Report: Economists, team owners disagree on whether stadium subsidies are a good thing

Hey, it’s another “longform” article mulling over stadium subsidies! This time it’s in the Atlantic, headlined, “Is There a Better Way to Build a Stadium?” An excellent question, albeit one that raises suspicions of Betteridge’s Law being at work here, but let’s see what author Alana Semuels has to say:

It has become widely accepted that publicly-financed sports stadiums are a bad deal for cities.

Well, yeah. The only example given here is the St. Louis Rams deal, which was indeed bad but is by no means definitive, but subsidies are long and online attention spans are short, so let’s move on to the nut graf:

What’s different in the case of Milwaukee? Either a whole lot, or nothing, depending on who you ask.

Oh, lord, this isn’t going to be a he-said-she-said “there are opinions on both sides” article, is it?

Next up is a quote from Wisconsin Gov. Scott Walker on the Bucks deal (“we think this is a good, solid move as a good steward of the taxpayers’ money here in Wisconsin”), then a counter from economist Victor Matheson (“There is a fairly big deal of hypocrisy going on particularly in Milwaukee Bucks case”), plus a cite of studies showing bad returns on public spending on stadiums and arenas. Then a confusing discussion of tax-exempt bonds (“Public financing for stadiums came about as Congress tried to limit deals that allowed private entities to profit from tax-exempt bonds,” wait, what?), then “it’s possible that the Bucks, and other teams, have learned something from the public antipathy towards public financing of arenas.” Learned how?

The team isn’t just using public funds to build an arena for itself; it is also pledging to build a seven-story parking structure alongside the arena with mixed-use retail on the ground floor and an apartment complex on the eastern side. It has hired a design team for a block of entertainment, retail, and commercial spaces, and hopes to begin building that area next year, according to spokesman Jake Suski. The team is also the master developer for the entire 27-acre development, which may someday include bars, restaurants, a public plaza, and eventually office space, multifamily housing, and a hotel.

Yeah, that’s not new at all — team owners have been building ancillary development next to sports venues for so long that I’ve already come up with and abandoned a nickname for them. (“Kitchen-sink plans,” because they throw in everything but — you can see why I abandoned it.) Then there’s lots of back and forth about whether this can work out well (conclusion: maybe), and finally a Milwaukee law professor saying, “I remain a skeptic.” And FIN.

This isn’t even an example of Betteridge’s Law so much as an example of an article that sets out to answer a question, then throws up its hands halfway through, because hell, people disagree on the answer. Admittedly, one side is the people who stand to reap a fortune in subsidies — more than $500 million, a figure that is not even hinted at in the Atlantic article, which apparently either doesn’t consider tax breaks to be subsidies or just takes Walker’s word on how much the subsidies are worth — and the other is just about every economist and independent investigator on earth, but hey, who are we as journalists to say who’s right? One thing’s for certain: No one knows.

Bucks arena bonds get slightly lower interest rate than expected, business journalist rejoices

Anatomy of a misleading sports finance article, the headline:

Bond sale for Milwaukee Bucks arena deemed a success

Ooookay. A success for whom? A success because the bonds were successfully sold? That’s a pretty low bar, no?

The lede:

With the Milwaukee Bucks poised to start construction on their new arena, the largest chunk of public funding for the project came through Wednesday and Thursday via the sale of bonds totaling $162 million at interest rates that experts said are a good deal for Wisconsin taxpayers.

A good deal for Wisconsin taxpayers, really? Tell me more.

The interest rate on a series of bonds for $108 million and secured by the state of Wisconsin had an overall interest rate of just 2.7 percent… “We’re pleased with the strong market response to this sale, resulting in a significantly lower than expected interest rate,” said Wisconsin Center District board chairman Scott Neitzel, who is secretary of the state Department of Administration.

Okay, so Wisconsin got a low interest rate on the bonds. That’s indeed good for taxpayers, since it means lower payments over time to pay off the $108 million. Wisconsin residents will still be on the hook for the $108 million in principal, though.

No new taxes are being implemented to pay the interest on the bonds.

