A new arena is going to cost Wisconsin a lot of bucks.

Photographer: Mike McGinnis/Getty Images

When Bigger Isn't Better in the NBA

David Kahn has been general manager of the Indiana Pacers, president of the Minnesota Timberwolves, head of the Oregon Stadium Campaign for Major League Baseball and is currently teaching two courses on sports economics at New York University.
Read More.
a | A

Wisconsin Governor Scott Walker announced Tuesday he would authorize $220 million in state bonds to help build a new arena for the National Basketball Association's Milwaukee Bucks, projected to cost $450 million to $500 million. Walker’s plan mimics one devised by Major League Baseball stadium supporters in Portland, Oregon, last decade that would capture players' income tax payments to pay back the bonds.

This puts Milwaukee within striking distance of completing a financing plan for the proposed arena. But the city might already be home free if it follows this piece of advice: Build a dramatically smaller arena than currently exists in Milwaukee and similarly sized markets, developing a facility more in tune with the future of sports consumption while saving approximately $100 million in construction costs.

The current arena in Milwaukee has a published capacity of 19,000 -- just a hair larger than the Staples Center in Los Angeles.

Stop right there: Why have indoor arenas through the years been built without regard to market size? Why does Milwaukee, with the 35th-largest Nielsen market at 893,000 television households, have a larger arena than No. 2 Los Angeles (5.5 million)?

There was a time when arenas were master-planned not based on supply and demand -- or even local population -- but the idea that more seats simply meant more ticket revenues, by far the No. 1 source of team revenues (with local television revenues now breathing down its neck). A one-size-fits-all-markets thinking prevailed.

But we live in the Age of Saturation in sports -- perhaps even Super-Saturation. There is too much content, at too many different starting times, on too many platforms. This puts keener pressure on teams everywhere, especially those in small and mid-sized markets, to drive attendance to live events to compete with their own TV broadcasts. Their first task: dramatically decrease seating capacity to make the experience more intimate, communal and memorable.

At the dawn of the millennium, the Pacers made the choice in Indianapolis (the No. 27 Nielsen market) to build the higher-capacity Bankers Life Fieldhouse with 18,365 seats, up from Market Square Arena's 16,530. In fairness, we also were hopeful to steal the Big Ten basketball tournament from the United Center in Chicago -- which we did in 2002 -- and couldn’t have accommodated 11 schools and their fans in something punier. (The tournament now rotates between the two cities.)

And nobody seemed to mind having more than 18,000 seats when we were routinely playing in the Eastern Conference Finals and made our lone appearance in the NBA Finals in 2000. Winning -- and especially winning big -- drives demand no matter the location.

But times have changed. There was no Fox Sports 1, no "Sunday Night Football," no "Thursday Night Football" back then. There was a Big Ten basketball tournament -- just not a Big Ten Network. Attendance has flattened in several live entertainment sectors and is already significantly down for basketball in the SEC and Pac-12, two of the five power conferences.

The Bucks compete with the National Football League's Green Bay Packers, MLB's Milwaukee Brewers, the University of Wisconsin’s football and basketball teams (the Badgers are No. 2 nationwide in athletic department revenues, behind only the Texas Longhorns), and Marquette basketball -- the latter in its own arena. They also compete with not just 500 cable channels, but also YouTube, Amazon, Netflix and streams upon streams. The day is coming when they will compete with technologies still unimagined.

This isn’t just about Milwaukee: If a new or remodeled arena in a similarly small, oversaturated market calls for anything larger than 12,500 seats, then it does so at its (and the public’s) peril. The construction savings would be enormous -- 12,500 seats requires only one seating level (no club level or upper deck) and only one large, well-designed public concourse, not multiple concourses, also reducing points of sale. Not all arena projects are priced the same -- land, labor and finishes play significant roles in cost -- but the elimination of 25 percent of square footage from a $500 million arena project should roughly correspond to a similar amount of savings.

In Milwaukee, that 35 percent reduction in seating capacity would increase demand over supply when the team is winning and help protect the downside when it’s not. It would also allow arena officials to attract touring concerts and family shows. It might be too small for the NCAA basketball tournament’s first and second rounds -- something Milwaukee has been able to attract every half-decade or so -- but that is a small sacrifice to save $100 million.

There was a moment in the 1990s when several baseball teams -- in big and small markets -- built new stadiums and wisely opted to decrease capacity as a way to create intimacy and demand for tickets. San Francisco went to 41,500 from 57,500, Cincinnati to 42,000 from 53,000, Pittsburgh to 38,000 from 58,000.

But I would point to a basketball arena as an example to embolden Milwaukeeans and other small markets to break the cycle of overbuilding: That would be Cameron Indoor Stadium, capacity 9,314, home of arguably college basketball’s most valuable program -- Duke -- and one of the toughest tickets in all of sports.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
David Kahn at dbk4@nyu.edu

To contact the editor on this story:
Brooke Sample at bsample1@bloomberg.net