A detailed look at the financial plan for the Oakland Raiders proposed NFL Stadium in Las Vegas reveals a project cash flow shortfall of almost $1 billion over the planned 30 year lease term.
This analysis of the proposal includes a spreadsheet I created (and with references) and based on the work of the Southern Nevada Tourism and Infrastructure Committee staff during 2016; my endevor was to stay as close to what they created as possble, then insert the transportation infrastructure costs and the Bank of America Loan debt of $650 millon plus interest in it. What I found should give NFL Owners, and anyone who cares about the fiscal well-being of the Oakland Raiders, pause. But to understand why, here’s the backstory.
When the members of the Southern Nevada Tourism and Infrastructure Committee (SNTIC) developed the recommendations that became the eventually passed Southern Nevada Tourism and Infrastructure Act or SNTIA, they did so with the idea that Las Vegas Sands CEO Sheldon Adelson would pay for so many stadium project cost items, that expenditures once considered the responsibility of state and local government were not only shifted to the developer, but then set in stone as law in the form of the SNTIA.
But guess what? Adelson dropped out of of the deal with Oakland Raiders Owner Mark Davis and President Marc Badain (and because the casino mogul believed he was being double crossed), it left two problems: first, the off-site transportation costs that were once basically ignored because of Adelson’s vast $30 billion wealth are suddenly a huge burden for an organization that lacks the deep pockets to pay them.
Like the Oakland Raiders.
Second, Adelson’s depature left a $650 million hole (his contribution to stadium construction) that had to be filled, but by getting a loan Mark Davis created another debt obligation for the stadium project that wasn’t there before.
Another related problem can be summed up in this way: in the process of forming the SNTIA, the politically-driven SNTIC that was formed by Nevada Governor Brian Sandoval, was forced to do the equivalent of two years of stadium pre-development analysis in just six months. Thus, from a development feasibility perspective, mistakes were made.
First, because the elected officials were rightly concerned about ‘too much’ public money being spent on the stadium project, the tax increment financing district (TIFD) that was originally proposed was taken out of the final SNTIC recommendations. That is because the way a TIFD works is to capture property tax revenue within a designated zone, in this case, the 25-mile diameter Las Vegas Stadium District, and use it for a specific project like the Oakland Raiders NFL Stadium. But, again because Adelson was in the deal at the time last year, and was willing to pay for everything above and beyond the public contribution of $750 million, dropping the tax increment district seemed to be a no-brainer idea.
Second, the offsite transportation cost matter was never settled before the SNTIC folded last year. According to the SNTIC. For example, in the document called Appendix C Master Binder Documents Vol 2, and at page 615 of 1,151, the page titled “Stadium Estimated Development Cost” showed parking and offsite infrastructure costs at between $110 million and $150 million. That was part of a study done by Las Vegas Sands, Majestic Realty, and Convention, Sports, and Leisure (CSL), and presented to the SNTIC on July 5th, 2016. The rationale for that assumption of a cost between $110 million and $150 million was not given in the report.
Moreover, the first stadium development presentation to the SNTIC last year called for those same offsite transportation costs to be paid for by state and local government. But then, according to the SNTIC meeting minutes from June 23, 2016, “Mr. Craig Cavileer, Executive Vice President of Majestic Realty, states the $750 million contribution by the public is capped, while the private contribution is not. The developer is assuming all risk and will be responsible for the building of necessary infrastructure for the stadium under the first proposal. However, the new proposal does not allow for this. He reiterates the team will be responsible for all on- and off-site infrastructure costs.”
And that promise to “be responsible for all on- and off-site infrastructure costs “ was later repeated during the SNTIC meetings by Las Vegas Sands President Robert Goldstein.
Thus the stage was set. The trouble is, at that time no one expected the Nevada Department of Transportation to present a report that would include a price tag that gave everyone pause. Called the “Las Vegas NFL Stadium Sites Traffic Assessment” the detailed study pegged a total cost for all stadium-related offsite transportation infrastructure costs at $900 million. Moreover, the report did not assign a particular state or federal government program to pay for the vast number of additions and improvements called for.
The controversial document was so explosive that, while it was released on October 4th,, it was not shown to the general public until it was somehow leaked to the same Las Vegas Review Journal news organization that Adelson owns. To add insult to injury, the LV Review Journal reporter posted the article about it during the Nevada Legislature’s hearing on the SNTIA that, if passed, would approve the $750 million stadium subsidy that both Adelson and Davis wanted.