Now this is just straight-up misdirection. No new taxes are being levied because all the money is coming out of general fund revenue: half from the state, half from the county after the state cut its funding for county programs to cover the rest of the bonds.

Another major selling point for investors was the fact that individual Wisconsin investors who bought the bonds enjoyed a tax exemption on both federal and state income tax, Bryden and others said.

“The tax advantage has appeal,” he said. “You don’t get those frequently.”

Another way of saying this is that the bonds are a very bad deal for federal taxpayers, who miss out on taxes on the income that bond buyers are sheltering from federal tax, and who don’t even get the benefit (?) of going to a new Milwaukee Bucks arena unless they live near Milwaukee.

All in all, the story here is “Bond payments for Milwaukee Bucks arena to cost maybe 2% less than expected.” That’s good news, but on a very different scale than the Milwaukee Business Journal is telling it. It’s almost like the only people author Rich Kirchen talked to were bond managers and the state officials selling the bonds — hey, wait a minute…

Inside of new Bucks arena looks more and more like a dystopian sci-fi movie

It’s a bit of a slow news day, so thank goodness the Milwaukee Bucks have come through with some new interior arena renderings for us to peruse while we wait for the last dregs of the week to run out:

pano3pano1v2I don’t know exactly what’s going on with that creepy dark club with the glowy rings on the ceiling — supposedly it gives fans views of both the court and the city, though given that in real life there would be more than ten people in it at any one time, more likely it will mostly provide a view of those TV screens as you crane your neck to see the score while waiting on line for overpriced food. The “corner sponsor tower” next to it, meanwhile, is even more mysterious — presumably it should have a big sponsor logo on it, but instead it’s just three levels of blank void with more of those geometric patterns on the ceilings. The interior of the levels doesn’t appear to be raked at all, so only the people at the front railing (there is a railing, right?) will be able to see the game, from a great distance, while everyone behind them will be … dancing? Enjoying presentations from the corporate sponsor of their choosing? What the heck does any of this have to do with basketball, exactly?

Bucks lease revealed, doesn’t make arena deal worse than it was already

The state-run Wisconsin Center District and the Milwaukee Bucks have finally agreed on a lease for the team’s new $500 million arena that’s getting $450 million in public subsidies, and hey, look, it’s not entirely awful! The big questions, as you’ll remember, were “Who’ll pay for operating and maintenance costs?” and “Can the Bucks break the lease before the 30-year term is up?” and at least initially appears that the answers are “the Bucks owners” and “no”:

  • The Bucks owners will need to deposit a minimum of $60 million over 30 years in a capital reserve fund to pay for maintenance, and the team must pay for all maintenance, repair, and upgrade costs. (One report says this also includes operating costs; others are silent on the matter.)
  • The lease includes penalties for breaking the lease that start at $553 million in the first year and gradually decline to a bit more than $200 million by the end.
  • The team will actually pay rent! Not much rent — starting at $1 million a year, rising to about double that by the end — but so many teams pay no rent or negative rent, this qualifies as worth one cheer, anyway.

None of this makes the public arena cost a good deal, mind you. But at least the lease doesn’t look to have made it any worse.

New Bucks arena to be covered with rust, what is it with the rust already?

They’re not nearly as batshit as yesterday’s Washington NFL renderings — not to mention they’re for a building that is actually getting built in an actual location — but the Milwaukee Bucks have released renderings of their new $500 million arena being built with $505 million in public subsidies:

b99688823z.1_20160316221937_000_gnketctn.1-0b99688823z.1_20160316221937_000_gnketctq.1-0b99688823z.1_20160316221937_000_gnketctr.1-0That outer shell that supposedly looks like a “wave” (if waves were brown, which I don’t really want to think too hard about) is going to be made up of “zinc panels chemically treated to achieve a gritty, brown-rust patina,” which is a different kind of intentional rust color than the weathered steel used on the Brooklyn Nets arena, but promises to be just as ugly. (Name one attractive rust-brown building you’ve seen. I’ll wait.)

The inner seating bowl is somewhat more promising, though the cheap seats in those tiny upper decks separated by two decks of luxury suites are going to royally suck; and while the large lower deck will be nice for anyone who can afford to sit there, forcing everyone to enter and exit at the back of the section is going to make for some epic foot traffic jams at the end of games.

