So the city of Las Vegas hasn’t taken my advice yet to ask an arena manager whether the Cordish Cos.’ arena revenue projections make any damn sense, but Benjamin Spillman of the Las Vegas Review-Journal did, and here’s what he found:
Guy Hobbs, an economic consultant who has worked on other major local event venue proposals, said Cordish’s expectation of attracting nearly 140 events annually is overly optimistic, meaning the project would have to balance out with income from far fewer events.
“Would have to balance out with income from far fewer events” is a bit of an optimistic way of putting it itself; what this really means is either Cordish would need to make far more money per event, or the city wouldn’t get its money back. Spillman reports that Hobbs says “he generally supports an arena but considers it unlikely that Cordish’s ‘best in class’ facility can be built without some public money,” but as to how much, nobody’s saying just yet.
Meanwhile, Spillman also reports that several local business leaders, plus three of seven city councilmembers, oppose the Cordish plan, and think the city should drop it and move on. Which may yet happen if after this latest four-month negotiating extension no one has found any magic beans to pay off the arena with, but this being Vegas, the land that can’t have too many arena proposals, we’ll see.
Turns out that crazy plan for Las Vegas to front the money for yet another arena, partly via a tax on downtown businesses, was too crazy even for the city — but only because downtown businesses squawked. The new plan: Still have the city put up $239 million in funding, but figure out how to make up the $52 million from lost business tax revenue later.
With a vote scheduled today, the arena project’s backers spent Tuesday scrambling to make changes to appease opponents. The changes, however, only increased the gap between the approximately $150 million Cordish is pledging and the project’s estimated cost.
“It gives us an opportunity to figure out what that gap may be and what are some of the viable solutions to fill that gap,” City Manager Betsy Fretwell said.
Ah, yes, it’s not a $52 million hole. It’s an opportunity. To fill the $52 million hole. With, one hopes, a giant wad of cement.
Regardless of who’s taxed to come up with the money, the big question remains whether the arena would ever bring in enough revenue to repay the city’s costs, after the arena operator extracted its own profits. Cordish Cos., the proposed arena developer (and possible operator, though the company could also choose to contract that out) has promised 139 events a year, but given that arena expert John Christison has estimated you typically need 200 events a year just to break even on operating costs, before even touching construction debt, that doesn’t seem very promising. It’s even less promising when you see that only 30 of those events would be concerts, with the rest scattered among family shows, conventions, WWE, arena football, rodeo, etc.
Cordish projects that all this would provide $20 million and up in net operating income, which would be just barely enough to repay the city’s $239 million nut, but which sounds awfully optimistic given how little other arenas have taken in as profit. If I were the city of Las Vegas, I’d put in a call to some arena managers to ask them if Cordish’s numbers make a damn bit of sense, but right now looking very expensive gift horses in the mouth doesn’t seem to be in their job description.
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.
Don’t look now, but there’s a new Las Vegas arena deal in the works! No, not the MGM/AEG one that we talked about last week. And not the $1.3 billion one with the retractable roof proposed two weeks before that by a former NBA benchwarmer. Didn’t you hear me say “new”? And by “new” I mean “more than four years old, but unexpectedly raised from the dead“:
The city of Las Vegas plans to continue working with Cordish Companies to develop a $390 million downtown sports arena, with the city paying $239 million raised in part by a special tax on downtown businesses….
According to the proposed terms, the city would fulfill its end using $187 million from bonds backed by arena revenue, nearly $52 million from a special improvement district that would assess casinos along Fremont Street and other downtown businesses based on proximity to the project and $3 million from a tourism improvement district funded through sales tax.
The good part of this deal, according to Vegas city manager Betsy Fretwell (wasn’t she in the Mayor Blank administration?), is that the city would get repaid its $187 million in bonds out of arena operating revenues before Cordish got repaid its $151 million investment. (The city would also own the arena, but as we’ve covered here before, that would mostly just serve to ensure that Cordish wouldn’t have to pay property tax.) The problem is that the money would be repaid out of operating profits, and as one stadium expert — okay, me — pointed out to the Las Vegas Review-Journal, most arenas don’t turn much of an operating profit. Which is especially going to be a concern when any new Cordish arena would have to compete for events with the new MGM arena, and all the other existing Vegas arenas, and probably offer discounts to acts in order to do so. (We’re not even getting into the notion of it hosting a major pro sports team, of which Vegas currently has none and isn’t likely to get any soon, certainly not if it wants them to — gasp— pay rent.)
Right now this doesn’t look like much of a plan: It’s being voted on by the council next week, but only in order to extend talks with Cordish another four months rather than have the negotiating window expire. If that’s approved, then everyone will reconvene on June 1 to figure out how to pay for all this, hopefully with actual revenue projections this time.
The Clark County Board of Commissioners voted yesterday to give the go-ahead to a new 20,000 arena on the Vegas strip — no, not the one proposed by a former NBA benchwarmer, but the one proposed by MGM and AEG. Supposedly this is still going to be done with no public money, but given that the county and MGM still haven’t reached a development agreement — yesterday’s vote was just on use permits — we’ll see how all the fine print plays out.
Normally, I’d say something here about how building a $350 million arena with no pro sports team and all private money when you already own one is completely insane, but given that everything about Las Vegas is completely insane, it seems about fitting. They can probably make it back just by hosting 365 nights a year of shows by … who’s the 2014 equivalent of Celine Dion? Is Justin Bieber old enough for that yet?
The Las Vegas Review-Journal has reported one more detail on former UNLV star Jackie Robinson’s proposed $1.3 billion arena project, which dropped out of the sky on Monday:
Robinson is pitching a venue with a retractable roof, which is unusual for an arena.
