Raiders’ lease blocks Nevada from levying ticket taxes, we’ve heard this song before

The Washington Times had a big article yesterday on the Oakland Raiders‘ lease for their new stadium in Las Vegas, and how it contains a provision that would prevent the state from trying to recoup its $750 million in stadium costs by levying new taxes on the team down the road:

An unusual provision in the Raiders agreement with the state allows the team, currently playing its final seasons in Oakland, to break the lease and look for another home if Nevada attempts to impose new taxes over the next three decades on the team, stadium, fans or players. That includes visiting teams and fans as well.

The provision applies to any “targeted tax” aimed at collecting revenue specifically from players or fans. It would not protect the team or its fans from any new taxes applied generally on businesses or individuals across Nevada, however.

I’m quote in this article, calling the lease clause “adding insult to injury” since it “makes sure Nevada taxpayers never see a penny from the stadium.” Which is true, but what the Times left out was that I mentioned this isn’t unheard of — other teams have leases that prohibit local governments from levying team-specific taxes as well. This is probably because I didn’t actually cite any examples to the Times reporter — I was busy and couldn’t look any up — but a quick search through the FoS archives reveals two examples right off the bat:

  • The Cincinnati Bengals and Reds owners have lease clauses that allow them to block ticket tax surcharges during the course of their leases, and did so in 2010.
  • The owners of Minnesota United asked for limits on that state’s ability to impose future taxes on the team, though I’m having a hard time confirming whether that provision made it into the final lease agreement. (The world really needs a database of stadium leases. Get right on that, world, okay?)

I realize this isn’t overwhelming evidence, but it is a sign that the Raiders clause isn’t entirely unprecedented, even if the Times reports that Temple economist Michael Leeds said, in the paper’s words, that this provision “goes beyond anything he has ever seen.” And it makes sense that team owners would try to forestall ticket surcharges: As we’ve covered before, targeted ticket taxes tend to mostly come out of team owners’ pockets because, unlike other taxes, they reduce the amount of money an owner can get away with charging for tickets. So if you sign a 30-year lease and then the state turns around and says, “Hey, $10 surcharge on all your tickets, we get the money!” and you can’t get out of the lease, that’s a huge chunk of change that is suddenly going out of your pocket and into the public’s.

Which, of course, is exactly why it’s so disappointing that the Raiders lease contains this clause — with the state already on the hook for $750 million, a ticket tax would have been one of the only ways for taxpayers to get some of that money back. But the Raiders had smart contract lawyers, so that’s not going to be happening. Evidence really is accumulating that Mark Davis may be smarter than he looks.

12 comments on “Raiders’ lease blocks Nevada from levying ticket taxes, we’ve heard this song before

  1. This may be a stupid comment/question, but why not just impose the tax/fee and dare the Raiders to break the lease? What is the likelihood that the Raiders would call that bluff?

    • Davis would already have put his own money (or that of his lenders, anyway) into the stadium, but that’s a sunk cost. So really it’d all be about whether he thought the cost of moving to yet another city would be more than the cost of taking the hit from a tax surcharge.

      It’s not a dumb question at all, in other words. If Nevada lawmakers were really smart, they’d do it in tiny increments — a $1 ticket surcharge this year, another $1 surcharge the next year — in hopes that each hit would be small enough that Davis wouldn’t go nuclear over any of them. Of course, if Nevada really had the gumption to tell Davis, “Go play in the street if you like, but taxpayers need to be made whole on any stadium deal,” they wouldn’t be in this mess to begin with, but it’s nice to imagine some future savvier Nevada legislature using the gambit you suggest.

  2. ‘ Evidence really is accumulating that Mark Davis may be smarter than he looks.’

    He could be really, really dumb and that would still be the case.

  3. “…“Hey, $10 surcharge on all your tickets, we get the money!” and you can’t get out of the lease, that’s a huge chunk of change that is suddenly going out of your pocket and into the public’s…”

    Well, I guess that’s one way to look at it. Although I think it self evident that the money for the surcharge came out of the public’s pockets in the first place (as ticket buyers), or that the money going out of the owner’s pocket for the ticket tax really is just repaying (some small percentage of) the tax dollars used to build the facility etc.

