PRO BASKETBALL

Bucks’ Owners Win, at Wisconsin’s Expense

Bucks fans during a block party in June. Aaron Gash/Associated Press 
MILWAUKEE — To own a professional sports team is so often to achieve your heart’s desire.
Last year, two New York City hedge fund owners purchased the Milwaukee Bucks, a down-at-the-heels N.B.A. team. The new owners smiled, took a victory lap around this handsome lakeside city and laid down their terms.
We’ll keep the Bucks in Milwaukee, the owners said, if the public foots half the cost of a $500 million arena. (The owners spoke of their “moral obligation” to the city and pledged $100 million toward their arena, with the remainder coming from other private funds.) N.B.A. officials acted as muscle for the owners and warned that if Wisconsin did not cough up this money within a year’s time, the league would move the team to Las Vegas or Seattle.
These opening feints were right out of the professional sports owner handbook. From start to desultory end, Milwaukee offered a case study in all that is wrong with our arena-shakedown age.
Gov. Scott Walker signed a bill Wednesday to subsidize the arena, which could cost the public twice as much as originally projected. Echoing the owners’ arguments, the governor proclaimed that the arena, a practice complex and a promised “entertainment district” would spur a renaissance for downtown Milwaukee and attract tourists. Income taxes paid by the pro athletes, the governor said, would fill local coffers.
The Milwaukee County executive, Chris Abele, left, introducing the new owners of the Bucks, Marc Lasry, second from left, and Wesley Edens, right, at a news conference in April 2014. Herb Kohl, the former owner, sat between his successors. Gary Dineen/NBAE, via Getty Images 
Tim Sheehy, the president of the local chamber of commerce, talked with me last fall of the ineffable benefits of a pro team. “It gives the city an identity and gives us something different than Des Moines.”
Economists are a fractious lot and rarely agree. If economists left and right share any single view, however, it’s that local and state governments should eliminate subsidies to arenas and stadiums.
The timing of the arena deal was inauspicious. The governor and legislators approved the arena just one month after they cut $250 million from the budget of the prestigious University of Wisconsin System.
The political waters on this deal ran swift and deep. The new majority owners of the Bucks, Wesley Edens and Marc Lasry, are big donors to the Democratic Party. Lasry has bundled tens of thousands of dollars for Hillary Clinton’s presidential campaign, and his hedge fund once employed her daughter, Chelsea.
The private pursuit of a publicly financed arena, however, recognizes no partisan boundary.
The hedge fund owners proved deft with ownership shares, handing these out to prominent Wisconsin businessmen and Republicans, including the developer Jon Hammes. Hammes has become national finance co-chairman for Walker, a Republican presidential candidate. The Capital Times recently reported that a political action committee connected to Hammes contributed $150,000 to the governor in late spring.
Walker and his staff, despite professed fiscal conservatism, took the role of architect for this plan. Much of the time they worked closely and, four legislators said, in secret with the Milwaukee County executive, Chris Abele, a Democrat.
Abele told me he detested the shakedown of cities and states to build private stadiums. “If Congress considered a law that would prevent any public financing for sports stadiums, I would support that,” he said.
The world, however, is what it is. Abele said he saw a chance to jump-start development in Milwaukee and so he helped draw up a generous public financing plan.
Milwaukee County’s portion of arena debt amounts to $4 million annually for 20 years; if the county fails to come up with its payments, the state could deduct the money from annual aid to the county. Abele has spoken of scrounging up the county’s payment by allowing the state to crack down on the county’s many debtors.
Gov. Scott Walker signed a bill Wednesday to subsidize the Bucks' new arena.Michael Sears/Milwaukee Journal-Sentinel, via Associated Press 
That sounds fine in theory. In practice, it could mean hounding working-class homeowners for property taxes or pursuing residents who have delinquent ambulance bills. No county can afford to let taxes go uncollected, but that strategy registers as a touch repellent.
Not all Milwaukeeans gave the new owners a hug. Last year, Southeastern Wisconsin Common Ground — a fine coalition of churches, synagogues, mosques and community groups — surveyed the city’s pitted fields and dilapidated recreation centers and proposed that an arena bond issue should include money for Milwaukee’s playing fields. The group also pushed for a public referendum.
The local business community — which includes several members who have ownership shares in the team — dismissed such ideas as impractical.
“The Bucks took control of the strategy from the start,” said Bob Connolly, a member of Common Ground. “They pushed the referendum idea right to the side.”
Months later, when Common Ground leaders turned to usually friendly local foundations for more funding, they found themselves turned away. You are, they were told several times, too political.
Common Ground asks that no tears be shed on its behalf. Years ago it started a health cooperative, persuaded five banks to give it $33 million to rehabilitate foreclosed homes and preached hardheaded realism. It simply redoubled its organizing efforts.
One of its organizers began digging into ownership records for the decrepit and foreclosed homes that hang like dead weights on many working-class Milwaukee neighborhoods. One day, a researcher called Keisha Krumm, the lead organizer for Common Ground, and said, You’re not going to believe this.
Nationstar, a nationwide mortgage servicer, manages some of the city’s worst kept foreclosed homes, properties commandeered by raccoons and drug dealers. Edens, one of the Bucks’ owners, is the majority stakeholder and chairman of Nationstar.
I visited one of these abandoned homes, on a tree-laden street of handsome old homes in a tattered neighborhood. The remains of a decaying animal hung off the porch roof. Burned-out gaps in the back of the house allowed anyone, child or dealer, to walk into the house. (Nationstar has told Common Ground that it recently transferred this house to another servicer, which, I learned, has an even worse reputation.)
This year Edens and his hedge fund, Fortress Investment Group, purchased yet another huge mortgage servicing company. Newspapers proclaimed him the king of subprime. As abuses in the subprime lending and servicing industry helped sink the national economy in 2008, and made the recovery painful for millions, that was not an unadulterated compliment.

