Questions Remain For Proposed Las Vegas Stadium

Las Vegas Sands owner Sheldon Adelson is proposing to build a nearly $2 billion domed stadium for an NFL team, and is asking for public funding of $750 million in increased room taxes to help pay for it.

An advisory committee made up of major casino companies and a handful of public officials met weekly and questioned the developers on everything from infrastructure costs, funding and where the stadium would be built.

This group, The Southern Nevada Tourism Infrastructure Committee, is charged with vetting tourism related projects. On September 15, they approved a recommendation favored by the developers that includes $750 million in public money, and no profit sharing provision.

The proposal will now be sent to Governor Brian Sandoval, whom developers hope will call a special session of the state Legislature to approve the deal before the November 8 election.

The stadium also would serve as the home for UNLV’s football team.

There are multiple issues at play, and with $750 million in public funds potentially on the line (which would be roughly 10 percent of the state’s two-year spending plan), the stakes are high.

Here’s what you should know about the stadium deal.

How we got here

In April, 2016, the Las Vegas Sands, and Raiders owner Mark Davis pitched the stadium proposal to The Southern Nevada Tourism Infrastructure Committee. They promised to move the Raiders NFL franchise to Las Vegas if they could ensure a significant enough public contribution.

To date, local press has focused more on the odds of the Raiders’ arrival than the details of the stadium’s financing plan. Also interesting is the stadium proposal was announced just weeks after the Adelson family’s controversial purchase of the Las Vegas Review-Journal. This is the state’s largest newspaper, and under previous ownership, was a consistent critic of past stadium proposals that relied heavily on public dollars.

Many details have changed since the initial presentation, including moving the proposed site after Southwest Airlines raised concerns, as well as the total cost of the publicly-owned stadium creeping up to $1.9 billion.

Public financing breakdown

Developers want to build a partially publicly funded $1.9 billion stadium on one of two plots of land near the southern end of the Las Vegas Strip.

Stadium backers, led by Adelson and his partners, have proposed a public-private partnership with a public contribution of $750 million from a small increase in county hotel room taxes.

The current plan calls for a 0.88 percent hotel room tax increase along the Strip, and a half percent increase to the room tax elsewhere in the 25 miles surrounding the proposed stadium. (That would cover most of Las Vegas but not the entire county.)

An increase would mark a modest jump to the closely-guarded county room tax, which varies from around 13 percent for Strip properties to 10 percent at the lowest. The largest chunks of tax revenue are 38.7 percent directed toward K-12 education and 32.1 percent for the Las Vegas Convention and Visitors Authority (LVCVA), a private-public agency focused on tourism and managing a 3.2 million square-foot convention center.

So how would the public funding aspect actually work? Draft legislation approved by the committee provides a few hints, including requiring the Clark County Commission to issue $750 million worth of municipal bonds to cover the initial construction costs.

Developers say the proposed 0.88 percent room tax increase will bring in roughly $50 million per year. If projected revenue fell short of that figure, the responsibility of making bond payments lies with the county commission and the public, not Adelson or the Raiders.

If all proposed hotel taxes increases are approved, Vegas’ room tax rate could increase from 12.9 percent to 14.28 percent.

That’s about on par with the rate in New York City (14.75 percent), and behind Chicago (17.4 percent), San Francisco (16.64 percent), and Houston (17 percent).

Where the rest of the funding comes from

The Raiders plan to contribute a total of $500 million towards the stadium, including an estimated $110 million from the selling of personal seats, a $200 million loan from the NFL and $100 million from the team itself, including proceeds from stadium naming rights.

Adelson, who Forbes estimates is worth $30 billion, says he would put $650 million of his own money to fund the remaining cost, as well as cover any overruns.

Economic impact?

Developers are promising that a stadium will deliver a massive economic boon, including the equivalent of 8,000 full-time jobs and hundreds of millions of dollars in economic impact.

This analysis is based on a report authored primarily by University of Michigan professor Mark Rosentraub on the potential benefits of a new domed stadium to Las Vegas.

Despite rosy claims, the vast majority of economic studies indicate that publicly subsidized stadiums have a small to negligible economic impact and rarely result in large economic spillover gains.

