Published August 10, 2011
LOS ANGELES – An annual Pac-12 championship. Boxing matches with consistent knock-out audience sizes. A Super Bowl-sized mega-event each year.
These are among the outsized engagements that Anschutz Entertainment Group counts on luring to the NFL stadium it wants to build in downtown Los Angeles in order to generate tens of millions in state and local tax revenue.
The sports and entertainment firm has dangled that tax bounty before officials in its efforts to garner public support for its plan to build a venue for an NFL franchise in a city that has been without a team since the Raiders and the Rams left the region within months of one another some 16 years ago.
Council members cited the project's economic impacts when they voted to approve a memorandum of understanding with AEG that sets the stage for future binding deals between the city and the developer.
But a close reading of an economic study that AEG released last month shows that the promise of a sales and property tax windfall appears to be overblown.
It anticipates a highly optimistic number of events, some of which would not be new to the region. And a chunk of the tax revenue included in the tally is apparently already spoken for by other projects.
AEG wants to build its $1.2 billion stadium known as Farmers Field on the city's convention center campus. The plan approved by the City Council anticipates the issuance of $275 million in tax-exempt bonds for the relocation of a convention center building that now stands where the planned 72,000-seat venue would be built.
The framework deal with the city requires AEG to secure a NFL team before any work on the project, which would start with the convention center relocation, could begin.
AEG president and CEO Tim Leiweke told reporters this week he's been in touch with team owners about a possible move to Los Angeles, but declined to identify likely candidates or say whether any formal negotiations had begun. He said no move would be announced until the end of the 2011-2012 football season.
The financial study, completed by consultancy Metropolitan Research and Economics primarily using data provided by AEG, estimates that new economic activity from the stadium and improved convention center would result in $41.8 million in annual tax revenue for city, state and other public entities.
The study released by AEG sees some $22.1 million in city taxes being generated, including $11.6 million that would come from hotel room taxes.
Yet, two of the largest hotel offerings in the area got breaks on those taxes to spur their development. The JW Marriot and Ritz-Carlton hotels in AEG's adjacent LA Live entertainment complex get to keep their respective room taxes until 2035, unless better-than-expected business gets it to a maximum rebate of $246 million before that.
AEG chief operating and financial officer Dan Beckerman said new stadium and convention business would help the hotel reach the rebate cap faster, so the city would begin collecting the taxes sooner.
Also unlikely to materialize are the $3.1 million in property tax and $1 million in parking taxes that the study says would go to the city, since the deal approved this week would earmark that cash for the repayment of a loan taken out to move the convention center building.
Beckerman defended the inclusion of that cash in the tally.
"The purpose of the study is to identify the universe of new taxes and then the city will identify the portion of those new taxes that are going back into the project," he said.
City legislative staffers have said they would complete an analysis of the study's findings. The city's own consultants, who use more conservative estimates and strip out taxes that would be recycled back into the project, have projected that the stadium and convention center improvements would add an average of about $14.7 million in new taxes to city coffers each year, about two-thirds of the amount estimated by the AEG-funded study.
Among the firm's most optimistic projections concern the numbers and types of events it hopes to host.
The projected 38 events outnumber tallies for comparable venues such as Atlanta's Georgia Dome, which hosts about 33 events each year. Arlington, Texas' Cowboy's Stadium, Glendale, Ariz.'s University of Phoenix Stadium and Indianapolis' Lucas Oil stadium each draw 25 events per year, according to a Metropolitan Research and Economics tally of events at comparable NFL venues released separately by AEG.
"Thirty-eight does seem high to me," said Daniel Rascher, president of San Francisco Bay Area-based consultancy SportsEconomics. "It just seems it would be pretty amazing to have that many events in basically a football stadium."
Beckerman said AEG's status as one of the world's leading sports and entertainment companies gives it better access to large bookings than other stadium operators, while the large Los Angeles market is able to support more big events.
Among the 38 expected events were 12 NFL games, each generating nearly $180,000 in sales taxes per year. That number of games could only be reached if the Farmers' Field home team makes the playoffs each year — and if the league's players somehow agree to a controversial proposal to extend the season, Rascher said.
AEG also said in the study that it planned to host a Pac-12 Championship each year, generating some $747,200 in new sales taxes, even though Pac-12 organizers plan to hold matches on the campus of the team with the best record for the foreseeable future.
Beckerman said he preferred to anticipate that the venue would host a total of 16 professional and college football games, with the 12 NFL games and the Pac-12 championship being components of those 16 some years.
AEG also expects to host a boxing match each year with 50,000 people in attendance, adding $380,625 to government coffers. Fight promoter Roy Englebrecht, who helped form Golden Boy Promotions with boxing champ Oscar De La Hoya, said AEG is unlikely to stage a match with such a crowd even once, let alone every year, unless it virtually gives tickets away.
"If you look back in the history of professional boxing in the United States, you could probably put on one hand the number of championship fights that drew 50,000," he said.
Pro-wrestling or ultimate fighting matches, which draw huge audiences, could stand in for boxing matches some years, Beckerman said.
AEG also planned to hold a Super Bowl-sized event each year, earning more than $1.4 million in tax receipts, but Rascher said that too is an unrealistic expectation.
"They'll get a bunch of Super Bowls, but maybe that's every fourth year. What is the other big event?" he said, speculating that it may snag a World Cup soccer final and an occasional college basketball championship, but that such events would be few and far between.
Beckerman said that AEG's muscle in the sports and entertainment business made him absolutely confident that it could secure such a booking each year.
Meanwhile, several of the events on AEG's list appear to be ones that would be displaced from other area venues, such as the Los Angeles Coliseum and Pasadena Rose Bowl, which have in recent years held the Los Angeles Galaxy and Chivas Guadalajara friendly matches and other international soccer events that the company anticipates staging in its new venue.
Those games are credited with generating some $240,000 in sales taxes.
AEG even anticipates generating nearly $207,400 from the three-day long ESPN-produced X Games event, which has been held at the company's nearby Staples Center indoor arena and other local venues for nearly a decade. This year, the X Games are being held entirely at Staples Center and AEG's adjacent LA Live hotel and entertainment complex.
With the vast majority of sales tax money going to state and county government agencies, it is questionable how much of an impact on tax rolls these events would be if they are simply shifted around the region, said David Carter, a sports marketing professor at the University of Southern California's Marshall School of Business.
"Is the fact that you're moving the game two miles going to affect how much is spent?" he said. "How much is that spending actually different from what is already occurring in the area?"