes that $500 million figure. Sure, his deputy chief of staff, Nate Kelly, said it at yesterday’s press conference, but the actual figures mentioned by his staff were far lower. (I’ve requested a spreadsheet or any kind of document at all detailing the economic impact data, but I’m still awaiting a promised call back from FitzGerald’s economic development aide.) From the summary published in today’s Cleveland Plain Dealer:

  • Cuyahoga County will collect about another $3.5 million in ticket taxes this year. The ticket tax rate is 8%, so that would imply an additional $43.75 million in ticket sales, which if they jack up prices to $60 a pop and go deep into the playoffs … sure, maybe.
  • Cavs fans will spend an additional $34 million a year, and the Cavs’ overall economic output would rise by $53 million. Again, that’s not unreasonable, though at least some of this spending would be cannibalized from money that would otherwise be spent on other things in Cuyahoga County, something FitzGerald’s office didn’t attempt to account for.

And … that’s it? That’s not anything close to $500 million a year, and probably not that close to $50 million a year either. The Plain Dealer called Kelly’s half-billion-a-year claim “a much more aggressive interpretation of the data,” which is a nice way of saying “we have no clue why that came out of his mouth.”

Meanwhile, the source of these numbers is in dispute as well: The initial Bloomberg News report said they came from “calculations by the Cuyahoga County Fiscal Office,” but the Plain Dealer reports that FitzGerald said his office worked with the tourism agency Positively Cleveland, drawing on a dubious study commissioned by the team in the heat of last winter’s sin tax extension battle.

In other words, this is a big-ass mess, and there’s no reason to take any of these numbers the slightest bit seriously. Yet the headlines have been written, and you know that the next time some sports team owner is looking for cash to subsidize a new arena, or tax breaks to boost his profits at an old arena, or the purchase of a new point guard, someone will point to this and say, “Keep in mind that even a single player like LeBron James can be worth $500 million a year to a local economy.” (We already went through this with the last NBA superduperstar, don’t forget.) Zombie ideas can be a dangerous thing.

“Private” Virginia Beach arena could cost public $185m

The Virginia Beach city council found out last night how much a new “privately funded” arena would cost the public, and the answer is: a lot.

On Tuesday, City Council learned that it could cost $52.6 million to $78.8 million to pay for the utilities, road improvements, and traffic patterns in the area.

Add in $7 million a year in tax kickbacks that the developer would be demanding, and that’s a total public cost (in present value) of between $160 million and $185 million. For an arena that will cost $200 million to build.

City councilmembers, naturally, were taken aback by the high price tag:

Council members seemed thrilled with the idea and thought it was time to move forward.

Sigh.

Virginia Beach to get more details on “private” arena plan that isn’t

The city of Virginia Beach could release information today on how much infrastructure costs would be for a proposed $200 million arena, according to an article in today’s Virginian-Pilot. More on that tomorrow, then; in the meantime, here’s how the Virginian-Pilot again completely screwed up its reporting on Virginia Beach’s two arena proposals:

The council voted in May to begin negotiating with USM instead of rival development group W.M. Jordan, which included politically influential developer Bruce Thompson. Those negotiations are continuing, and the city won’t release cost estimates.

The Virginian-Pilot obtained both proposals in February and reported that each arena would cost about $200 million. The key difference is that W.M. Jordan wanted taxpayers to pick up nearly all of the costs, while USM said it would obtain private financing.

Oy gevalt. No, no, that’s not the key difference at all. As was discussed back in May, the W.M. Jordan plan would have provided $10.5 million a year in public money to pay off arena bonds, whereas the USM plan is set to provide $7 million a year in tax kickbacks so that the developer can pay off arena bonds. Which is indeed better — 7 is less than 10.5, last I checked — but is not at all the difference between “taxpayers picking up nearly all of the costs” and “private financing.”

Anyway, the Virginia Beach city council is set to receive a consultant’s report today on infrastructure costs, so we should learn more about the city’s total outlay then. Though if USM is smart, it will offer to pay for the infrastructure costs now, and have the city repay them later, since apparently no one in the local media is clever enough to see through such advanced accounting tricks.