As usual, though, the real fun part is nitpicking the little details that the architects probably added at 1 am when they didn’t know how to fill out a blank space on their drawings. Like, what’s up with that strange balcony projecting off the front of the building, the better for drunken fans to throw their beers/themselves down onto passersby? And how much did those people pay to stand in those weirdly backlit sections in the upper-deck corners, and why? Who are those two opposing players near midcourt supposed to be guarding? What exactly is Greg Monroe doing in that replay (?) on the video board? Why does anyone think Greg Monroe will still be on the Bucks when the new arena opens in 2018? Play along yourself in comments!

Stadium spending is bad for humans and other living things, Thursday edition

Happy National Notice That Stadium Subsidies Are A Bad Deal Day, everybody!

  • The Wall Street Journal notices that the soon-to-be-again Los Angeles Rams are set to join the San Francisco 49ers and Golden State Warriors in building new sports venues without much in the way of public money, and declares this a trend, in California, at least. Though the authors then note that the Sacramento Kings got plenty of public cash, and the San Diego Chargers could yet get a bunch from that city, “despite a wealth of academic studies showing that stadiums and arenas are poor investments when it comes to economic development.” I’m not exactly sure what this all is supposed to add up to, but it does provide a nice roundup of the stadium landscape for anyone who’s been living under a rock.
  • The San Gabriel Valley Tribune asks if the new Rams stadium in Inglewood will provide a big economic boost to the region, and cites a couple of economists and the finance director of Foxborough, Massachusetts in answering, “Nah.” In particular, Vanderbilt’s John Vrooman replies: “The net local impact of a professional sports team is zero, if not negative sum, particularly for an NFL team playing in a monolithic space-eating stadium. … The local sports bars will probably rock, but most direct spending at the stadium stays at the stadium. The injection of new cash flow into the local economy is negligible because it’s coming at the expense of local spending someplace else. The indirect spin-offs are also small because most of the spending leaks out of the economy like a sieve and so the urban/regional multipliers are usually zero, zip … nada.” Stan Kroenke’s poor poor people are going to be awfully disappointed.
  • Milwaukee’s Fox6 looks at the “arena district” the Bucks are promising to create around their new taxpayer-subsidized arena, and notes that in Columbus, while restaurants around that city’s new arena indeed did great, restaurants in other parts of town saw business decline: “Other restaurants went out of business and a lot of people started moving out of the neighborhood and into newer apartments,” said Tony Scartz, a restaurateur in the Brewery District across town from the new arena. “And most importantly, for me personally, was the office space vacancy that was created because people moved out of the Brewery District and into the newer office space down around the Arena District.” This is exactly what you’d expect from the substitution effect, as explained in the Fox6 piece by, um, me.

Tune back in tomorrow, when some city official somewhere will tout the massive economic benefits available from building a new sports venue! They will fight eternally…

Bucks arena district plan moves ahead, despite lots of unanswered questions

The Milwaukee Plan Commission has given its unanimous approval to the Bucks‘ arena district plan, which will now move ahead to the Milwaukee Common Council for a vote there. While the $450 million in subsidies for the $500 million arena have already been approved, elected officials still need to approve a bunch of zoning changes for the arena and surrounding “entertainment district” that the Bucks owners are promising to build, which will be easily distinguished from surrounding buildings by not being shapeless gray blobs.

The controversial bits of the redevelopment plan include tearing down an existing parking garage before building a new one (Bucks execs say they’ll provide shuttle buses for fans in the meantime) and closing a block of N. 4th Street to provide the Bucks with a public plaza. Both of those elements have raised the hackles of alderperson Bob Bauman, so expect more debate on them once the plan hits the council next month.

Meanwhile, there’s still no sign of a lease agreement on the arena, which needs to address such humongous issues as how to pay maintenance costs and whether the Bucks can break their lease before the term is up. The Bucks owners still say they hope to break ground in April, but hey, they can always leave some details to be figured out later — because that’s worked out so well in the past.

