MGM's new arena was built without public funds, so why does one of the world's richest people need public money to build a stadium? Image source: MGM Resorts.
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Sheldon Adelson, the owner of Las Vegas Sands (NYSE: LVS) and one of the richest people in the world, is leading the push for $750 million in public funding for a new NFL stadium he will likely be involved in developing. And Wynn Resorts (NASDAQ: WYNN) CEO Steve Wynn, MGM Resorts (NYSE: MGM) CEO Jim Murren, and Caesars Entertainment (NASDAQ: CZR) executive Jan Jones Blackhurst have all testified in favor of the stadium as well.
The outsized voices coming from gaming executives are in direct opposition to most of the area's residents, and even its guests. But if you're a gaming executive, why not support the subsidy to potentially bring a few thousand more people to Las Vegas every year? It's like free money to bring in another high profile event a few days a year.
The deal that will cost customers millions
Current reports from Las Vegas say the $750 million package requested by Adelson is on top of $650 million he is contributing to build the $1.9 billion stadium and $500 million the project is getting from the Oakland Raiders. The public subsidy will be paid for with a 0.88% increase in the room rate tax on the Las Vegas Strip and a 0.5% increase in other areas of Clark County. This is on top of a 0.5% room tax increase to fund $420 million for a convention center expansion, a site that brings thousands of people to Las Vegas each week.
The extra tax on rooms for tourists may seem small, but it's on top of the current 12% tax on rooms on the Las Vegas Strip. And very few of the 42 million people who visit Las Vegas each year will ever visit the stadium, which at best will be across the interstate from the Las Vegas Strip.
The stadium and associated tax are also unpopular. A recent poll showed that only 35% of Clark County residents support public funds for the stadium, with 55% opposing the spending. And 60% of Nevada residents oppose the subsidy. Executives support the proposal: They see an increase in tourism and construction jobs as enough justification for the $750 million subsidy. But that thesis may be short lived.
Why the stadium could impact gaming companies
Gaming executives may support the stadium, but there may be some downsides for their companies. Higher taxes could impact how much people will be willing to spend on rooms, especially since many sites will have to include taxes in their pricing options. Each 1% increase in the hotel tax will likely lead to a 1% decline in room rates, so there will definitely be an impact on resorts.
There's also very little reason to believe an NFL stadium will bring a lot of new consumers to Las Vegas. If 20,000 visitors come to Las Vegas for Raiders games (probably a stretch), there could be 160,000 incremental consumers, or a 0.4% increase for the city. That's a small increase for a tax increase every consumer will feel.
There's also the locals market to think about. The Las Vegas locals marketaccounts for billions in revenue each year, and gaming companies don't want to be on their bad side.
Gaming executives may think the NFL stadium deal will be a positive for Las Vegas, but for the region's long-term future I have my doubts. The costs in terms of taxes and public outrage may not be worth the cost associated with bringing a team to Las Vegas. And it's hard to argue why a multi-billionaire needs a subsidy that will be paid for by Las Vegas visitors for decades to come.
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Travis Hoium owns shares of Wynn Resorts. The Motley Fool is short Caesars Entertainment. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.