Gretzky denies interest in owning nonexistent Seattle NHL franchise in nonexistent Seattle NHL arena

This is from the New York Post and so probably pretty unreliable, but everyone else is writing about it so I suppose I might as well too: Wayne Gretzky is reportedly—wait, what’s that?

Wayne Gretzky’s agent is denying a report that the Great One is trying to bring an NHL team to Seattle…

Darren Blake, Gretzky’s agent, told The Canadian Press in an email that the 53-year-old Hall of Famer isn’t involved in any bid.

“As you can imagine prospective team owners from various franchises call frequently to gauge his interest in coming on board. Seattle is no different,” said Blake.

Oh, good, we can ignore this after all. And not just because what any prospective Seattle NHL team needs isn’t an owner, but somebody willing to build an NHL arena. How’s Gretzky with a trowel?

Kings say new arena will be bigger, smaller, more expensive, not more expensive

According to the Sacramento Bee, the new $477 million Kings arena, being built with about $226 million in public subsidies after years of bitter fighting, is needed to replace the “outmoded and inadequate” Sleep Train Arena that had among the fewest seats in the NBA, even though the new arena will also have among the fewest seats in the NBA, but that won’t matter because it will have more luxury suites, but only 34 instead of 30 because NBA teams have learned it’s not good to have too many luxury suites especially in a city like Sacramento with no major corporations, but there will be more high-priced seats anyway but there won’t be a “massive” price increase but listen it will make more money it just will that’s the whole point don’t ask questions okay?

Anyway, Kings President Chris Granger promises that the lower seating bowl at the new arena will hold 10,000 fans instead of 7,800 at the old one, which will bring fans closer to the action because being at the back of a larger lower bowl is somehow better than being at the front of a closer upper bowl? It must be some kind of non-Euclidian geometry thing. I hear modern architects are doing great things with toroidal space.

Latest Bucks idea: Fund arena by redirecting income and sales tax — wait, isn’t this where we came in?

Clearly the Milwaukee Bucks arena campaign, facing both popular and legislative opposition, has hit the throwing-stuff-at-the-wall-to-see-what-sticks phase. Today’s projectile of choice: the “jock tax”!

[Wisconsin Gov. Scott] Walker, in a Friday interview with the Business Journal, said his staff is studying the possibility of tapping income taxes from NBA players and other tax revenue directly generated by Milwaukee Bucks games to possibly pay for a new arena. The income tax already is paid by Bucks players for games in Milwaukee and visiting team players.

The Milwaukee Business Journal’s Rich Kirchen — yes, that Rich Kirchen — goes on to report that state income taxes on NBA players in Milwaukee currently raises between $8 and 10 million per year. The average NBA team spends about $70 million on player payroll, and the top Wisconsin tax rate is 7.65%, so that … makes no sense, actually? The state can tax visiting teams as well, but then Bucks players can also deduct other states’ jock taxes from their Wisconsin tax bill, so this seems a bit optimistic to me.

And regardless, this is revenue that Wisconsin is currently collecting, so it’s hardly free money. (Yes, it’s money that the state won’t collect if the Bucks move elsewhere, but then sports fans would just spend their entertainment dollars on something else, and employees of that something else would make more money and pay more income taxes, and so on, and so on.) So it’s really just a way of totaling up all the money that the state could credit to the Bucks, then rebating them by writing them a check equal to that amount. Except the players would still be paying the taxes, while the team owners would be getting the check. Nice work if you can get it.

And this would only be enough to raise perhaps $100 million, and the Bucks arena is still $250 million shy of the funding needed to build it. So the rest would be filled in, perhaps, by sales taxes paid at the arena — and suddenly we’re back to the “super TIF” proposed by Sheehy back in April, but which Kirchen is apparently pouring into new bottles and hoping no one notices.

