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September 18, 2018

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Digging into economic projections tied to a Raiders move to Las Vegas

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Courtesy of MANICA Architechture

An artist’s illustration of a stadium on Russell Road and Las Vegas Boulevard was revealed during a Southern Nevada Tourism Infrastructure Committee meeting at UNLV Thursday, Aug. 25, 2016.

If Las Vegas builds an NFL-ready stadium, the vehicles rolling into town and planes touching down at the airport could hint at the local dollars it’s generating.

They’ll be carrying tourists who planned a Las Vegas getaway around the chance to see their favorite football team, music superstar or boxing match. They’re “incremental visitors,” a technical term for new tourists who wouldn’t otherwise have come to the city, and they’re at the heart of the stadium gamble.

Proponents say the proposed 65,000-seat, domed stadium is the missing link in Las Vegas’ entertainment offerings. A flashy stadium steps away from the Strip could draw an untapped segment of visitors, they say, and those visitors would dine, drink, gamble, shop and pay for other entertainment while they’re here, pumping hundreds of millions of dollars into the local economy.

That projection is based on a number of assumptions — the largest being that once the stadium got into a stable routine, it would host 46 sizable events each year and draw an estimated 451,417 incremental visitors.

Critics say those projections are far-fetched and don’t account for risks such as the $750 million public contribution financed by general obligation bonds. An increase to the county hotel room tax has been proposed to pay for those bonds.

The political tug-of-war will head to Carson City either later this week or next, as Gov. Brian Sandoval is expected to convene a special legislative session to consider the stadium proposal and other tourism-related matters.

If lawmakers give it a green light, then we'll see if there's any truth to the notion of "if you build it ..."

• • •

Casino mogul Sheldon Adelson, chairman and CEO of Las Vegas Sands Corp., in January unveiled his desire to develop a stadium that could lure the Oakland Raiders here and provide a new home for the UNLV football program. Little by little, details emerged as developers pitched their proposal to the vetting body known as the Southern Nevada Tourism Infrastructure Committee.

The developers scouted stadium sites.

They threw out cost projections.

They asked for a public contribution of $750 million.

They also issued economic impact projections.

Retained by the developers, Convention, Sports & Leisure International estimated that a Las Vegas stadium hosting 26 events could produce a total economic output of $785.6 million and $49.4 million in new tax revenue yearly.

Separately, a sports economist working with UNLV estimated that the total economic output of a stadium hosting 20 events would be $908.9 million, and that it would generate $61.7 million in new tax revenue annually.

In September, the infrastructure committee released a summary of its own economic analysis produced by Jeremy Aguero of Applied Analysis, the go-to local research firm for economic modeling. Aguero arrived at his numbers by taking information from the other reports, tweaking assumptions within them that seemed too presumptive, and using existing information about tourists who come to Las Vegas for special events.

“It was a refinement of the assumptions to have it be more reflective of what we think reality is like,” he said.

The result: The state-backed economic impact report shows a total economic output of $620 million, as well as $35 million new tax dollars each year. Those projections are based on the stadium hosting 46 events per year and drawing 451,417 new visitors. They do not factor in locals spending money at the stadium or other tourists who would have visited Las Vegas regardless of events at the venue.

That’s assuming each new visitor stays in Las Vegas for 2.7 nights and spends $144.69 shopping, $30 for entertainment, $141.10 gambling and $16.30 on stadium concessions, among other spending projections.

Another significant variable is how many incremental visitors each stadium event would draw. Aguero’s report estimates that an NFL game would lure 14,700 incremental visitors; whereas, a UNLV football game might only draw 500. On the other hand, a neutral-site college football game, major boxing match or large-scale, non-recurring event — like an awards show — could each bring in more than 17,000 new guests.

Referring to all the assumptions, Aguero said, “I think you’ll find that they’re pretty darned conservative overall.”

The report also factors in the potential for stadium events to crowd out other visitors. That would happen if more people want to visit Las Vegas than there are hotel rooms to accommodate. (Aguero estimates stadium events could create a shortage of 2,051 rooms total over the course of a year, but that 73 percent of the crowded-out visitors would likely plan a trip for another time.)

• • •

So what does "economic output" actually mean?

In this case, it describes the combination of direct, indirect and induced spending flowing into the local economy as the result of a stadium.

Think of it this way: A visitor buys two hot dogs and a beer at the football game and then spends an additional $100 gambling later that day. (That’s direct spending.) The stadium operators hire a local company to provide security at events. (That’s indirect spending.) A security guard who works at the stadium spends his or her salary buying groceries at a local market. (That’s induced spending.)

Aguero estimates that net new visitor spending would be about $417 million, triggering another $200 million in indirect and induced spending and leading to a total economic output of $620 million each year.

That spending also translates to tax revenue. The $417 million would generate $35 million in annual tax revenue, according to Aguero’s estimates. Of that, $22.5 million would go to local government entities.

The money funneled to education would be roughly $13.4 million, based on local and state taxes earmarked for schools.

Aguero said actual tax revenue likely would be higher because his calculations didn’t include modified business or commerce taxes. It’s unclear how those would apply, he said.

“I’m probably underestimating it by about $10 million, plus or minus,” he said. “But until I get more comfortable with those assumptions, I’m not going to make the adjustment.”

The report also estimates that the stadium would create an additional 5,982 permanent jobs throughout the region, with an average annual wage of $38,500.

Applied Analysis used IMPLAN, a software system that produces economic impact models, to calculate the projections; however, Aguero said he made adjustments to overcome what he termed “shortcomings” of the model — namely, its tendency to overestimate or underestimate the economic impact because it assumes capital and labor are in fixed proportions.