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A Northstar vice president noted that Edens did not personally own these homes and that the company had “worked diligently” to reduce its foreclosures.
None of these revelations slowed the negotiations. By June, lobbyists by the dozens, all in the pay of the hedge funders and their business allies, descended on the hallways of the State Capitol in Madison.
Great pressure was applied to Democratic legislators from Milwaukee to vote yes on the arena bill. When Assemblyman Jonathan Brostoff spoke of grave doubts, some supporters told him he was betraying Milwaukee.
“We are building an arena for two of the richest people in the U.S.A. and they are just asking for more,” Brostoff said. “If aliens came down and looked at this, they’d say, ‘What the hell are you doing?’ ”
David Bowen, a young African-American assemblyman from Milwaukee, came under particular pressure. Milwaukee’s population is 40 percent black, and the African-American vote is influential in local elections. The owners of the Bucks courted black leaders and gave ownership stakes to several African-American businesspeople.
As the vote neared, Bowen stood accused of betraying his city and black Milwaukeeans. At least one online site serving the black community suggested he would face a primary opponent in the next election.
Bowen was unmoved.
“The owners acted as if they had no obligation to our community,” he said. “To argue that we all have an obligation to them is kind of crazy.”
Brostoff and Bowen voted against the arena bill. It passed the State Assembly and the State Senate by reasonably large margins.
The gift-giving did not end. Edens and Lasry formed a development company called Front of the Herd. Abele, whose office essentially controls land sales in Milwaukee County, sold 10 acres of vacant publicly owned downtown land — appraised at $8 million — to the developers for the exquisitely reasonable cost of $1.
A field at Lloyd Barbee Montessori, a Milwaukee public school. Last year, Southeastern Wisconsin Common Ground proposed that an arena bond issue should include money for Milwaukee’s playing fields. Lauren Justice for The New York Times 
I know, Abele told me, that this looks like another favor for the wealthy. But the land had lain fallow for years. To his view, he had a rare chance to complete the renovation of downtown Milwaukee, which in too many places looked like a desert. For years, developers shied away from that site because they would have to remove a large sewer pipe at a cost of millions of dollars.
As it turns out, say those close to the arena negotiations, the city will absorb the cost of removing that pipe as part of its share of the deal. Sometimes a sweet gift for a developer is truly sweet.
Let’s pause here: Based on state legislative estimates, and talks with negotiators, the real public cost of the Bucks arena, with interest payments and risky bond offerings tossed in, stands at about $500 million, or nearly twice what was proposed a year ago.
More gifts were tucked like toys into a stocking. The city will build a $35 million parking garage, but half the revenue will go to the Bucks, along with all of the revenue from naming rights for the arena, worth perhaps $120 million.
County Supervisor John Weishan, a Democrat, opposed the subsidies. Milwaukee County, he said, has to contend with a perilously high child-poverty rate, spiraling homicides in the city and a lack of Internet infrastructure that hobbles its ability to create jobs.
“If I had asked the state government for a $200 million fiber-optic installation to bring Milwaukee into the 21st century,” Weishan said, “they would have laughed me out of the State Capitol.”
City officials took only a small role in the state negotiations, and managed to tighten some terms. They did not want to play the role of sap. So they asked the owners to sign an ironclad agreement not to move the team for the 30-year life of the lease on the new arena.
The Bucks’ owners said no. They had signed agreements that would require them to pay off the remaining public debt on the arena if the team left early.
Pat Small, a writer with the website Urban Milwaukee, did the back-of-the-envelope math: Let’s say in 10 years the owners decide to sell the team to someone who wanted to move the franchise. Lasry and Edens paid $550 million for the Bucks last year; the average price for an N.B.A. franchise has nosed north of $1 billion. Even assuming no further price appreciation for N.B.A. teams, the owners could pay a penalty to Milwaukee of maybe $175 million and sell the team for a profit of four times that amount.
As Small noted, it is the cultural and economic practice of the hedge fund man to buy low, push up value, divest and move on. Milwaukee would be left with an aging arena.
“It was like a tidal wave; they pulled out everything they could from this deal,” said Krumm, the Common Ground organizer. “Anyone who raised questions was accused of wanting to lose the Bucks.”
Wisconsin and Milwaukee did not lose the Bucks. They did spend a pile of public money to build an arena for billionaires.
Email: powellm@nytimes.com
A version of this article appears in print on August 15, 2015, on page D1 of the New York edition with the headline: Bucks’ Owners Win, at Wisconsin’s Expense. Order Reprints|  Today's Paper|Subscribe