Which brings us to this, at the very end of the article:

The advantage of earmarking for debt payments NBA-player income tax and sales tax from Bucks home games is that the proceeds likely will increase in future years, [Milwaukee chamber of commerce president Tim] Sheehy said. NBA salaries continue to increase and, assuming the Bucks on-court record and attendance improve, sales tax on merchandise, concessions and ticket sales also should increase, he said.

Or, looked at another way, the amount of future revenues that the state would be handing over to the Bucks owners would go on rising inexorably year after year. Damn, sorry about that — I must have missed my shipment of Milwaukee Business Journal rose-colored reading glasses.

If you want to sell a sports subsidy plan, state it in terms of cups of coffee

There was yet another Milwaukee Journal-Sentinel column arguing for public funding for a Bucks arena on Friday, and I wouldn’t even take notice, but columnist James E. Causey brought back the dreaded coffee analogy:

The annual cost to regional taxpayers for Miller Park is about $10, or the cost of two venti Caramel Macchiatos at the local Starbucks.

Even if the figure was $25 a year, it still would be a bargain.

Pricing stadium costs in cups of coffee has a long tradition, most notably back in 2005 when it was the Minnesota Twins seeking public subsidies, and the Minneapolis Star Tribune’s Jim Souhan wrote approvingly, “Twins owner Carl Pohlad will pay $125 million. You’ll pay less than you leave in the tip jar at Dunn Bros.” (That’s a coffee place, FYI.) The problem — other than that the annual cost of Miller Park is repeated over 30 years, so really every man, woman, and child in the Milwaukee area (Causey divides by total population, not just adult taxpayers) is out $300 — is that you can do this trick with just about any public expense you can think of and make it sound reasonable:

Anyway, the point isn’t that big expenditures spread over enough people average out to a small amount — though no doubt writers like Causey are counting on readers’ innumeracy to obscure that realization. (He also buries deep in his article the news that a Bucks arena would cost more like $25 per person per year, or five Macchiatos.) The point should be what else could you be doing with that money. For the estimated $250 million cost of a new arena, Milwaukee could open another 19 libraries, or provide financial aid to an additional 18,000 college students, or, if you prefer, cut the average Milwaukee homeowner’s property taxes by $284 a year.

Not that any of these are necessarily the best uses of $250 million. But you’re talking about how to spend public money, you need to be comparing apples to apples, not to Macchiatos.

Bucks owners to Milwaukee: Fund arena or big bad NBA will take your team away

With economists savaging their plan to seek $200-300 million in public dollars for a new basketball arena, and voters not much happier with it, Milwaukee Bucks owners Marc Lasry and Wes Edens had to do something to jumpstart their plans. So, speaking to reporters and Rotary Club members yesterday (yeah, I don’t get it either, just go with it), they pulled out the big guns:

“The problem we have is in our agreement with the NBA if an arena is not built, the NBA has the right to take the team back,” Lasry said. “I think we’ve got three or four years to do that. So we’re under huge pressure to do it.

“Wes has said it and I’ve said it: There are no other alternatives,” Lasry said.

So, really, if Milwaukee doesn’t come up with money for a new arena, the league is going to take the Bucks from Lasry and Edens and … do what with it, exactly? Sell it to owners who’ll move it? Hang onto it and see if the league can be any more successful at shaking down local politicians for arena money? Come on, Rich “Culture of Caution” Kirchen, we want to know the answers to the big questions!

I asked Lasry later Monday morning whether the NBA required the “buy back” clause in the Bucks transaction and he said “yes.”

“It was what the NBA wanted,” Lasry told me.

Sigh. I guess “Is Bad Cop making you threaten us with this?” is technically a question, but it’s not the one I would have led with, you know?

Anyway, none of this is really new — the buyback clause has been public knowledge since April — but it’s now more clear than ever that “Don’t make Adam Silver mad, who knows what he’ll do?” is going to be Lasry and Edens’ main negotiating tactic. I’d still like to see a Wisconsin journalist try to investigate whether Lasry and Edens (and former Bucks owner Herb Kohl) conspired with the NBA to insert this buyback clause, but so long as Wisconsin journalists think that “investigation” means asking the team owners “Are you co-conspirators?” we’re probably not going to get much of an answer.