On Sunday, Scott Walker was on Meet the Press with Chuckles the Toad and the subject of Walker giving a quarter of a billion dollars in corporate welfare to the billionaires that own the Milwaukee Bucks.
Walker tried to defend this indefensible scam with two main talking points:
- The deal had nothing to deal with pay for play even though one of the owners gave Walker's PAC $150,000. and is Walker's campaign finance co-chair. Walker went so far as to say that Hammes wasn't even really a part owner of the team.
- That the deal is fiscally conservative and good for the taxpayers.
As for the first point, it's pretty obvious that Walker is lying through his weasel teeth:
And it's noteworthy that one big beneficiary of the new arena will be Jon Hammes, a developer and a Bucks minority owner who sources tell CNN also serves as a national finance co-chairman for Walker's presidential campaign.
Hammes' business focuses on developing "strategic real estate assets, specifically in the healthcare and sports industries," according to the Bucks announcement when he took a stake in the team. And the Milwaukee Journal-Sentinel has reported his firm has been buying land near the planned arena site to develop office buildings.
Walker's second point, that the income tax from the players would pay for the taxpayers' money he's throwing at the arena, isn't really true either. Mike Ozanian raises several questions, such as will there be enough money to maintain the arena? He points out that if there isn't, taxpayers will be responsible to make up the short fall. He also points out that there are a lot of tax exemptions that Walker somehow fails to mention.
Then there's this:
Finally, the cost of the bonds is double the $220 million being advertised. The administration’s policy decision to structure the proposed bond issue so that the amount of debt service due each year on the bonds would be notionally tied to, or mirror, the additional income taxes results in an amortization schedule that cannot meet the interest due on the bonds in the early years of the transaction and back-end loads the repayment of principal to the later years of the transaction. This results in the bonding transaction having higher overall costs than if the amortization schedule had more uniform annual debt service payments.
Due to the negative amortization associated with the deferred interest, and the total interest costs associated with financing the $220 million would be $268.4 million, including $53.1 million in deferred interest. As a result, under this scenario, the total fiscal effect to the state associated with financing a $220 million grant would be an estimated $488.4 million.
So the cost is more than double what Walker is saying it is and there is no guarantee that they can raise enough tax revenue to make up for what Walker is spending.
But there's more. There's always more.
One thing that neither Toad or Walker mention is that there is no guarantee that the Bucks will be even around long enough to justify the cost.
Oh sure, the Bucks owners said that they will keep the Bucks in Milwaukee for at least 30 years. But that promise is only in place as long as they are the owners.
Pat Small, writing at the blog Urban Milwaukee, points out that the three main owners - Wes Edens, Marc Lasry and Jamie Denan - are all hedge fund billionaires. And how did these billionaires make all their money? By buying low, improving the value, selling off their property and moving on. There is nothing to keep them from following this paradigm with the Bucks:
From a business perspective, the optimal time for current Bucks owners to cash out would be within five to ten years. Let’s assume the team’s performance continues improving, the fan base expands and income keeps rising. There will be no fiscal reason to sit on this asset indefinitely. A new arena will rapidly depreciate in value (as they all do) and require higher maintenance costs and the team’s play could certainly fluctuate. And future TV deals may level off, because cable customers are unlikely to absorb endless fee hikes.
Conservatively, let’s say a new owner pays $1.1 billion for the franchise in 2025 — the present average price. However, current Bucks owners would not have to require the team to stay here. That promise was only between Kohl and Edens/Lasry because of Kohl’s insistence.
What about the clawback clause in the public-funding deal? It offers some relief for taxpayers, but it basically defines known costs for breaking the arena lease/construction contract. Present and future owners would simply factor into a sale the remaining debt.
Here’s a ballpark tally of what Bucks owners would have to pay taxpayers if the team is sold and moves in 2025: Roughly half of the total principal borrowed by county and state–or $55 million—would be due. With prepayments and other costs, that could reach $60 million. Wisconsin Center District bonding of $93 million would still be outstanding, although ticket surcharges would have covered some accrued interest. Payback for city borrowing could be about $20 million. That’s around $173 million.
Perhaps I’m underestimating. Say they have to pay $200 million. That still gives them a $450 million gain from a $1.1 billion sale that involves the team leaving Milwaukee. That’s a nice return on investment.
Thanks to Walker and the others behind this deal, it's a very real possibility that Wisconsin, especially Milwaukee, could be stuck with this monolithic monstrosity. But on the bright side, I bet it could hold many of the bankrupted taxpayers.