Vegas arena developer would get paid before city after all

I finally got around to reading the term sheet for the latest $390 million Las Vegas arena proposal, which the Las Vegas Review-Journal helpfully included with their article on Wednesday. And while the the main sales point of the plan has been that the city would be repaid its $239 million share before developer Cordish Companies got back its $151 million, it turns out that’s not entirely true.

The trick comes in the definition of “net operating income,” which is what would be used to repay the constructions costs, and which the city would indeed have first dibs on. Before that, though, Cordish would sign a 30-year lease agreement to manage the arena (or hire another company to manage it for them). In exchange, Cordish would get to extract “a competitive and market based management fee”before paying off the construction debt.

That all sounds reasonable — if it’s “market-based” it’s gotta be right, right? — except that it effectively puts Cordish first in line for arena profits. We have no idea how much the developer would get to take off the top, but if we look at the Sprint Center in Kansas City as an example, we see that it turns about a $1.8 million a year operating profit after arena manager AEG takes its cut. In Las Vegas’s case, that would be enough to pay off a little more than 10% of the city’s construction costs, after which the well would run dry.

Obviously, a lot is going to depend on how much revenue this proposed arena — which would have the advantage of being in Vegas instead of Kansas City, though the disadvantage of having to compete with the umpteen other arenas in Vegas — can bring in, and how much Cordish’s cut is. But unless it’s way more successful than the average arena and Cordish takes a cut-rate fee, things aren’t looking good for Vegas being able to get its money back.

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