“Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it.”

– Ferris Bueller

There was some pretty big news on the new arena front yesterday, but perhaps many of us were too caught up in New Year’s Eve preparations and Packer celebrations to take notice. NBA writer David Aldridge posted an interview with Senator Kohl, where Kohl talked extensively regarding the arena situation.

Since Kohl does not give detailed public interviews very often, it is likely that he initiated contact with Aldridge, in order to float some trial balloons relating to the issue of a new facility in Milwaukee. For the first time, he hinted at the percentage of the cost of a new arena that might be privately contributed toward the project.

How Much Would Kohl Personally Donate?

This question has been awaiting an answer, or at least some clues for quite awhile. Kohl has stated on multiple occasions in the past that he would personally donate towards a new arena.  He reiterated that in his interview with Aldridge.

“If I could write a check all by myself, I would. First of all, I can’t. But it should be a community endeavor. I said I would make a generous contribution, and I will. But it should be a community project, and I think it will be. And it’s only just starting.”

Kohl has not yet come out and provided a number he personally would be willing to contribute. In 1995 Kohl donated $25 million to the University of Wisconsin Madison, his alma mater, in order to help fund the $75 million construction cost for the Kohl Center, which opened in 1998. He refers in the article to a plan that would require half of the estimated $450 million dollar cost for a new facility from private sources and half from public sources. If we assume that cost split, the maximum potential donation from Kohl could be as high as $225 million. However, let’s not assume Kohl would personally make such a significant contribution. Private sources could also include certain facility revenues, funding contributed by the team itself, and revenue potentially from naming rights, although it would be hard to imagine the facility not having the name “Kohl” in the title somewhere (perhaps Kohl’s department stores could participate in the naming rights, which would provide some synergies for both parties.)

It appears the organization has been doing research on what level of contribution might be needed by Kohl, in order to make things politically palatable for elected officials to approve a public funding component. Approximately one month ago, someone tweeted to us a screen shot of a survey regarding a new arena. We are not able to speak to the legitimacy of the link, but it appears to be authentic.  A key-survey question is phrased as follows:

If it were necessary to keep the Milwaukee Bucks in town, and owner Herb Kohl contributed 50% of the cost, would you support a sales tax to build a new arena?

If anyone can assist with the origins of this survey, please contact us with more details. What is not clarified in the survey, is whether or not the 50% contribution referenced, would be entirely in the form of a donation from Kohl, or would include other revenue sources from the team.

Why Is The Amount Kohl Would Donate Important?

The reason we are focusing on the size of any potential gift is two-fold. First, the size of the gift will impact what amount of leverage public officials will have as it relates to the public funding component. If Kohl were to personally donate $100 or $200 million towards the cost of a new arena, that allows arena supporters to highlight the fact that if the public funding side doesn’t come together, the City of Milwaukee, the region and its citizens would lose out on a tremendous opportunity to have a new sports and entertainment complex, partially funded with a private donation.

Wisconsin has a strong tradition of generosity afforded for community facilities by private philanthropists. In 1985, Jane and Lloyd Petit stepped up and donated approximately $75 million towards the construction of the Bradley Center. In 1995, Kohl donated the aforementioned $25 million towards the Kohl Center, and a decade ago, Madison philanthropists Jerome Frautschi and his wife Pleasant Rowland donated approximately $205 million towards the construction of the Overture Center for the Arts in Madison. Frautschi and Rowland were the creators of the American Girl doll line, which they sold to Mattel for an estimated $700 million.

The exact dollar amount Kohl might personally donate also impacts the timing of any potential sale of the team. Can Kohl make a large gift towards a new arena without first selling a portion, or all of the franchise? Estimates as to Kohl’s personal net worth vary widely. The disclosure forms required of public officials, including members of Congress, allow for broad ranges to be given as to asset values. Because of this, public filings by Kohl in the past have shown net worth ranges from $88 million to $258 million. These estimates include the value of the Milwaukee Bucks franchise, which he purchased in 1985 for $17 million, but which could be worth approximately $400 million today per our discussion earlier.

Without getting into an advanced accounting discussion relating to lines of credit Kohl may have, some sources believe that Kohl’s net worth, not including the Bucks, is in the range of $100 to $175 million. This would include stocks, bonds, real estate and other investments. Where this all leads to, is that Kohl might not be in a position to write a $100-$200 million check towards a new facility, unless he created a liquidity event for himself, by selling all or a portion of the team. This may partly explain why Kohl went public two weeks ago with his willingness to take on new investors in the team.

Kohl, while extremely wealthy by most standards, is not in the same league financially as many other current owners of professional sports franchises. Tom Benson, who purchased the New Orleans Hornets in 2012 for $338 million has a net worth estimated by Forbes to be approximately $1.5 billion. Forbes goes on to estimate that at least half of the current NBA owners today are billionaires.

