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Herb Kohl's congressional filings shed light on Milwaukee Bucks' finances

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With the draft done and a lockout on the horizon, be forewarned that over the coming weeks we're probably going to be talking about the business side of the NBA a bit more than we might prefer. No summer league, no free agency...this is what's happening. And with the battle between players and owners taking center stage this week, some eyebrows were necessarily raised on Sunday when the Journal-Sentinel's Don Walker reported that the Bucks borrowed at least $55 million from the NBA's loan facility in 2010. The actual substance behind the report is more innocuous than the headline might suggest, however, and team VP Ron Walter suggests there's little to read into the moves.

"There is no significant expansion of the total amount borrowed."

Nevertheless Kohl's disclosures do provide some insight into the otherwise opaque side of NBA team finances. As a member of Congress, Kohl is required to file annual disclosures which are publicly available and can be found here. While they hardly paint a complete picture of Kohl or the Bucks' finances, they do provide insight into the timing of Kohl's debt draws from the NBA facility as well as the Bucks' gross income (however that might be interpreted). For instance, the Bucks' $83 million in 2010 compared to $81.4 million in 2009, $81.7 million in 2008, $79.6 million in 2007, $77.8 million in 2006, etc. Those figures are around $10 million under the annual revenue figures Forbes has estimated as part of their annual valuations of NBA franchises, so it's probably not worth taking any of these figures as gospel.

Still, with the Bucks' payroll trending towards the $70 million mark over the past few seasons, it doesn't take an accountant to understand the challenge the Bucks face in turning a profit. Given the uncertainty around the new collective bargaining agreement and the Bucks' relatively modest revenue stream, it's not surprising that John Hammond and company have been seeking to bring the Bucks' payroll under the $60 million figure for some time. And with under $54 million committed to 13 players (including draft picks but excluding RFA Luc Mbah a Moute), that should happen next season...assuming there is a season.

Looking through Kohl's disclosures, we see that the Bucks tapped the NBA's facility in 2003, 2009 and 2010. The exact amount of the draws isn't listed, but ranges are given which provide a ballpark. In 2003 the Bucks took out three loans of various tenor: one year (between $25-50 million at LIBOR + .675%), seven years (between $5-25 million at 4.30%), and ten years ($25-50 million at 4.95%). When the NBA facility was established in 2003, Sports Business Journal noted that teams from across the profitability spectrum took advantage of the rates offered, allaying initial fears that only more cash-strapped teams would opt in. Either way, the facility is backstopped by the NBA's media contracts, which enables even cash-strapped franchises access to relatively cheaper debt than they would find on their own. It appears the $55 million figure was probably estimated by summing the low end of each range, so in all likelihood it was probably a fair bit higher. In 2009, two additional notes valued between $5-25 million with five (7.45%) and seven year terms (8.27%) were added. At the time, Walker noted that 15 teams tapped into the league's facility with no team drawing more than $13.3 million.

Debt was noticeably pricier in 2009, but by last year spreads were much more favorable. The Bucks were able to secure a three year note between $25-50 million at 2.00% above LIBOR, the inter-bank lending rate which currently stands well below 1%, as well as a seven year ($5-25 million at 4.99%) and ten year note ($25-50 million at 5.67%). Again, the $55 million figure quoted in the Journal story appears to be just the sum of the minimum amounts of the ranges listed in the disclosure forms, so it could have been much higher (technically up to $125 million). That said, with the 2003 loans coming due between 2010 and 2013, it's understandable that the Bucks would seek to roll over the debt, particularly given the favorable rates available through the NBA facility. Moreover, the 2009 borrowings could have been triggered by the worries many had over the recession's impact on team cash flows, and it's not even clear that the money is being used to fund the Bucks. It's possible some or all of the debt is being used opportunistically for other investments by Kohl, as suggested by its distribution into two of Kohl's trusts. Kohl isn't obligated to offer much detail beyond that the loans exist, so it's largely a guessing game.

Forbes' latest valuation from January of this year pegged the Bucks' debt at 21% of their estimated $258 million value, or right around $55 million--probably not a coincidence. Forbes estimates that only ten teams have lower debt/value ratios than the Bucks, despite the fact that the Bucks have the lowest estimated value in the league. It's tough to say how precise Forbes' data is, but those numbers suggest there's nothing unusual about the Bucks' debt levels, and that's true even if they're notably higher than the low-end range estimates which have widely been quoted.