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September 15, 2014

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Major League Soccer:

Four things to know about Las Vegas’ MLS stadium deal

Image

Cordish Cos.

Artist’s rendering of proposed stadium.

When they announced a tentative deal to build a new soccer stadium and land a team to fill it, Las Vegas city leaders said the public's share of the $200 million stadium would be just 31 percent.

On its face, the deal is a bonanza for taxpayers. The public share of recent Major League Soccer stadiums is closer to half, according to Forbes. In Chicago, taxpayers covered the full cost.

But examined from a different angle, Las Vegas’ numbers show the city and its taxpayers could be on the hook for more than 75 percent of the cost.

What’s behind the discrepancy? And what else wasn’t highlighted in the city’s press release? Here’s what you need to know about the deal.

Including the team cost inflates private investment

The city’s press release said the developers would fund 69 percent of the $410 million project cost.

That cost includes building the stadium and the interest on debt used to finance the construction.

The cost also includes a $102 million line item for the MLS franchise fee and other costs with starting a team. From the beginning, it’s been known that the costs of acquiring the team would be borne by the development partnership between Findlay Sports and Entertainment of Las Vegas and Cordish Cos. of Baltimore.

Previous drafts of the financing plan didn’t include team acquisition costs because they don’t directly relate to the construction of the stadium and don’t involve the city.

So why were they included in the term sheet presented to the public Tuesday?

“It was likely done to skew the percentages between public and private (funding),” said Las Vegas City Councilman Bob Beers, a fiscal conservative skeptical of using public money for sports stadiums. “It’s just not normal in stadium proposals and the way they’re discussed.”

It’s also not clear where the $102 million estimate for the acquisition costs came from. New York City paid $100 million to secure its soccer team, but other owners have paid significantly less.

Cost in 2014 versus cost in 2044

To help finance the $200 million needed to build the stadium, the city would issue $115 million in bonds.

The city will put up its general fund — which pays for core city services — as a backstop to guarantee the bonds. The guarantee is similar to having someone co-sign a car loan. If the team's sales projections fall short, the general fund could be tapped to pay back that debt.

But the city considers only 40 percent of the $115 million in public debt as public money. That city share would come through annual $3 million payments.

According to the city, about 60 percent of the debt will be repaid by private sources. That’s because the bonds would be partly repaid by the developers' $3.5 million annual stadium rent payment. The city expects to collect another $500,000 to $1.5 million per year in revenue from nonsoccer events.

If the full cost of the bonds were considered public, the taxpayer share of construction costs would rise to $151 million, 76 percent of the total.

The major assumption in the calculation is that the soccer team will be successful enough to make its rent payments for the full 30-year term of its lease.

If the team struggles or shuts down before 2044, the city would be responsible for more of the bond payment than it’s projecting.

Bill Arent, Las Vegas economic development director, said it’s unlikely the soccer team’s owners would just walk away from the stadium and lose the $146 million they’ll have already invested.

Arent said a lease, which still needs to be negotiated, would likely contain provisions that penalizes the team if it can’t finish out the lease.

“You make it really hard for the team to just walk away,” he said. “Then the question really becomes ‘Is a team here viable? Does the business plan make sense?’”

Land costs left out

One thing that’s not included in the city’s financial analysis is the value of the land the city would “donate” to build the stadium. The city would retain ownership of the land and the stadium as part of the deal, but the opportunity cost of not selling the land on the open market is left out of the calculations.

Arent said including the land value in the calculation would increase the public’s share of the costs, but he didn't have the value for the 13-acre parcel immediately available.

Also left undefined are additional costs to build roads, sidewalks, gutters and other infrastructure around the stadium. The city also would foot the bill to build a pedestrian bridge to improve access to the stadium. A similar downtown pedestrian bridge cost the city $4.5 million.

Arent said many of the projects will be needed regardless of whether a stadium is built.

City covers funding gap

An initial term sheet circulated behind closed doors in July showed a $29 million hole in the budget to build the stadium.

According to the proposal released Tuesday, that gap will be covered by an increase in city debt, with no additional upfront contributions from the developers.

The gap will be partially covered by $5 million in New Market Tax Credits, a funding source the city considers private. The tax credits are offered through a federal program designed to attract private investment in low-income neighborhoods.

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