By Jacob D. Alderdice, of Jenner & Block LLP
In 2009, the Dallas Cowboys debuted their new stadium in Arlington, Texas: an 80,000 seat, $1.15 billion football palace complete with a Guinness-recognized world’s largest video screen (since surpassed by the “Big Hoss” TV at Texas Motor Speedway in Fort Worth). Not to be outdone, that same year the New York Yankees knocked down the historic Yankee Stadium in the Bronx and moved a block away to the new Yankee Stadium, a roughly $1.5 billion project complete with front row seats selling at $2,625 per ticket. For both of these stadiums, built for two of the country’s most valuable sports franchises and their billionaire owners, taxpayers bore a significant portion of the costs. The City of Arlington agreed to commit $325 million of public money, paid with proceeds from a half-cent sales tax increase, 2 percent hotel-motel tax increase, and a 5 percent increase in car rental tax. The new Yankee Stadium, while relatively easier on the City’s coffers, was financed by nearly $1 billion of tax-exempt bonds in a federal tax-avoiding scheme the non-profit Tax Foundation called “foul.” (Henchman 2009).
That same year was perhaps the apex of a 20+ year boom of stadiums built and financed with taxpayer money. Over the past 15 years, more than $12 billion in public money has gone towards over 100 new, privately owned stadiums. (Heller 2015). Most commonly, local governments fund the construction of these stadiums by issuing tax-exempt municipal bonds. That debt is often serviced with general municipal revenues, aided by a raise in local taxes. Cities typically raise the types of taxes that appear to affect non-residents more, such as hotel or rental car taxes, but they often raise sales taxes as well. Alternatively, the city may create a special authority or district to issue and service bonds, as a way of having at least one level of protection for taxpayers. If these funding schemes do not raise enough money, cities are often left with a tab paid from their general coffers. Public officials across the political spectrum have approved these deals, from Republican Governor of Wisconsin Scott Walker approval of $250 million in public money to go towards a Milwaukee Bucks arena, to Democratic Governor of Minnesota Mark Dayton’s approval of nearly $500 million towards a Minnesota Vikings stadium.
One of the most recent plans to publicly finance a new stadium has come from Nevada, where a bill committed Clark County to funding a whopping $750 million towards the construction of a $1.9 billion stadium aimed at bringing the Oakland Raiders to Las Vegas. The bill passed the State Assembly with the minimum amount of votes, and drew vigorous opposition from a public growing increasingly skeptical of publicly funded stadiums in recent years.
Mounting Opposition
The growing public opposition to publicly financed stadiums in recent years has come from a variety of sources. In his 2016 and 2017 budget proposals, President Obama proposed repealing the federal tax exemption on municipal bonds used to finance stadiums. Economists from the left (such as the Brookings Institution) and the right (such as the Cato Institute) have released reports denouncing the lack of economic benefit of publicly funded stadiums. In the sports and entertainment realm, John Oliver (through a lengthy, well-sourced segment), Bill Simmons (stating “I believe billionaires should pay for their own [expletive] football stadiums”), and Seattle Seahawks cornerback Richard Sherman have all voiced strong criticism.
Most importantly, stadium proposals have begun to encounter resistance from the very people who decide whether they go forward: local elected officials and voters. In December 2015, Oakland Mayor Libby Schaaf sent a letter to the NFL stating that public funds would not be used to fund a new stadium for the Oakland Raiders, writing “we need to make sure that our tax payers are not left on the hook, that we’re making responsible investments with the public dollar, and that we’re making good land use decisions that will benefit this city and this region for generations to come.” (Keller 2015). In early May 2016, the Seattle City Council voted 5-4 against a proposal that would provide $200 million in publicly backed bonds towards building a stadium for an NBA team to return to Seattle. The five women who voted against the bill faced fierce backlash following the vote. Though this type of backlash from constituents is often what motivates local politicians to approve these measures, there are some signs of voters turning against publicly funded stadiums. Most recently, on Election Day, San Diego citizens voted against a ballot measure that would commit public money to a new stadium for the San Diego Chargers, 57% to 43%, far short of the two thirds majority required for a tax increase under California law.
Proponents of public financing regularly tout several economic benefits to justify the use of taxpayer funds: that the construction and operation of the stadium will create thousands of jobs, and that a successful stadium will help develop the neighborhood’s and city’s surrounding economy. Yet one of the reasons for the growing opposition to public financing is the near unanimous consensus that these supposed benefits are grossly overstated or non-existent. Economic studies have “consistently found no substantial evidence of increased jobs, incomes, or tax revenues” associated with sports stadiums or arenas in a city. (Coates 2008). The jobs created by stadium construction are few and seasonal, the events held there are too infrequent, and the money spent at games by fans both does not spread far throughout the economy and likely would have been spent on another form of entertainment if not for the stadium. (Zaretsky 2001).
Amidst this growing resistance, two teams have recently announced plans to build privately funded stadiums. Stan Kroenke, the owner of the Los Angeles Rams (formerly of St. Louis), and Stockbridge Capital Group will be funding the $2.5 billion City of Champions Stadium in Inglewood, near downtown Los Angeles. And the Golden State Warriors will relocate from Oakland to San Francisco to play in the $1 billion Chase Center. The Chase Center appears to draw its funding from the Warriors’ ownership as well as corporate partners like JPMorgan Chase and United Airlines.