On Twitter, a number of Nevada elected officials went ape, the Nevada Assembly delayed voting, and many were asking why the report was not presented to the Nevada Senate before it voted on October 11th 2016. In an effort to provide explanation and political cover for the report, the Nevada Governor’s Office sent NDOT Director Rudy Malfabon to make a special visit to the Nevada Legislature on October 14th, and said that the projects were already planned. Mr. Malfabon then claimed they would have no fiscal impact on the stadium proposal, which was why their additional costs were not included in stadium proposal discussions. But, he told the Nevada Assembly that “such accelerations could result in postponing other projects.”
Mr. Malfabon’s statements made everyone’s head spin: the “Las Vegas NFL Stadium Sites Traffic Assessment” document is very clear in making a connection between stadium traffic and needed transportation infrastructure changes, so to say that the projects were already planned before the stadium was even thought of was questionable. It was more accurate to assert, as he eventually did, that many projects needed to be fast-tracked to handle the stadium traffic generation demands.
The SNTIA passed the Nevada Assembly by a narrow vote. But the newly installed act that gave the $750 million subsidy that both Adelson and Davis wanted, also included language that, contrary to Malfabon’s claims, firmly tied stadium transportation costs to a “fiscal impact on the stadium proposal.” This: Section 36 4(f) of the law stating “A developer partner has any development agreements required by state or local governments relative to providing adequate offsite infrastructure improvements for the National Football League stadium project.” And this: Section 292(h) of the law, which reads “(h) Provide for an adequate contribution by the developer partner for the construction or improvement of any infrastructure off
the site of the project that is determined to be necessary for the project by the Department of Transportation, the County or any municipality in which the project is located and that is specified in
the regional infrastructure and service evaluation required for a high impact project before a special use permit is issued for the project.
While those parts of the Act were firmly in place thanks to the final vote of the Nevada Assembly, stadium project costs continued to be reported at $1.9 billion. Then, after Adelson left the Raiders Stadium Project, the political climate shifted, or seemed to, and away from a favorable look at the stadium proposal – and that let loose that nice poison pill language that was in the SNTIA to officially cause the NDOT transportation report to have an impact on how much the stadium project cost.
On March 9th, the Review-Journal posted an article with this headline: “RTC officials want Raiders to pay for proposed stadium road projects” The RTC is the The Regional Transportation Commission of Southern Nevada. Called “the transit authority and the transportation-planning agency for Southern Nevada,” it governs how freeways and roads are built in the area around Las Vegas. While, the article pointedly referred to “RTC officials plural” – some stadium proponents claimed that only Clark County Commissioner Chris Giunchigliani was pushing for the Raiders to pay for the offsite expenses – not so, it was the entire RTC.
Moreover, while the Oakland Raiders may claim that $375 million would be used to pay for the offsite transportation costs, the description for that $375 million includes only stadium onsite, and not offsite, infrastructure costs, and does not at all mention transportation infrastructure specifically. Moreover, the total cost according to NDOT is $900 million, a far cry from the $150 million first assumed in the early SNTIC meetings on the stadium idea.
What happened was that the Raiders, either by accident or intent, avoided adding the extra dollars needed to pay for the stadium traffic issue. First, Raiders brass clearly assumed state and local government would cover it, then when that was taken off the table, they believed Adelson would pay for it, and after he left, they did not revise their plans to pay for it themselves, even though they have to. And now, here comes the RTC to collect, and even though the law says the Raiders only have to pay an “adequate” amount, they want the Raiders to pay for the whole cost.
This problem impacts the stadium pro forma in this ways: the cost of the needed transportation improvements has to be added to ‘total project costs’ – since the law calls for some, but not all of the expense to be paid for by the “developer” (the Raiders) we can arguably reduce the $900 million to $450 million, or 50 percent of the total.
That transportation cost assignment problem isn’t the only issue causing the giant shortfall – the need to borrow $650 million to replace what Sheldon Adelson took with him on the way out is the other one. Oakland Raiders Owner Mark Davis has said he’s secured Bank of America to loan $650 million in a proposed deal called “traditional financing” by NFL Executive Vice President Eric Grubman. But that $650 million has to go to stadium construction – that leaves the Raiders with a new debt of $650 million plus interest rate at LIBOR, or the Intercontinental Exchange London Interbank Offered Rate – used to set interest rates for loans and bonds worldwide. A friend of mine who’s arguably the leading sports financial adviser told me he thinks BofA would give the Raiders the loan at that rate, which currently stands at .0414. That puts the debt cost, not including fees, at $676.91 million.
