It starts with this spreadsheet, this bond issue, and a little bit of simple math: the first year of debt service for the $647 million Las Vegas Stadium Bond Issue is $36,003,763 – take that, multiply it by 1.5 (because that represents what’s called the “debt coverage ratio” for the bond issue) and then divide that total of $54,005,644.50 by 12 months, and we get $4,500,470.38.
That’s the monthly debt service that will be due starting in 2019, and frames the first problem: the current average stadium hotel tax per month is now $3,983,366.68 – or a difference of -$517,103.70 per month, as of now. That fact points us to look at Nevada Senate Bill One, and these words:
1. The Board of Directors shall request that the Board of County Commissioners issue general obligations of the County pursuant to subsection 2 if the Board of Directors determines that:
(a) The Stadium Authority has entered into a development agreement and a lease agreement pursuant to subsections 2 and 3 of section 29 of this act or a combined development and lease agreement pursuant to subsection 4 of section 29 of this act.
(b) The proceeds of the tax imposed pursuant to subsection 1 of section 33 of this act that will be pledged to the payment of the general obligations will generate sufficient revenue to meet or exceed the debt service coverage ratio of 1.5 times the anticipated annual debt service for each year of the term of the obligations.
Thus, if we read Section 36, Paragraph 1, Subsection (b), again, which says “The proceeds of the tax imposed pursuant to subsection 1 of section 33 of this act that will be pledged to the payment of the general obligations will generate sufficient revenue to meet or exceed the debt service coverage ratio of 1.5 times the anticipated annual debt service for each year of the term of the obligations,” that means there’s a problem.
Right now, the average hotel stadium tax revenue is -$517,103.70 below what the bond debt service will be next year. But then, guess what folks, look at this:
The target monthly revenue for the bond issue is $4,500,470.38, and, again, the average hotel stadium tax revenue is -$517,103.70 below that number. But when we look at the rolling average hotel stadium tax revenue since the first time the tax money was collected March of 2017, we find that for most of the 19 months of revenue collection, those dollars have been less than the average $4,500,470.38 in monthly revenue the bond needs. The last time there was enough money to cover that was April of 2017.
In other words, this deficit problem has existed and yet no Clark County Official knew of it, or if they did, said anything about it – just continued toward making sure the bond issue was done on April of this year, 2018, and so the interested parties could collect their fees attached to what were bond proceeds of $647 million. This happened while it’s clear that deal was struck, and what would appear to be in violation of Nevada Senate Bill One. The nature of the problem is such that it spills over onto the very operation of the Oakland Raiders – and explains (in part) why star players Khalil Mack and Amari Cooper were let go.
The Pay-Go Revenue To Oakland Raiders For Stadium Is Less Because Of The Tax Revenue Problem
When the Southern Nevada Tourism and Infrastructure Committee (SNTIC), the group created by Nevada Governor Brian Sandoval, was presented with the first runs of what was called the “NFL Stadium Model”, the assertion was written that the “room tax was sufficient to fund debt service, including coverage.”
And the stated idea was to have two years of tax collection in 2017 and 2018 called “pay-go revenue” (for “pay as you go”) before the bond debt was due starting in 2019. (The stadium bond debt schedule – without the debt coverage ratio applied – is on page 16 of the document) The idea was to have a bond issue of approximately $641 million, added to $109 million of pay-go money, to equal $750 million in public monies for the Raiders Las Vegas Stadium.
But the actual monies that have been collected are less than what was forecast by the SNTIC Consultants. By the time the first-year of pay-go money was transferred to the Raiders in April of this year, that equaled just $48 million, whereas the chart shows $54 million for the first year – that’s a difference of $6 million.
And the remaining monthly revenues to September 2018 (the last reported month) total $32,143,192, or if divided by eight months, comes to $4,017,899 – times 12 months, that comes to $48,214,788.
So, in total, the Raiders Stadium Pay-Go Revenue is $12 millon less than what the team was told to expect during the SNTIC meetings. Moreover, the total average is less than the $4,017,899 and is $3,983,366.68. If it goes below that average, it means the Raiders could see a scenario where they’re getting $13 million or even $14 million less than they were told to expect in public.
That’s money the Oakland / Las Vegas Raiders have to find from some source – and that brings us to the matter of player payrolls. Without going into detail, it should be obvious that the organization had to figure out a way to bank $15 million and more.
From the timing of the stadium bond deal, it’s clear the Raiders learned this year that the stadium tax revenue was not what they were told to expect – and had to adjust. (If they listened to me a year before the Raiders would not have been in this pickle.) Cutting star players and looking for low-price gems in the 2018 NFL Draft was the path the organization had to take.
1) The hotel stadium tax, at 88/100th of 1 percent, is producing revenue that is not only too low to pay the upcoming bond debt service times its debt coverage ratio of 1.5 – and given the size of the monthly debt, and its growth rate, the stadium tax revenue will never catch up with that cost, unless the tax rate itself is increased. That would take an act of the Nevada Legislature; SNTIC consultant Jeremy Aquero told me on video that the tax rate “is what it is.” Meaning the Nevada Legislature wasn’t likely to increase it. Where will the Raiders find the additional $15 million to cover that shortfall, especially since neither Clark County nor Nevada appears keen to cover it at this point in time?
2) There’s no known additional source of Raiders revenue to cover the much-talked about Regional Stadium Parking Plan. It counts as “off-site infrastructure cost” rather than “on-site infrastructure cost” and is still being developed. As it’s not part of the official budget for the stadium, where will the Raiders get the dollars to pay for it? The organization has not announced a sponsorship partner as of this writing, and it’s not landed a date for a Super Bowl Game, which normally makes getting name sponsors easy.
At this point, If the Raiders wanted to, the organization could use the stadium tax revenue problem as a ticket out of Las Vegas, and to, perhaps Los Angeles, unless the governments of Nevada were eager to fix a problem that really is their fault.
The hotel stadium tax revenue shortfall has helped damaged the very core of the Oakland Raiders, and made the chance of a winning season remote, at best.
How the Raiders deal with this problem remains to be seen. But given the importance gambling and entertainment industry observers have attached to the coming of the Las Vegas Raiders, the Silver and Black is clearly in the driver’s seat to get more public money and private investment. Investor’s Business Daily reports that…
MGM Resorts International, Caesars Entertainment, Las Vegas Sands and Wynn Resorts sold off heavily in August after warning that Las Vegas revenue will fall dramatically in Q3. They faced tough comparisons on the previous year’s bonanza from Floyd Mayweather’s megafight with Conor McGregor. Casino stock Caesars Entertainment warned that Q3 bookings were soft at its Las Vegas casinos when it reported earnings.
There has also been growing resistance among visitors to rising resort fees and fees for parking, which used to be free but can now cost $30 a day. However, analysts say the arrival of the NFL’s Raiders franchise, the strong business climate, robust GDP growth, improving entertainment offerings and an ample, convenient airport will act as catalysts.
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