The NBA's Town Hall Arenas Are a Lie to Screw You Out of Money

Bucks fever is back in Milwaukee. The Bucks are 11-12, good for sixth in the NBA's Eastern Conference after a disastrous 15-win season in 2013-14. Giannis Antetokounmpo and Jabari Parker could become the first teenage teammates to each average double-digit points per game in league history, and improvements from (relative) veterans like Brandon Knight and Larry Sanders are helping the team become competitive earlier than anyone imagined.

However, the Bucks still play in the small and flashless BMO Harris Bradley Center, and until a new arena is built in Milwaukee, the team's future in the city will be in question. New franchise owners Marc Lasry and Wes Edens and outgoing owner Herb Kohl have each pledged $100 million towards a Bradley Center replacement. However, total costs of a new building are expected to run north of $400 million, setting the stage for yet another battle over public funds. According to the Associated Press, if construction hasn't started by the end of 2017, the NBA has the option to buy the team for $575 million and relocate it—most likely to Seattle, though Kansas City and other municipalities could be in play as well.

NBA Commissioner Adam Silver visited Milwaukee just before Thanksgiving to meet with ownership, sponsors, and other business leaders to get a sense of where the future of basketball in the city stands. He also joined Fox Sports Wisconsin during the Bucks' recent victory over the Detroit Pistons and presented a brief version of his case for public arena financing to the fans watching at home. "The NBA arena," Silver said, "is the modern day town hall." Silver explained how today's arenas host so many events—college games, other sports, concerts, speeches—that they end up being used for 300 or more days per year. A new multimillion-dollar basketball arena, Silver was arguing, would not only keep the NBA in Milwaukee, but also act as a kind of community center, a for-the-people civic good, like public schools and firefighting stations.

Here's Silver again, in 2013:

"My sense of an arena, not that they're so original, is that they're a town hall. They're increasingly the center of a community. It's a little different than a stadium. Take for example in the NFL, 8 home games, maybe a playoff game, maybe one or two outdoor concerts, that business has sort of gone away."

"On the other hand a well run arena, a vibrant arena, 250-plus dates per year, potentially, it's where the graduations take place, it's where the major speeches take place. It's where in addition to NBA basketball, people have the circus, you know, all kinds of fantastic indoor attractions, and there's more content being billed all the time for those attractions."

There is a kernel of truth in Silver's argument. Construction projects can serve as public goods, at least when large taxpayer investments produce larger long-term dividends. (Think roads and bridges). Problem is, public arena financing is a sucker's bet. Only don't take my word for it. Ask the right-wing Heartland Institute. Or the left-wing Brookings Institute. When it comes to economic analysis, the two think tanks seldom agree on anything. However, both believe that Silver's thesis is bunk.

"Unfortunately," Andrew Zimbalist and Roger G. Noll of Brookings wrote, "these arguments contain bad economic reasoning that leads to overstatement of the benefits of stadiums." Similarly, Heartland authors Dennis Coates and Brad R. Humphries concluded their look at stadium financing by writing, "The policy implications of our results are no different from those of the previous studies that found no relationship between the professional sports environment and local economies."

If the citizens of Milwaukee need a concrete, non-academic example of how the civic benefits of publicly-financed sports stadiums are overstated—while the actual costs to the public are underestimated—they need only step outside. The city remains on the hook for taxes to pay off the ever-accumulating debt on the construction of Brewers home stadium Miller Park. A tax sunset originally set for 2010 has been repeatedly pushed back; as of this March, Milwaukee and its five surrounding counties will continue to pay sales tax towards Miller Park until 2020. What was originally floated as a $250 million project has, according to UrbanMilwaukee.com's Bruce Murphy, cost the city over $1 billion as of 2011, or "$1,585 for every household in the five county area." Miller Park, additionally, is 79 percent owned by the public, and as a result, largely exempt from property taxes. It is, as Murphy states it, a "double-whammy for taxpayers," who first subsidize construction and then must account for property taxes lost on the grounds.

In 2012, Martin J. Greenberg of the Miller Park Board defended that double-whammy, writing that the arrangement "has been an extraordinarily successful public-private venture." He also argued that "taxpayers benefit from such investment by virtue of the fact that they own 70.91 percent of the facility. Miller Park has received recognition for high rankings on stadium experience and affordability."

It's unclear, however, what tangible benefits this ownership bestows on taxpayers. For $1,585, the average Milwaukee-area household has purchased its own slice of the Miller Park construction debt, a gift that keeps on taking. As Murphy notes, the Brewers franchise value has ballooned from $96 million in 1996, when Miller Park construction initiatives began, to $448 million as of 2012. The taxpayers of Milwaukee haven't seen a cent of this windfall—and really, what's the point of owning 70.91 percent of a baseball stadium when the privately-owned team that plays there is making all the money?

Like every league commissioner and team-owning plutocrat, what Silver and Bucks ownership really want is a "town hall" without the inconvenient town. Even the most community-friendly suggestion floated to fund a new Milwaukee arena, an aptly-named "Jock Tax," would leave Milwaukee on the hook for $150 million in state bonds, money that won't be used to lower taxes or fund social programs designed to help those without multi-million dollar bank balances.