Bucks owner: No talks yet on arena lease, but how long does it take to write fine print, anyway?

The Milwaukee Bucks owners have revealed that their new taxpayer-funded arena won’t open until 2018, which was already reported last month, but it’s officialer now. Wes Edens and Marc Lasry, you will recall, spent years giving the impression that a new arena needed to be in place by 2017 or else the team would move, but now that they have their $450 million in public cash and tax breaks, sure, no hurry.

In more newsy news, Edens said he hasn’t even begun lease negotiations with the state, but expects them to be completed by the end of the year anyway: “The lease negotiations are very important and they’re meaningful but I don’t have the same sense of anxiety about them that we did during the whole financing process.” That seems awfully blasé given that the two sides need to agree on such huge items as who’ll be responsible for which maintenance costs and whether the Bucks can break their lease before the term is up, but maybe Edens is just trying to convey a “Hey guys, this’ll be easy, just sign on the dotted line there, no need to read it” vibe. (PRO TIP to Wisconsin Center District negotiators: Don’t do that, it never works out well.)

Bucks lease talks to begin, bringing all-new ways for Wisconsin to gift team owners with cash

The Milwaukee Journal Sentinel ran a loooooong article yesterday about the pending talks over the Bucks‘ lease on their new arena, which came down to: The Brewers have to pay part of the maintenance costs on their stadium, but that doesn’t stop them from letting fans drop peanut shells into the air vents which end up corroding the heating units, which eventually could leave the public with a broken stadium at the end of the team’s lease. And what if the Bucks do that too, huh?

It’s an interesting enough question — who knew that there was such a thing as peanut corrosion? — but ultimately way less important than another item yet to be negotiated: whether the public stadium authority will have any recourse if the Bucks try to break their lease and leave before the 30- or 40-year term is up. That’s important not just because taxpayers could be left holding the bill for an arena with no team, but because the Bucks owners could use any out clause as leverage — as has happened in numerous other cities — to extract more arena upgrades or even a whole new building 10-20 years down the road.

It sounds silly now, sure, when the new arena isn’t even built yet, but then, it probably sounded like a silly concern in St. Louis or Indianapolis or Houston when those cities built new sports venues. The only time to get the lease right is now, when it’s being negotiated — or the Bucks arena could way too easily be the half-billion-dollar gift that keeps on giving.

Bucks arena finally gets final approval (pay no attention to the fine print)

The Milwaukee city council, after two months of debate and contentious public hearings, cast its vote on city subsidies for a parking garage and team-controlled pedestrian plaza for a new Bucks arena this morning, and … come on, what did you really expect?

A $47 million city spending plan for a new Milwaukee Bucks arena won Common Council approval Tuesday, the final endorsement needed for a $250 million public financing package that includes state and county cash.

The council voted 12-3 Tuesday to approve the plan, with Ald. Mark Borkowski, Ald. Nik Kovac and Ald. Tony Zielinski in opposition.

The passage of the city cash has been a fait accompli for a while now. The big question was what would happen to Ald. Bob Bauman’s proposal to amend the plan so that it would no longer permanently close North 4th Street and give the resulting pedestrian plaza over to the Bucks. And the result was, according to one correspondent who was there, that nothing was actually resolved about that: The question of whether the pedestrian plaza will be year-round or only on game days was kicked back to the city Department of Public Works, which has say over such matters, and which will now need to have its own set of hearings and whatnot. Which the Bucks owners presumably won’t like, but what are they going to do, turn down half a billion bucks out of spite?

The other big unknown that remains for the Bucks arena — other than the final design, which the council will get to sign off on later this fall, but that’s even less likely to provide fireworks (aside from any that are unleashed by the magic basketball) — is the team’s lease, and in particular whether it will include an agreement with any teeth to keep the team from leaving town before the building is paid off. Or threatening to leave town, which can be just as bad, as Indianapolis found out to its dismay. The city council didn’t have any say over the lease language, so it’s going to come down to negotiations between the governor’s office and the Bucks. At least Scott Walker has plenty of time to spend on this now, right? And surely he’ll drive a hard bargain, since it’s not like he has a conflict of interest or anything.