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Volume 21 No. 26
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Stadium planners face uncertainty thanks to tax bill provision

The tax bill winding its way through Congress has sent a tremor through the stadium financing world because it would ban municipalities from selling tax-exempt bonds for sports venues. Perhaps more unsettling, the bill is retroactive to Nov. 2, meaning pending deals may have to be redone.

“It creates uncertainty,” said Irwin Raij, a partner with O’Melveny. The provision has caused concern with a number of clients considering stadium financings, he said. (Raij is also a partner in MLS expansion franchise Los Angeles FC, but the club is privately financing the stadium that it is building.)

Sal Galatioto, a veteran sports investment banker, is blunter on what happens if the provision becomes law, saying, “It is going to be a mess.”

Take the $1.9 billion Las Vegas NFL stadium, which would be owned by a government entity that plans to issue up to $750 million of tax-exempt bonds, meaning the investors who buy the bonds do not pay taxes on the interest they receive. Without that tax-free perk, Las Vegas would need to pay the investors a higher percentage.

The change could affect projects like the Raiders’ new stadium in Las Vegas.
Galatioto estimated that could be an additional 2 percent, which roughly translates to $15 million more annually in interest expense. Over the 30-year life of the bonds, that is an enormous new cost.

A few caveats: The provision is in the proposed House bill, so it still must get through the House and the Senate. The NFL, for one, has promised to lobby against the provision through its Washington office led by Jocelyn Moore.

But the provision has a few advantages over previous incarnations. Earlier efforts to ban tax-exempt financing for stadiums were just bills offered by a handful of representatives, not included in a majority effort (President Barack Obama’s last two budget proposals went to a Republican-controlled Congress with such an item).

And it’s no secret that President Donald Trump is no fan of the NFL, and he has already threatened to examine its tax status.

It’s unclear whether Las Vegas, if the bill passed and became law, would have any redress with the Raiders, who are scheduled to leave Oakland and begin play in their new home in 2021. Greg Carey, the Goldman Sachs banker who arranged the deal, did not reply for comment. While the Raiders have signed a lease, a general agreement in still pending.

Many contracts have force majeure clauses, which allow one of the parties to pull out for an unforeseeable circumstance. Whether new tax law would qualify is debatable.

Asked about the effect on the Raiders’ Vegas move by the House bill, an NFL spokesman said he would not comment on what he termed a hypothetical.