We believe details of Kohl’s net worth need to be part of the public record, to put into context the level of potential generosity related to Kohl’s commitment to keeping the team in Milwaukee. We’ve heard far too many uninformed comments over the past year along the lines of “Kohl is a billionaire, if he wants a new arena, he can pay for it himself.” The truth of the matter is that Kohl does not have the liquid net worth to pay for an arena by himself.

Further, Kohl will likely forgo $200 to $300 million dollars of profit he could make by selling the team to Seattle, versus selling it to a buyer that would keep the team in Milwaukee. When you combine potential lost sale profit with a large private donation towards a new facility, it is possible that Kohl would personally forgo up to $400-500 million dollars in order for the Bucks to remain in Milwaukee. On both a dollar scale and as a percentage of Kohl’s net worth, this is a potential gift to the community on a massive scale. People who insist on characterizing any arena deal as “lining Herb Kohl’s pockets” are completely misinformed.

Can The City of Milwaukee Go It Alone?

In the same interview, Kohl noted the following:

“Sacramento — that’s a model, almost half and half….. They were also helped by the drama with it all. They were so thankful they were able to keep the team; they were this far from losing it. I think they were more amenable to doing some public financing. But public financing is a hard thing to get done. There are some important public figures in Wisconsin who will be hurdles. So it ain’t going to be done easily. But I think it will be done.”

In the statement above, Kohl alludes to “some important public figures in Wisconsin who will be hurdles.”  Without naming names, he is likely referring to Governor Scott Walker and GOP legislative leaders, many of whom have already gone on record as being opposed to public financing for a new arena. The regional sales tax enacted in 1995 to fund Miller Park was extremely controversial, and former State Senator George Petak (R), who cast the deciding vote in favor of Miller Park, was then immediately recalled, and replaced by Democrat Kim Plache in a special election in 1996. Without Petak, there likely is no Miller Park and perhaps no Milwaukee Brewer franchise in Milwaukee.

The logical solution would be to extend the Miller Park sales tax to pay debt service associated with a new bond issue floated by the Stadium District, to cover the public share of the costs for a new arena. The legal and taxing infrastructure is in place and the public has been paying this tax for eighteen-years now, so it wouldn’t be a “new tax.”  However, in order to do this, the State Legislature, Governor and five-counties involved would need to approve these actions. Again, in the current political climate this will be challenging.

So that brings us to the City of Milwaukee and Milwaukee County. Would either of these entities be willing to “go it alone” as it relates to some form of taxation for a new arena? This is a hard question to answer. By all accounts, a new arena complex would be a huge benefit for the downtown area, as it would provide facilities not only for the Bucks but also for Marquette, concerts, conventions and other civic events. The Bucks and any new arena and entertainment complex are regional assets, despite the protestations to the contrary by some suburban leaders.

For the moment, Milwaukee Mayor Tom Barrett would prefer to have a regional solution, as he views the benefits of a new facility as regional.  We agree with that opinion, however, the Mayor has to be thinking of funding solutions that involve only the City or County, should it come to that. If the Bucks leave town on his watch, the city he presides over would take a step downward in terms of national prestige, and an economic hole will be created in the downtown area, as 43 guaranteed nights of significant economic activity will go away.

SaveOurBucks.com has had discussions with fan representatives in Sacramento regarding their successful outcome to the arena situation, and to a person they all point to the critical leadership role played by Mayor Kevin Johnson, in building the necessary coalition to get an arena plan approved.  Regardless of the ultimate funding mechanisms for a new facility that are advanced, this will not get done unless there is significant leadership provided by the Mayor.

The Front Office and 2014 Draft Are Important

One of the goals of SaveOurBucks.com has been to point out problems with the structure of the Bucks front office, which we believe cause dysfunction, and have significantly contributed to the poor performance on the court in years past.  As Milwaukee Business Journal Reporter Rich Kirchen noted in the Aldridge story:

 “It doesn’t help that the team has only made a real run in the playoffs, really once, in the last 20 years [reaching the Eastern Conference finals in 2001], and that was more than 10 years ago. The fan base has sort of dwindled.”

Kirchen made this comment in respect to gauging whether or not a referendum for a new arena could pass in the City of Milwaukee.  While a “winning team” may not be a requirement for approval of a new facility, it certainly can’t hurt. This points out the importance of the upcoming 2014 NBA draft.  If the Bucks were to be in a position to acquire one of the top prospects such as Andrew Wiggins or Jabari Parker, it would provide significant energy for the fanbase, and by extension the local community.  There are no guarantees that one of those players would turn the franchise around, but such a heralded prospect, combined with exciting rookie Giannis Antetokounmpo, would provide the team with as strong a story to sell as they have had since they drafted Glenn Robinson #1 overall in 1994. People are creatures of emotion, and if they feel emotionally good about the Bucks, there will be greater support for a new facility.

As Kohl noted, the dialogue on a new facility is in the early stages.  Nonetheless, there were important trial balloons floated in the Aldridge interview, namely Kohl’s opening gambit that the team would fund half the cost of a new facility.  We intend to follow the discussion closely and will comment on future developments.