Clark County Commissioner Steve Sisolak observed that no one knew how the Bank of America loan would change how the project pencils out – this spreadsheet and blog post answers his question. To provide an accurate assessement of how these expenses impact the entire project, I used the stadium revenue and expense numbers produced by the SNTIC consultant Jeremy Aguero, Principal Analyst, Applied Analysis, and Las Vegas Sands and the Oakland Raiders, and presented in the document called “SNTIC Stadium Model Presentation FINAL doc” and on page 18 of 32.
The stadium revenues and expenses include everything from luxury suites to naming rights and sponsorships. I did not change the basic annual estimates, just multiplied them by the 30 year lease term. I also did not add in any inflation rate because, even though that would not have changed the percentage shares of the category estimates, I wanted to be true to what the SNTIC staff developed, and make my calculations easy for someone to replicate in an Excel document. The point of this is to stay as close to what they did as possible, thus causing the spreadsheet to be an honest representation of the Raiders project.
I then took the annual revenue estimates and multiplied them by 30, which is the total length of the stadium lease in years and the planned hotel tax bond issue term.
The result was two-fold: first the $450 million transportation infrastructure cost caused the overall Oakland Raiders NFL Stadium Project Cost to jump from $1.9 billion to $2.3 billion. Since the Raiders had not identified a funding source to cover that expense, the project funding shortfall was a negative $450 million. Second, the debt of $676.91 million was added to the section called “Debt Service and Capital” and to the existing debt service line of the spreadsheet. The report had an estimate of $12 million in debt service for one year – that was extrapolated to 30 years. The two debt expenses were then added together with the Capital Expenditure (or $2.5 million per year times 30 years) to produce the Total Debt Service And Capital of $1,111,910,000 – or $1.111 billion.
Because of that debt, free stadium operating cash flow, another section of the SNTIC Model, was now at a negative $514 million. That -$514,073,120, when added to the project funding shortfall of a negative $450 million equals a negative $964 million or -$964,073,120.
The Oakland Raiders Las Vegas Project has an overall deficit of almost $1 billion. And note, I did not even bother to consider the NFL Relocation Fee. Moreover, I did test the spreadsheet against different assumptions.
For example, suppose the traffic infrastructure expense was $300 million and not $450 million? That causes the funding shortfall to drop to drop to $300 million and the overall project operating cash follow to drop to a negative $814 million.
And while a traffic infrastructure expense of no cost, or zero elimates the funding shortfall problem, the Bank of America Debt of $676.91 million, when placed in the spreadsheet, and with the revenue assumptions the SNTIC staff used, causes a stadium operating cash flow of a negative $514 million, or -$514,073,120 – total over the 30 year stadium lease term.
So the Oakland Raiders basic problem is they have a stadium proposal that does not, as they say in the real estate investment industry, “throw off” enough money to pay for the expenses it creates. One of the costs, transportation infrastructure, was ignored, and the other, the Bank of America Debt, was the left over burden of Mark Davis’s soured relationship with Sheldon Adelson.
The question here is why would NFL Owners vote to allow Davis to put his Oakland Raiders in a situation in Las Vegas where they not only will not be able to make money, but will certainly be evicted from a stadium they don’t own?
While I am a proponent of the Raiders staying in Oakland, and believe that Las Vegas is a bit too small to effectively host an NFL team, as long as he had Sheldon Adelson as a giant angel investor who just wanted to help his community, Davis stood a good chance of getting a Las Vegas deal worth doing done for his Raiders.
But with Adelson out, and Davis lacking deep pockets, the Las Vegas deal is not worth doing. Any NFL Owner who would approve Davis’ relocation request, would later have to consider loaning money to the Raiders to bail them out. The now Democratic-controlled Nevada Legislature has no desire to redo the SNTIA to give Davis more public money, and they certainly don’t seem to want to take on the expense of being responsible for the “Stadium Events Company” so, he’s stuck.
Letting Mark Davis move the Oakland Raiders to Las Vegas under these bad fiscal and legal conditions is basically like playing a cruel joke on him. Why do that?