GOP Tax Plan Could Harm Stadium Construction
Under the Republicans’ proposed Tax Cuts and Jobs Act released Nov. 2, bonds issued to finance professional sports stadiums would lose tax-exempt status, which could have major implications for the live sports and entertainment business.
MediaWright Photography – Lucas Oil Stadium
“Under the provision,” reads part of the 429-page bill, “interest to finance the construction of, or capital expenditures for, a professional sports stadium would be subject to Federal tax.”
In the bill, a “sports stadium” is defined as any facility that houses professional sports games, exhibitions or training “as a stadium or arena” for at least five days per year.
Professional sports venues typically don’t meet the criteria for tax exemption, “Nonetheless, some State and local governments have issued bonds and successfully taken the position that interest on the bonds is exempt from Federal tax because the bonds are public purpose bonds,” according to Sec. 3604 of the proposed bill.
A 2016 report by the Brookings Institution found that the federal government has missed out on about $3.2 billion in federal tax dollars on construction or renovation of professional sports venues since 2000, including a $431 million subsidy for the new Yankee Stadium.
Other major discounts due to tax exemptions include $214 million for the New York Mets (Citi Field), $214 million for the Indianapolis Colts (Lucas Oil Stadium), and $161 for Barclays Center in Brooklyn, home to both the NBA’s Nets and New York Islanders NHL teams.
About $8.5 billion in stadium bonds are currently outstanding, according to an analysis of Bloomberg data by Municipal Market Analytics, with much of the borrowing in New York, Texas and Florida. The prohibition would apply only to future borrowing.
Steven Bergerson – U.S. Bank Stadium
Inherent in the issue of tax-free bonds and municipalities heavily borrowing to finance venues that cost well into the hundreds of millions and sometimes billions of dollars is the core concept that the venues stimulate economic growth. That conclusion, however, has often been questioned, with the Brookings Institute report stating: “Indeed, there is little evidence that stadiums provide even local economic benefits. Decades of academic studies consistently find no discernible positive relationship between sports facilities and local economic development, income growth, or job creation.” The report also questions why the tax breaks would be federal instead of state-by-state.
However, studies like the Brookings Institution’s count money generated by sports venues as taking away from other local recreational spending such as restaurants or movie theatres, rather than as a gain on its own.
These venues, however, are clearly important to the concert business, with Barclays Center for example hosting scores of major concerts with Ed Sheeran, Bruno Mars, Katy Perry, Halsey, and Tidal X (featuring Jay Z, Jennifer Lopez, DJ Khaled, Kaskade and others) playing the venue just in the last month, among othrs.
Apregan Group President Jeff Apregan, who is executive director of the Gridiron Stadium Network which assists 15 NFL stadiums, told Pollstar, “Leave it to the government to stick their nose into an already cumbersome and costly process.
“New and existing venues need to look at all types of revenue sources and need to get as much utilization and event days as possible,” added Apregan, whose Venue Coalition provides booking and operations consultancy services for more than 70 arenas and theatres. “That includes not only anchor sports tenants, but exhibition sporting events, concerts, family shows and motor sports.
“We often see cities floating bond issues to build venues in their markets with unrealistic expectations in terms of annual event days. Additional tax burdens on construction will ultimately increase debt service and prolong ROI.”
Bankers Life Fieldhouse just announced it generated $13.2 million in revenue from non-Indiana Pacers and non-Indiana Fever events at the arena in 2017. Pacers Sports & Entertainment says it booked more than 500 events at the arena in 2017. It hosted concerts by Ed Sheeran, The Weeknd, four nights of Garth Brooks, Billy Joel and Lady Gaga just since September. Although constructed in 1997 and thus not subject to the new tax plan, this demonstrates how valuable these “sports” venues can be.
One stadium that could immediately feel the impact of new legislation would be the planned Las Vegas stadium to host the NFL’s Raiders. The $1.9 billion stadium plan calls for $750 million in publicly issued, tax-exempt bonds.
AP Photo / Julie Jacobson – Garth Brooks Yankee Stad Stage
Garth Brooks plays Yankee Stadium in New York City July 8.
Passage of the GOP’s proposed bill, or something similar, would likely increase the bond interest rate and make the project either more expensive or less attractive to potential bondholders, a staff adviser to the Las Vegas Stadium Authority and the Southern Nevada Tourism Infrastructure Committee, Jeremy Aguero of Applied Analysis, told the Las Vegas Review Journal.
While the GOP Tax Plan is definitive in its criteria for what constitutes a sports venue, the proposal leaves much unanswered.
Kansas City’s Sprint Center, for example, has thrived without an anchor sports tenant, but hosts exhibition games and would be classified as a “sports stadium” under the proposed tax bill’s current language.
U.S. tax laws up in the air could also complicate things for the Calgary Flames, who have been bickering with city leaders over terms for a new arena to replace the aging Scotiabank Saddledome with implied threats of leaving town. The Flames may lose some leverage over the city if this proposal, or something similar, passes and the appetite for building new sports venues in the U.S. wanes.
Going forward, city leaders might elect to get creative with local taxes to fund the bulk of arena construction. Philips Arena in Atlanta is raising $110 million through a car tax at the Hartsfield-Jackson Atlanta International Airport toward a $193 million renovation.
Little Caesars Arena just announced early repayment and refinancing of $200 million in tax-exempt bonds.
After initially announcing the proposed tax bill to much fanfare, an already-revised version has fewer cuts going to the middle class and families, leading to outcry from opposing Democrats such as New York Senator Charles Schumer, who said, “The bill’s like a dead fish: The more it hangs out in the sunlight, the stinkier it gets.”
Texas Republican Kevin Brady, a chief writer of the tax bill, stated that the revised bill included “pro-growth tax reform that will deliver more jobs, fairer taxes and bigger paychecks for people across our country.”
President Donald Trump has stated he wants to pass major tax reform legislation by Christmas.