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Scott Walker's Misguided Stadium Deal

Kavitha A. Davidson is a former Bloomberg View columnist.
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Another day, another disastrous stadium deal for local taxpayers.

Wisconsin Governor Scott Walker on Wednesday signed a bill approving $250 million in public funding for a new arena serving the Milwaukee Bucks, which seems to fly in the face of both Walker's presidential campaigning as a fiscal conservative and his insistence that there isn't enough money for things like public education or living wages. In July, when Walker signed the state's new budget, he cut funding to the University of Wisconsin by $250 million.

The usual pitfalls involved in stadium financing are apparent here: unrealistic calculations of return on investment, an underestimated true cost to taxpayers, misplaced priorities, fishy-looking political relationships. Walker can talk all he wants about lowering taxes and cutting waste, but when all is said and done and you include $174 million in bond interest over 20 years, he's sinking upwards of $400 million into a stadium for a team owned by billionaire hedge-fund managers in a state with a projected $2.2 billion deficit. Owners Wesley Edens and Marc Lasry will kick in $150 million, while former owner and senator Herb Kohl is contributing $100 million, but $93 million in bonds by the Wisconsin Center District will be paid for by an extension of taxes on hotel rooms, car rentals, and food and beverage sales.

Walker is trying to sell this as both a necessary move and a smart investment: He claims that should the Bucks make good on their threats to skip town, Wisconsin would lose $299 million in state income taxes and would have to spend $120 million to maintain the team's current home, the BMO Harris Bradley Center. "Cheaper to keep them" was the slogan he used to persuade local politicians to side with him on this deal. But these estimates are dubious at best -- most notably those on the loss of future income taxes, based on an overly generous projection of NBA salary growth. With a new, $24 billion television contract, player salaries are expected to skyrocket, but it's impossible to say by how much -- especially as the league attempts to implement all kinds of instruments, such as caps and smoothing, to temper the rise. Walker's estimates are based on an income structure dictated by a collective-bargaining agreement that could be up for renegotiation in 2017.

Moreover, these projections ignore that the source of much of this income -- local revenue from arena sales -- is fungible. Bucks fans spending money on tickets and concessions, a percentage of which goes to the player salaries taxed by the state, would simply spend their money at other local businesses and entertainment sources if the team decided to move. And the whole income-tax discussion could be rendered at least partly moot very soon, as the "jock tax" on which Walker's argument so heavily rests doesn't seem long for this world.

And then we get to the empty promises of investment returns, which Walker ludicrously estimates will be 3-to-1. At this point, the literature debunking the purported benefits that stadiums bring to local economies is too extensive to list at once. But to review: Initial estimates almost always understate true costs; the jobs such projects create are part-time, seasonal and temporary; money spent in sports stadiums is money that would have been spent elsewhere; and arena revenues and signage deals tend to line the pockets of team owners, not public coffers.

It's this economic reality, coupled with some questionable political ties, that has brought together liberals, conservatives and libertarians in opposition to Walker's stadium deal. Walker's association with Jon Hammes, a Bucks minority owner and the national finance co-chairman for the governor's presidential campaign, has raised eyebrows on the left. Lasry's involvement in fundraising for Hillary Clinton has raised objections on the right. Libertarian groups like the Cato Institute have joined the chorus of those calling this what it is: corporate welfare.

Despite all the facts, data and rational arguments pointing otherwise, fans and politicians still rest on emotion when they justify doling out millions for shiny new stadiums. "Qualify-of-life" arguments trump reason and play on the insecurities of a populace whose civic identity is defined by its sports teams. But that's precisely the invitation for rich owners to say "stick 'em up" to local taxpayers by threatening to move the team and destroy their sense of self. Sports are great, but it's no fun watching with a gun to your head.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author on this story:
Kavitha A. Davidson at kdavidson19@bloomberg.net

To contact the editor on this story:
Jonathan I Landman at jlandman4@bloomberg.net