    It’s essentially the same argument as business owners saying they ought to be able to deduct the total income taxes their employees pay from the company’s tax payable as that was “their” money too at one time.

    Money is fungible, as you’ve said. Arguments over “ownership” of something that exists solely to exchange for goods and services could be endless at this rate.

  4. Fees or taxes such as the one Matt proposed above are not uncommon. Unfortunately, rather than acting to repay the public funding committed to the privately owned business’ eternal benefit, these tend to pay for improvements going forward (IE: holographic displays, one of our favourite as-yet-to-be-invented stadium amenities the public is required to pay for whenever available).

    IF Nevada imposed that condition, the outcome would not likely be the Raiders filing to move again, it would be a filing of a different kind… Assuming the Raiders have binding contractual agreements that the city or state will not impose fees or taxes of this kind, they would simply sue their “Partner” and have the provision waived (who knows, given how the courts tend to favour billionaires in this enlightened age, perhaps the Raiders would even be due punitive damages for this breach).

    The language in these kinds of agreements is of primary importance, of course, so there may or may not be legitimate loopholes that the state (or, sadly, the Raiders) could use to impose fees or taxes that do not contravene the spirit or intent of the contract, much less the actual letter.

    If the notion of the Raiders imposing a fee on the city or state seems ridiculous, I refer you to the Glendale lease agreement with the owners of the hockey club that plays in a 100% publicly funded arena. The city ended up paying the team millions of dollars to play in the arena they built for the club for free. It can happen, though it’s hard to see an NFL franchise being placed in bankruptcy to quash existing contracts… it is not impossible.

    • It depends on what the penalty clause is, clearly. If it’s just “the team can break the lease if this is violated,” then maybe the Raiders’ lawyers aren’t quite as smart as we thought.

    • ‘these tend to pay for improvements going forward’

      Can you back that up with specific examples? The first agreement I can think of off the top of my head (the Texas Rangers’) specifies that ticket and parking taxes are explicitly to pay for the team share of the initial construction costs of the project (i.e. everything after the city’s $500M is exhausted; oh and total cost is projected to be $1B).

      • Sure, both my “local” football and minor league baseball franchises play rent free in publicly built facilities. They used to pay rent (though it was never anything like a market rate proposition… I doubt it even covered utilities and insurance, much less maintenance and operations) and now do not. Instead, their customers pay $3-8 facility fees on each ticket that funds the maintenance and operations that the team’s rent payments used to cover (ok, let’s make that “go towards”).

        The higher facility fee noted also covers upgrades (new seats in the football stadium a few years ago) to the facility.

        Typically you can see these charges on ticketmaster invoices. That is probably the easiest way to determine if your local sporting franchises are using the same model.

  5. You almost hope the state of Nevada takes the Raiders up on this.It’s a poker playing city;call their bluff.Not many places to move or cities that would want the Raiders if they would try to break their lease.Only LA would be an option Only if the Chargers bailed out,and the Rams would want a new tenant.And that’s not going to happen so Nevada should try to recoup their investment err sucker bet.

    • The danger would be that the Raiders would leave, and without anybody to levy a ticket tax on, Nevada would be out $750 million and not even have a team to show for it.

      • Playing devil’s advocate for the moment… what revenues will accrue to the state/city as a result of the Raiders being present as opposed to the facility being empty (other events excepted)?

        And do those revenues cover the obligations the state or city have to the primary ‘tenant’ to pay for improvements or services going forward (I know the Raiders have agreed to fund some costs as part of the free $750m deal)?

        Are the taxpayers better off financially, for example, with an empty stadium than they would be with one in which the Raiders actually play 8 times a year?

        It’s a terrible shame that these deals are getting so bad that this question has to be considered, but that’s where we are… do the agreed entertainment or other tax streams that come out of the stadium even cover the costs of having the Raiders there?

        When/if Sam Boyd stadium faces the wrecking ball because the new stadium exists, do we even need to ask who pays for that?