The hell with that. My modest proposal? Hold Silver to his word. If sports leagues and teams want taxpayers to foot the bill for what amounts to their glorified office buildings, we can do that. Only let's put the town back in "Town Halls." Take the specific percentage of the total arena costs the public is paying, and then:

• Tax the profits of the team using the building by the same number;
• Entitle taxpayers to the same percentage of the profits made when a team is sold or moves, "profits" based on the increase in franchise value realized by a club while playing in a new building.

The NBA and other professional sports leagues operate under their assumption that their mere presence is enough of a benefit to justify the massive costs of these arenas. Perhaps this is true for the hardcore and even casual fans within the city limits. But when tax dollars are siphoned away from the general population to put into the basketball arena, there needs to be some kind of benefit to the massive, massive majority of non-sports fans who also are footing the bill.

As long as a city has a stake in a sports arena, that city deserves a commensurate stake in the financial success of the team that calls said arena home. In the case of the Bucks, this could mean upwards of 40 percent of profits. This might sound like a huge imposition, a real bummer for Lasry and Edens, but if a new Milwaukee arena will truly be a full-every-night Town Hall that brings in as much money as Silver claims, it shouldn't take long for the club to earn enough cash to buy the city out of its arena stake.

With interest, of course.

Such an arrangement would impose significant incentives on the club and ownership to repay debts to the state and city quickly and would work to prevent situations like those seen with the Brewers, where the taxes become extended into infinity. Most importantly, though, the city would get something tangible in turn on top of the emotional benefits of remaining a major league city.

Right now, there is little reason for sports franchises looking to build new arenas to look for private financing. Teams can wield empty markets—like Los Angeles for the NFL and Seattle for the NBA—as cudgels against small markets such as Milwaukee, scaring politicians and citizens into surrendering votes to fund new construction. This is extortion, plain and simple. If teams were forced to give back to cities bestowing them with public money, they'd likely search much harder for private backers in order to retain their full profits.

Those full profits, particularly over the past three decades, have been unfathomably large for sports owners. In 1985, Herb Kohl bought the Bucks for a paltry $19 million. The new ownership group purchased the club for $550 million, and the NBA is willing to throw down $575 million to buy the franchise back should no arena deal be reached. That is a return on investment between 2,700 and 2,900 percent in just under 30 years (or 1,300 percent, adjusting for inflation). Franchise values continue to soar across the NBA, capped by Steve Ballmer's $2 billion purchase of the Los Angeles Clippers. If this trend continues—and the multi-billion dollar television deal the NBA recently signed indicates it will—the value of the Bucks will continue to soar as well, only boosted by revenues from a brand new building.

In other words: Milwaukee's owners certainly could afford to cut the city's taxpayers in on the benefits of a new, publicly-funded building and still make a nice chunk of change.

Back to the idea of Town Halls: the same year Kohl purchased the Bucks, Jane Pettit, daughter of Harry Lynde Bradley and heir to a significant sum of the Allen-Bradley company fortune, donated $90 million for the construction of a new sports and entertainment arena in Milwaukee. It was for much more than providing a new home for the Bucks. As Mary Van de Kamp Nohl wrote in Milwaukee Magazine in 2011, at the time of the gift, "Milwaukee was struggling to shrug off its rust belt image and the new arena guaranteed that the city would remain in the big leagues." It was a rare gift back to the city, with no strings attached. "No one ever gives anything to the middle class," one business leader said in response.

Mrs. Pettit told reporters in 1988 the building was meant to honor her father, who "was a multifaceted fellow." As the Milwaukee Sentinel wrote, "Thus a multipurpose building, capable of accommodating an Admirals hockey game one day, a circus the next and a trade show the next was a fitting memorial to Harry Bradley." The building was completed without a cent of public funding and is owned by a non-profit established specifically to operate it, the Bradley Center Corporation. Under the agreement, should the corporation fail to meet the financial needs of the arena, the building and all other assets will be returned to the state.

The Bradley Center was built as home to the Bucks second and to Milwaukee's citizens first. In many ways, it shows just how powerful Silver's town hall metaphor can be, how a new arena can be something that benefits more than just team owners and basketball fans who can afford tickets. And it shows teams don't need to dip into the pockets of the same people for whom the building was supposedly constructed in the first place in order to make them happen.

Right now, however, the pressure from major sports leagues, owners, and political figures is far too high to expect drastic changes to the way arena business is done. As we saw with the Seattle SuperSonics and Key Arena—where taxpayers refused to fund new arena construction, and the team departed for Oklahoma City—leagues can always find another sucker. And as long as Silver has towns like Kansas City begging for basketball and Seattle salivating for its return, NBA and ownership groups have all the leverage they need to extract dollars from the same civic governments otherwise struggling to maintain much-needed social services.

Milwaukee is merely the first arena battleground for Silver, and given his predilection for the town hall metaphor, we should expect to see it thrown about for years to come. But unless the NBA radically changes how it does business, little about the commissioner's halls will provide any real benefit to the people who end up paying for them.