Aguero said his numbers, as a result of system tweaks, are more conservative than what IMPLAN would have automatically spit out.

• • •

Economic impact analyses aren’t without controversy, especially when they involve stadiums.

Sports economists have widely lambasted them, saying stadiums merely shift existing spending and that the jobs they create don't pay well. They argue the result is of little to no economic value.

Victor Matheson, an economics professor at the College of Holy Cross, has been studying sports economics for two decades. He called the proposed $750 million public contribution “absurd,” based on the minimal economic impact he foresees a stadium creating in Las Vegas.

Why such a dreary outlook? He said the assumptions used to model the economic output and tax revenue are too rose-colored.

“In the end, if all of these wildly optimistic things happen, it’s certainly possible the stadium makes sense,” Matheson said. “But you have to have an unbelievable, ridiculous number of things go right.”

Furthermore, Matheson said, low-spending stadium visitors could displace higher-spending gamblers; money spent on NFL tickets wouldn’t necessarily stay in Las Vegas; and the novelty effect of the new stadium eventually will wear off, meaning lower attendance.

“Tourism is your big industry,” Matheson said. “What you’re going to do is take $750 million of (tourism-related revenue) and direct it toward one person’s private entertainment complex rather than public goods and services.”

Aguero said he understands why sports economists criticize public funding for stadiums in cities that wouldn’t be able to attract new visitors. But he thinks that’s what sets Las Vegas apart.

“We agree that stadiums in and of themselves are not economically beneficial for a community. They’re a public good like a park or community center. They’re a place where people can gather and come together. But in a community and economy like ours, it is very different,” he said. “If we built this same stadium in Cleveland, for example, you’re not going to get the benefits."

If stadium events attract enough new visitors to Las Vegas, the pendulum of good could swing in the public’s direction, he said. To form the incremental visitor projections, Aguero paired his own data about tourists coming to town for events like UFC fights with information from the Las Vegas Convention and Visitors Authority, which surveys people who visit the city for NASCAR, the rodeo and other special events.

Even so, Clark County Commissioner Chris Giunchigliani, who has criticized the proposed public funding, remains dubious. She questions whether the event and visitor projections will pan out and worries a stadium could have unintended negative consequences.

For instance, she said, increased traffic could deter other would-be visitors from traveling to Las Vegas.

“(Stadiums) never develop the economic benefit for the public that they talked about,” she said, referring to developers. “I’m tired of people just saying that Las Vegas is unusual.”

• • •

If you ask the mayors of Arlington, Texas, and East Rutherford, N.J., how stadiums in their cities have performed, they’ll paint different pictures.

Jeff Williams is the mayor of Arlington. He was also a civil engineer for AT&T Stadium, home to the Dallas Cowboys since it opened in 2009.

The stadium hosts about 120 major events each year — far exceeding the 25 such events initially projected, he said. They include a wide range of corporate gatherings, large concerts, college football games, the NBA All-Star Game, NCAA basketball tournament games, the Super Bowl, Wrestlemania, Monster Jam, Professional Bull Riders and even a bowling championship, he said.

“It’s phenomenal,” Williams said, adding that he thinks the stadium is the “world’s greatest special events center.”

That lineup of special events has boosted Arlington’s visitor volume from 10 million in 2010 to 14 million last year, Williams said. The 2015 visitors spent $1.4 billion in Arlington, which sits between Dallas and Fort Worth on Interstate 30, he said.

Mayor since 2015, Williams thinks those numbers could keep increasing. The groundbreaking for Texas Live!, a $250 million entertainment district planned for the area between AT&T Stadium and the Texas Rangers ballpark, should occur later this year, he said.

“The impact throughout the metroplex” — the area containing Dallas, Fort Worth and Arlington — "is tremendous because we have people staying in hotels 15 or 20 miles away,” he said.

A year after AT&T Stadium opened, MetLife Stadium welcomed guests for the first time in East Rutherford, N.J. The 82,500-seat stadium houses both the New York Giants and New York Jets.

East Rutherford’s mayor, James Cassella, said the new facility, which replaced the existing Giants stadium, has overall been a good thing for the community, especially in terms of its image. But he stopped short of calling it a game-changer.

The Jets and Giants funded the $1.6 billion MetLife Stadium, located on state-owned land in the Meadowland Sports Complex. East Rutherford receives an annual payment — this year, about $8 million — from the state stadium authority in lieu of tax dollars.

After the original Giants stadium opened, development cropped up around it, mostly in the form of new restaurants or bars, Cassella said. He suspects those businesses benefit from spillover before or after stadium events, although he said tailgating may mitigate some of those effects for football games.

“The area did develop, but the question is would it have developed without the stadium?” he said. “We’ll never know.”

MetLife Stadium also plays host to large events that bring people to the region, Cassella said. But he added that many visitors hailing from New York, Connecticut and other parts of the state drive in and out the same day.

Cassella doesn’t buy the notion that people will suddenly flood Las Vegas solely because of the stadium.

“I don’t think you need an excuse to go to Las Vegas,” he said. “You either want to go or you don’t want to go.”

And then there's the longevity factor. The Oakland Raiders moved to Los Angeles in 1982. Then the team returned to Oakland in the mid-'90s. Now, the team's owner says he's committed to moving the franchise to Las Vegas, pending league approval.

While that move would be a boon for any venue, it could create a giant bust for the community left holding the bag if the team ever leaves the desert.

"Now you're stuck with a stadium," Cassella said, "and what do you do?"

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