Convention center expansion decision delayed

John Wilen

Wednesday, April 14, 1999 | 10:35 a.m.

Sheldon Adelson stormed the Las Vegas Convention and Visitors Authority Board of Directors meeting Tuesday morning, prompting a two-week delay for decisions on a planned $100 million, 1.3 million-square-foot expansion of the Las Vegas Convention Center.

Adelson argued that a plan to finance the expansion in part with $52 million in pre-paid rent from a consortium of trade show customers is illegal and guarantees future operating losses for the Convention Center. The board will hear the issues raised by Adelson at a special public meeting April 27.

"It doesn't benefit anyone to make decisions in haste," said Board Member Mary Kincaid. "There have been a lot of questions raised."

Adelson owns the Sands Expo Center -- a meeting facility that competes with the Las Vegas Convention Center -- and the adjacent Venetian hotel-casino, a resort scheduled to open late this month or in early May.

Adelson and the LVCVA have long been at odds over the authority's approach toward marketing Las Vegas.

On Monday, Venetian officials faxed a list of questions challenging LVCVA staff revenue and operating cost projections for the Convention Center expansion. Tuesday, the LVCVA staff answered those questions in a memo distributed to members at the beginning of the Board meeting.

The Board was scheduled Tuesday to approve an architect, engineer and construction labor agreement for the expansion project, and a $50 million bond issue that would complete financing for the expansion. But as the first item came up, Adelson took the public comment podium and blasted the pre-paid rent consortium plan as an irresponsible form of financing that ensures future operating losses.

"This approach to the expansion ... is not a responsible financial undertaking," said Adelson.

He equated the LVCVA to an employee who asks for five years in advance pay to build a house. The employee may be able to build the house, but won't have any money left over to pay operating costs after moving in, said Adelson.

"It is not responsible to take advance income for the purpose of building capital expenditures," said Adelson.

The LVCVA plan works like this: it takes $52 million now from customers who put on 12 trade shows each year. In exchange, the customers get credit toward future rent at the rate of 15 cents per square foot. The current contract rate at the Las Vegas Convention Center is 20 cents per square foot.

The remaining $50 million of the Convention Center's expansion costs will be raised through a bond offering. Taking advance rent payments lowers the Convention Center's overall costs of capital by $37.4 million, says the LVCVA.

But Venetian officials contend the LVCVA is giving away the best exhibition dates in the expanded Convention Center to large customers who already hold their conventions in Las Vegas, instead of taking steps to attract new convention customers to town. The expansion could easily be financed with bond debt, and the Las Vegas Convention Center would still be charging rates well below those in any other major convention center, argue Venetian officials.

"There's no additional room revenue or room tax revenue to be generated by these customers, because they're already here," said Adelson. "It doesn't help the community."

By taking advance rent payments now to finance the expansion, the LVCVA ensures the Convention Center will generate lower revenues during the period consortium members are using up their credits, argues Adelson. Coupled with increased operating costs, that means the expanded Convention Center will lose even more money than the current Convention Center, he argues.

In 1998, the LVCVA generated income of $16.3 million from renting space to trade shows, and spent $25.4 million operating the facilities, a $9.1 million shortfall. In addition to the Convention Center, the LVCVA operates convention facilities at Cashman Field.

In the memo it sent Board members, LVCVA staff takes issue with Adelson's account. Consortium members will take only 33 percent of available dates in the new convention hall, leaving 67 percent of the remaining dates open for booking new customers, argues the LVCVA. The expanded facility will generate an additional $11.2 million in annual revenues, but only $7 million in additional annual costs, says the authority. That, states the LVCVA memo, "leaves a potential net increase in revenues of about $4 million per year."

Complicating the issue further is the fact that several of the large shows that make up the consortium formerly held their shows at Adelson's Sands Expo Center. But Adelson discounts any criticism that he is acting in his own self interest or has sour grapes as the equivalent of shooting the messenger.

"Whether that's an accurate representation or not, does it change the facts?" asked Adelson. "Shooting the messenger ... doesn't change those facts."

"If the staff can make (money) operating the expanded facility, why isn't it making money operating the existing facility?" asked Adelson. "All of a sudden, they've got religion and can make money."

Increasing the Convention Center's size will increase its costs, argued Adelson. Put that together with a marginal increase in operating revenue due to the fact that much of the expanded facility's space is already dedicated to consortium members, and losses will jump even further -- possibly as high as $30 million a year, argued Adelson.

"What do we do in the meantime?" asked Adelson. "Who pays the bill?"

Venetian officials contend taxpayers will ultimately make up any shortfall. That makes the pre-paid rent plan illegal under state laws requiring the LVCVA to obtain voter approval of any contract that puts it in debt, he said. Adelson called for a county referendum to approve the plan.

Adelson also attacked LVCVA contentions that big trade shows would leave Las Vegas for other cities if they were not offered the LVCVA's low rental rates. Adelson noted that many of the shows were ready to sign five-year contracts for the Sands Expo Center, which charges 35 cents per square foot, when the LVCVA's 15 cent per square foot pre-paid rent offer came along.

"Not one show wanted to leave," said Adelson. "It's simply misleading and untruthful."

In its memo, the LVCVA staff lists 23 cities with convention centers that could attract shows now in Las Vegas.

"For us to assume we have a 'captured,' market is simply wrong," states the LVCVA memo. "It is logical to assume that much of our current business has been, or will be, courted by our major competitors."

LVCVA officials did not get much chance to counter Adelson's comments during the meeting. But Manuel Cortez, the LVCVA's president and chief executive officer, said the consortium members came up with the pre-paid rent plan themselves because they were unhappy with the Sands Expo Center.

"They came to us and indicated that they did not like the way they were being treated over there," said Cortez.

In comments after the meeting, Adelson called Cortez's account "untruthful."

"I have contracts with these people," said Adelson. "They are interfering with a contractual business relationship."

But Cortez stuck to his guns.

"He's lying," said Cortez after the meeting. "It's about getting treated like human beings, not subjects."

Cortez also said that while Adelson attacks LVCVA revenue and cost projections as unrealistic, he does not offer any solid reasons why.

"He doesn't offer any proof why we can't do it," said Cortez.

The LVCVA does much more than operate the Convention Center, argued Cortez. The authority also operates Cashman Field and advertises and markets Las Vegas nationwide, he said.

"He doesn't understand that we do more than operate a building," said Cortez.

In the meeting, as Adelson and Cortez began to argue specific points, Chairwoman Jan Jones interceded.

"I really do not feel it's appropriate, given that most of these numbers are new, the Board has not had time to look at them, to just be calling each other names in public," said Jones.

After receiving assurances that a two-week delay would not affect the planned Jan. 1 2001 opening of the expanded hall, the Board decided to take the time to study arguments presented by both sides. At its April 27 meeting, it will hear testimony from any interested parties, then decide whether to approve the three agenda items held from Tuesday's meeting.