Wisconsin agency says Gov. Walker’s $220m “jock tax” for Bucks could cost state lots more

I’ve previously criticized the Milwaukee Business Journal’s Rich Kirchen for being overly credulous on the Bucks‘ arena, but today he reports on some news that’s not so positive for the team’s plans:

Wisconsin Gov. Scott Walker‘s proposal for the state to issue $220 million in bonds for a new arena in downtown Milwaukee could carry an actual cost of at least $380 million including interest, according to a preliminary estimate by the nonpartisan Legislative Fiscal Bureau.

Note that “including interest,” though. Is this just a case of misunderstanding the difference between present value (what a purchase costs you in today’s dollars) and nominal cost (what it costs you if you added up all your payments over time, like if you buy a $200,000 house and pay it off with $400,000 worth of mortgage payments over 30 years)? Or is it an actual case of the cost being higher than at first projected, like when it turned out that the Miami Marlins stadium included so many backloaded balloon payments that it was costing taxpayers an extra $450 million?

A little of each, it looks like. Since Gov. Walker’s plan relies on kicking back future income taxes from NBA player salaries, and NBA player salaries aren’t expected to soar into the necessary stratosphere for a while yet, the state probably would have to backload payments, which would increase the cost of the bonds beyond $220 million. How much, no one knows yet — Legislative Fiscal Bureau analyst Al Runde didn’t say — nor did he say how much additional the state could be on the hook for maintenance costs on an arena, something that has yet to be negotiated. Let’s just leave it at “a lot” for now, then.

http://www.fieldofschemes.com/2015/02/17/8529/wisconsin-agency-says-gov-walkers-220m-jock-tax-for-bucks-could-cost-state-lots-more/

Gov. Scott Walker's arena proposal could reach at least $380 million

Wisconsin Gov. Scott Walker's proposal for the state to issue $220 million in bonds for a new arena in downtown Milwaukee could carry an actual cost of at least $380 million including interest, according to a preliminary estimate by the nonpartisan Legislative Fiscal Bureau.

Fiscal bureau officials call the $380 million figure an early estimate and say they need to learn more about the the bond deal before issuing a more definitive dollar amount, Al Runde, a supervising analyst for the agency said Monday.

"That is the minimum," Runde said of the $380 million cost for repaying bonds and interest. "We don't know how it will be structured."

<snip>

Among the questions still to be answered by the Legislative Fiscal Bureau is whether Walker's proposal will generate enough "jock ta" revenue in the early years after the bond issue to cover the debt payments, Runde said. Walker's plan relies on increased state income tax collections from NBA players including the Bucks as player salaries increase, especially after new NBA television contracts start in the 2016-2017 season, Runde said.

http://www.bizjournals.com/milwaukee/blog/2015/02/gov-scott-walkers-arena-proposal-has-actual-cost.html?page=all

Wisconsin governor’s arena plan depends on future NBA players averaging $33m/year salaries

Wisconsin Gov. Scott Walker unveiled his Milwaukee Bucks arena funding proposal yesterday, and oh man, was there ever a last-second plot twist. Walker is not, as rumored previously, proposing to raise $150 million for an arena by kicking back all state income taxes on Bucks players and other employees and also possibly some arena sales taxes as well. No, he says he’s going to raise $220 million, and only from Bucks income taxes — and only from new income tax above what team employees already pay:

“There’s absolute security for the taxpayers,” Walker said. “No new taxes, no drawing on existing revenues, no exposure to the future…”

Well, except for the uncertainty of what happens if NBA salaries don’t soar to the point where enough new money pours into state coffers that the government can use it to pay off $220 million in arena bonds. How likely is that? I was all gearing up for some painful Excel crunching, but fortunately Walker’s office has made a handy-dandy chart for us:



How much would salaries have to rise to make the green part of the above chart come true? Walker’s projected state revenue in the year 2046 is about $45 million, meaning at a 7.65% state income tax rate, we’re looking at $588 million in payroll. If two-thirds of that is the Bucks, then for a 12-player roster, the average player salary would have to be $33 million a year in order to make these numbers work.

Is that as crazy as it sounds? The average NBA player salary 31 years ago was $330,000, and it’s $4.1 million today, so it’s on pace with historic trends. (Salaries have leveled off the last few years, but they’re expected to take a big jump in the next CBA thanks to the league’s lavish new TV deal.) But past performance doesn’t guarantee future returns, and lots of things could torpedo that assumption:

The cable bubble could burst. In fact, it’s a near-certainty that nobody will be watching NBA games in 2046 by turning on a cable box — broadband Internet will have replaced it decades before then — but the issue isn’t really what pipe people use to get their sports fix but how much they’re willing to pay for it. Right now, sports on TV is a loss leader for cable companies to get viewers to buy their service at all; once everybody is watching TV on the web and companies don’t have to worry about cable cutters (because everybody has to have Internet service whether they want to watch TV on it or not), the economic calculations start to change. Unless you envision a future where a huge number of people happily pay $1000 a month for the right to watch sports on TV, NBA revenue — and salary — inflation is going to have to level off sometime soon.

http://www.fieldofschemes.com/2015/01/28/8430/wisconsin-governors-arena-plan-depends-on-future-nba-players-averaging-33myear-salaries/