To many people, these private funding arrangements should be the norm for stadium construction. But team owners claim that financing their own stadiums in less prosperous markets than San Francisco and Los Angeles is not financially feasible; indeed, in moving the Rams to Los Angeles, Kroenke declined to build a privately funded stadium in St. Louis. Of course, many large, prosperous cities have still agreed to finance sports stadiums, and due to the closely guarded nature of sports teams’ finances, owners’ claims regarding profitability are difficult to verify. Yet in light of the claimed difficulties of private funding, several teams continue to seek substantial taxpayer assistance in funding new stadiums. As mentioned above, the Mayor of Oakland has opposed doing so, leading the Oakland Raiders to look to the City of Las Vegas as a potential new location.
The Las Vegas Raiders
Las Vegas is currently one of the largest American cities without a major league sports team. That will change in October 2017 with an expansion NHL team, but Las Vegas’s forays into professional football thus far have all been unsuccessful: its Canadian Football League and XFL teams folded after one year, and its United Football League team folded after three. The NFL has long opposed holding games in Las Vegas due to its legalized sports gambling. However, the increasingly widespread and transparent presence of fans’ gambling on football, perhaps best represented by the NFL’s active promotion of fantasy football, may weaken that opposition in the face of the recently approved proposal for an NFL stadium in Las Vegas.
Plans for the bill to fund an NFL stadium in Las Vegas trace back to January 2016. Facing opposition in Oakland to a new publicly funded stadium, Oakland Raiders owner Mark Davis visited Las Vegas to meet with Sheldon Adelson, the chairman and CEO of the Las Vegas Sands, regarding a proposal by a group of investors for a $1 billion domed stadium near the University of Nevada, Las Vegas. Though the Raiders signed a one-year extension in the Oakland Coliseum for the 2016-2017 season, in late April 2016 Davis stood in front of a “Las Vegas Raiders” banner and promised $500 million from the team towards a new stadium in Las Vegas ($200 million of which would come from an NFL stadium projects loan). Adelson’s group agreed to contribute $650 million, leaving $750 million (of the now $1.9 billion stadium) to be paid for by the public. When public officials hesitated to contribute that amount, the stadium developers stated in August that the amount was “non-negotiable.” (Valley 2016).
In September 2016, a special committee created by Nevada Governor Brian Sandoval approved a proposal committing the $750 million in public bonds to the stadium, funded by a small increase in the hotel room tax. In October 2016, the Nevada Senate held a three-hour debate session regarding the proposal. Supporters of the bill touted the “$620 million in annual economic activity” and “thousands of jobs” that the stadium’s proponents projected it would create. Powerful opponents of the stadium included, to the left of the political spectrum, the Culinary Workers Union, Nevada’s largest private sector labor union, and to the right, the Nevada Taxpayers Association. The latter organization released a letter listing 16 reasons to oppose the stadium, including that the public would not share in the stadium’s profits, despite its large contribution, that it is “unclear if the room tax will generate enough revenue to cover the bonds,” in which case the money would come from the general coffers, and that Governor Sandoval had recently “asked state agencies to cut their budgets by up to $300 million to cover shortfalls because other taxes are underperforming.” Nevada voters may have been moved by these arguments, as polls showed that voters rejected public funding of the stadium, with 55 percent opposed to 35 percent in favor.
Despite the opposition, the Nevada State Senate approved the bill 16-5, swayed in large part by testimony regarding the plan’s supposed job creation. Proponents suggested that it would take 25,000 people to build the stadium. According to Roger Noll, a Stanford University sports economist, “it is usually more like 3,000.” (Nocera 2016). On October 13, the Nevada State Assembly spent the day debating the bill, with legislators raising concerns that the room tax increase would affect low-income individuals such as those staying in weekly room rentals, and that the plan exempted the project from competitive bidding laws. Needing 28 votes to pass, the bill passed the Assembly 28-13, and the Senate approved the amended bill for the Governor’s signature. On October 17, 2016, Governor Sandoval signed the bill into law.
Before the Raiders can move to Las Vegas, three fourths of the NFL’s owners must vote to approve the plan at their January meeting. In a public statement, Oakland Mayor Libby Schaaf rejected the notion that the move was a “done deal,” stating “[l]ike so many of the team’s diehard fans, I believe the Raiders and Oakland have a shared identity and destiny, and keeping the team in Oakland where they were born and raised has immeasurable value to the fans, the team, the league and the city.” She stated that she would “continue to work to provide the Raiders and other NFL owners a viable, responsible stadium option to consider in Oakland.” (Shuttleworth 2016). However, with Davis making his intentions for the Raiders clear, it will be up to the NFL owners to keep the team in Oakland. If the owners OK the move, then Las Vegas will witness the construction of the newest privately-owned, publicly funded football stadium.
Jacob Alderdice is an associate in Jenner & Block’s New York office practicing content and media, white collar, and complex commercial litigation. He can be reached at Jalderdice@Jenner.com