“Unusual” is an unusual word to describe a basketball arena with a roof; I would have gone with “unprecedented,” or maybe “cracktastic.” But, hey, when an important guy says he’s going to build something — and by “important guy” I mean, apparently, someone who played 22 games in the NBA, owned a defunct minor-league franchise, and is friends with Kiki Vandeweghe, you have to report it, right? That’s, like, in the AP Stylebook. (Wait, not that AP Stylebook. Or on second thought, maybe that one exactly.)
In any event, Robinson’s Folly now joins the proposed MGM arena as Vegas arenas that are set to break ground next spring, with no actual teams set to play in them. Las Vegas is reportedly second behind Seattle on the NHL’s expansion list, though, according to Canadian hockey commentator Bob McKenzie — no, not that Bob McKenzie. Or on second thought…
We have a little more information about former UNLV player Jackie Robinson’s proposed $1.3 billion Las Vegas arena project this morning. The Las Vegas Sun reports that the project would use “no tax money,” but would qualify for EB-5 tax credits, the green-cards-for-interest-free-loans program that the Brooklyn Nets used for their arena.
EB-5 is certainly the flavor of the month in sports venue financing — it’s been floated for the Sacramento Kings and Tampa Bay Rays as well, though neither has actually implemented it — but it’s going to be a drop in the bucket on a $1.3 billion project. And it’s important to remember that Las Vegas is traditionally the land where arena announcements go to die — Robinson’s proposed site, in fact, is the same plot of land where Chris Milam proposed his own “privately financed” $1.95 billion multi-stadium project, before revealing that it would actually require tax kickbacks and eventually hightailing it to the nearby city of Henderson, where he proposed yet another stadium complex that never happened. So, grains of salt here.
As for who would play at his arena, Robinson said he hopes to secure an NBA team, touting the fact that NBA VP Kiki Vandeweghe is “one my closest, dearest friends.” Which is all well and good, but he’s going to need more than that (and his former ownership of a team in the extremely short-lived International Basketball League) to get a franchise for a city that has mostly only been connected to the NBA for its disastrous 2007 All-Star Game, though commissioner David Stern does occasionally mention it in laundry lists of possible expansion targets. If Robinson does manage to get his complex built, though, and the NBA either expands or a team is up for relocation, and … you know what, let’s cross that bridge when we can actually see it without a high-powered telescope.
What the WHAT?
LAS VEGAS (FOX5) – Former Runnin’ Rebel and NBA player Jackie Robinson announced Monday he plans to build a 22,000-seat arena on the Las Vegas Strip.
Robinson said he will break ground on the $3.1 billion resort, tentatively named the All Net Arena and Resort, in the spring on the 27 acres between the SLS Las Vegas Hotel and Casino and the Fountainebleau.
In addition to the arena, the 862,500-square-foot project includes a 300,000-square-foot plaza and a five-star spa hotel with 500 specialty suites. A number of fine-dining, retail and nightlife options and a wedding chapel are also part of the planned resort.
This appears to be all the detail available at the moment, though there is a press release from Mr. Robinson that reads pretty much exactly like the Fox 5 report. (I especially love the $3.1 billion price tag; this ain’t no cheap-ass $3 billion vaportecture resort. [UPDATE: The press release says $1.3 billion, so apparently this isn't quite as grandiose as Fox made it sound.]) And renderings, of course, because you gotta have renderings:
Next time someone asks you how many stadiums and arenas are being planned for Las Vegas, the correct answer is “all of them.“
AEG and MGM Resorts released renderings yesterday of their planned $350 million Las Vegas arena, and don’t you just love how they used it for product placement for MGM’s IHeartRadio Music Festival? Synergy!
Anyway, once you’re done looking at the pretty pictures, the big question remains how this sucker is going to be paid for. AEG and MGM continue to insist that it will be built entirely with private funds, though they’ve also been comparing it to Kansas City’s AEG-managed Sprint Center, which got tons of public subsidies. AEG turns a tidy profit on that building, but Kansas City is losing money hand over fist, so it’s hard to see how they’ll make money if they have to pay the full freight here — especially if they’re only looking at 100 or so concerts and such per year, which is only about half the industry-standard breakeven point.
This is Las Vegas, though, so it’s possible somebody has a way to make this make money, whether by installing slot machines at the concession stands or what. Construction is supposedly going to start in April or May (with the arena to open by 2016), so we should know more before then about whether AEG and MGM will be asking for any hidden subsidies.
That MGM/AEG arena in Las Vegas that was first rumored back in March to be announced soon? It’s actually happening, or at least the announcement has actually happened: The two companies announced yesterday that they’re moving ahead with building a $350 million, 20,000-seat arena on the Strip, to be completed by spring 2016. And unlike the Caesars Entertainment arena plan that was killed last year, MGM and AEG claim this one will be built using entirely private money.
Whether that’s true or how it will work — especially without an NBA or NHL team as an anchor tenant — remains to be seen: The arena’s project manager says the model is Sprint Center in Kansas City, which despite being jam-packed with concert booking still doesn’t come close to repaying all the public money that that city pumped into it. I guess it’s conceivable that Las Vegas draws enough tourists with money burning a hole in their pockets that MGM can make money by selling tons of tickets to tons of events, a la the Brooklyn Nets‘ Barclays Center (though that has an NBA team to fill 41 nights, plus soon an NHL team to fill another 41). Or maybe it’ll be a loss leader to get people into MGM’s casinos. Who really knows — when it comes to Vegas economics … I was going to say “all bets are off,” but that’s probably not the right wording.