In 1953, the Boston Braves started a trend. They became the first Major League Baseball team to relocate in 50 years, drawn to Milwaukee by a new publicly funded stadium, according to Brookings research. That set the stage for the next 64 years of sports stadium financing.
The recently passed House tax bill would end this six-decade run of teams' access to tax-exempt municipal bonds for building what have become multibillion-dollar stadiums. The change isn't in the Senate bill, but if it makes it into whatever form goes to the president's desk, experts say it threatens the $1.9 billion Raiders dome in Las Vegas and the future of stadium financing.
"If you were going to build a stadium that actually had to be paid for out of the income of the football team, you would never spend $1 billion, let alone $2 billion," said Roger Noll, professor of economics emeritus at Stanford University. "This would affect them enormously."
Fifty-four pages into the House "Tax Cut and Jobs Act," which passed with no votes from Democrats, lawmakers say sports stadiums "do not generally meet the criteria" of public-purpose bonds on which interest is excluded from federal taxes. Under the new provision, the interest on any bonds issued after Nov. 2, 2017, for pro sports stadiums, is taxable.
This could be a problem for the Raiders.
None of the $750 million in bonds Clark County, Nevada, agreed to back for a new stadium have been issued. Las Vegas Stadium Authority officials told CNBC they don't expect the issuance to happen until at least the first quarter of next year. The stadium Authority's preliminary estimates already show a $20 million to $25 million reduction in public contribution without the tax break.
"It will raise costs, the margin projections will now be less, and it would take a longer time to realize the bonds," said Mark Rosentraub, director of the Center for Sport and Policy at the University of Michigan. Rosentraub worked on financial projections for the new stadium on behalf of the University of Nevada, Las Vegas, before the Raiders were involved. "Whether or not it breaks a deal or doesn't break a deal, that's up to a lot of factors and conjecture."
The tax change raises costs for teams but research suggests it could be a boon for federal taxpayers. A 2016 Brookings Institution study showed that pro sports stadiums have spent $3.2 billion federal taxpayer dollars since 2000. The think tank hasn't published forward-looking research but the Joint Committee on Taxation scored the tax savings at $200 million over the next 10 years, which Brookings researchers said seems "very low."
"There's no economic or political reason why a federal taxpayer in Oklahoma should subsidize the movement of the Raiders from L.A. to Las Vegas," said Ted Gayer, who authored the report and is director of the economic studies program at Brookings. "It's an egregious misuse of our taxpayer dollars."
Of 45 major league stadiums that have been built since 2000, 36 were financed at least partially with tax-exempt bonds, according to the study.
"It's difficult enough to get new stadiums financed these days," said Steve Greenberg, managing director at Allen & Co., who specializes in sports M&A. "Anything that would take away that tax exemption would make a difficult situation even tougher, whether it's the Raiders or anybody else."