A 2011 Holy Cross University study delved into some of the common pitfalls around economic impact promises, and found that the methodology used in many such studies is "fatally flawed" and biased toward unrealistic economic impacts.

Study authors concluded that measuring the efficiency of public stadium subsidies as a tool to spur economic development is the most important factor to consider.

Roger Nollis is a Stanford professor emeritus in economics. A former senior economist for the President’s Council of Economic Advisers, Noll is an expert on the economics of sports.

Nollis indicates that NFL stadiums do not generate significant local economic growth, and the incremental tax revenue is not sufficient to cover any significant financial contribution by the city.

Election issues

Any tax increase, whether for a new stadium or convention center expansion, requires approval of two-thirds of the state’s part-time Legislature. They would have to be called into special session by Governor Sandoval to approve any deal before the Legislature goes back into session in February 2017.

Developers face a tight deadline between the upcoming November election and the NFL’s owners meeting in January 2017, and are calling for a special session to start in September.

But there are political concerns. Nevada law prohibits legislators from soliciting or accepting any campaign contributions immediately after a special session is called and for a 15 day period following the special session. This would block out a crucial fundraising time for many legislators.

Sandoval faces a tough political conundrum in blocking out weeks of fundraising while trying to hold Republican majorities in the state Assembly and Senate. This is complicated, especially after shepherding a significant tax increase to help pay for K-12 education funding in 2015.

Legislators indicate that a stadium deal would likely need to be tied to expanding the publicly backed Las Vegas Convention Center.

Legislative hurdles

If a two-thirds vote seems unattainable, the state Legislature does have the option to pass the actual decision making process off to the seven member Clark County Commission.

Nevada’s constitution requires a two-thirds vote for any tax increase, which can be a tough sell given the large number of Republican legislators who sign no tax pledges and Democrats wary of publicly funding a stadium. But a work-around exists — only a simple majority of lawmakers are needed to approve enabling taxing legislation, which essentially punts the actual tax decision to a local government.

NFL approval

Even if a stadium deal is approved on the state side, the Raiders still need to gain the approval of three-fourths of team owners to actually relocate to another city.

A vote to move the team would likely come in January during the league’s team owners meeting.

If a stadium deal is approved and the Raiders back out, the current draft legislation calls for creation of a smaller stadium to be built to house the UNLV football team.

Issues To Consider

First, there’s been little to no public discussion as to whether using room tax dollars for a new stadium would produce a significant local economic impact and more tax dollars.

 The Taxpayers Protection Alliance, a nonprofit group based in Washington, D.C., issued a 2015 analysis report that links the subsidization of new stadiums to higher poverty rates and lower median incomes in their home cities. And it found that most NFL cities fared worse by both measures after paying for a new stadium.

According the Pew Charitable Trust, many economists maintain that states and cities that help pay for new stadiums and arenas rarely get their money’s worth. Teams tout new jobs created by the arenas but construction jobs are temporary, and ushers and concession workers work far less than 40 hours a week. 

The history of public-private sports stadium partnerships has been such a common scandal that the issue now plays in media like yesterday’s news. Stories of broken promises of significant economic boosts, job opportunities, and community redevelopment litter the national playing field.

If the benefits aren’t flowing to cities, they are instead going primarily to NFL owners. A 2012 Bloomberg analysis found that since 2000, new stadiums had helped double team values across pro sports.

Second, there’s no guarantee the Raiders would actually move to Las Vegas if a stadium is approved here. The team could use the threat of a move to Las Vegas to leverage public funding to support a new stadium in Oakland.

Then the question becomes - is a stadium, even a smaller stadium, viable without an NFL football team? This issue has received scant coverage and analysis.

Third, is the Las Vegas metro area with population just over two million large enough to effectively support a professional football team? According to NBC Sports, Las Vegas would be the fifth smallest NFL media market.

The deal would be a score for Adelson and his partners, who would enjoy a public subsidy that would rank as the largest in American professional sports history.

These issues have so far received precious little analysis in the Las Vegas Review-Journal, which the Adelson family secretly purchased in December 2015 for $140 million—twice the valuation of the state’s largest daily newspaper. This begs the question why someone so business savvy would overspend. Some increasingly wonder whether carving out the stadium deal might make the newspaper’s sale price appear a bargain.