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Amazon.com Inc.'s search for a second headquarters is taking a page from the playbook of professional sports leagues—an industry known for its ability to pit cities against one another.
The tactic hasn’t always favored cities. Case in point: the Oakland Raiders’ move to Las Vegas.
Clark County, Nev., won a bidding war for the Raiders when the National Football League approved the team’s request to move earlier this year. Raiders owner Mark Davis, displeased with Oakland, Calif., proposals for a new stadium, jumped on Clark County’s offer to provide $750 million in financing for a $1.9 billion stadium in Las Vegas.
The Clark County stadium is the priciest stadium to date and is viewed as a risky deal for local taxpayers by numerous economists. Roger Noll, Stanford University economics professor emeritus, has called it “ the worst deal for a city I have ever seen.”
Clark County will collect an additional 0.88 percent in hotel room tax from hotels within the Vegas strip, according to Clark County’s government website. But the funds won’t all go toward repaying the stadium bonds—transportation improvements and public schools also depend on the funds, according to county budget documents. Critics, such as Clark County Commissioner Chris Giunchigliani, argue that if room tax funds fall short, funds may be directed away from schools and roads and instead towards the stadium.
With a finite number of teams, the NFL is skilled at pitting cities against one another to secure the best deal possible, said Victor Matheson, a professor of sports economics at the College of the Holy Cross. “We have one NFL franchise on the move and one city is going to get this,” he told Bloomberg Tax.
In a similar vein with the HQ2 bidding frenzy, “Amazon is trying to leverage the idea that this will get you on the map. Amazon wants cities to value the name Amazon,” Richard Auxier, a research associate in the Urban-Brookings Tax Policy Center at the Urban Institute, told Bloomberg Tax.
Matheson said that Amazon’s tactics to reap 238 proposals for its HQ2 are similar to the NFL’s stadium bargaining ways, as both entities entice cities with a single opportunity to win either a new league or an expansive headquarters.
“There is no doubt that all of the issues that relate to stadium issues are exactly the same that relate to Amazon,” Matheson said. “Amazon has this one very pricey item that they are essentially auctioning off to the highest bidder,” he added.
According to Amazon, the online retailer will invest more than $5 billion in construction and provide roughly 50,000 jobs for the chosen HQ2 city—more than any sports stadium deal. The HQ2 final site selection isn’t expected until 2018.
“Amazon is something that is worth having, a stadium isn’t really much,” Matheson said.
Yet the cities engaged in Amazon’s proposal war may not be yielding the best deal for themselves, similar to cities seeking a sports league’s presence. Proposals for HQ2 are self-defeating, said Auxier, explaining that with a very public competition, it’s likely that cities were pushed to extreme tax incentive levels.
“Cities get so focused on that tax number, because it is a number and you can directly compare it to another city,” Auxier said.
Major League Soccer also benefits from similar bidding dynamics.
In 2015, D.C. United threatened to move to Virginia if District of Columbia officials couldn’t meet the league’s demands for city subsidies to finance stadium construction. The D.C. Council eventually agreed to pay up to $150 million towards stadium financing costs. To make stadium financing possible, funds were shifted away from city projects such as public school and library improvements, according to 2015 district budget documents.
Another MLS team, Columbus Crew SC, is threatening to move from Columbus, Ohio, to Austin, Texas. Anthony Precourt, the team’s owner, said in a Oct 17 press release that the team seeks an expansion and is exploring all options.
While negotiations are ongoing, and Austin has yet to vote on a new stadium, both cities will have to decide if they will offer public land and financing in hopes of either keeping or winning the Columbus Crew.
The funding battles between leagues and cities show that sports teams can be merciless when it comes to securing the best deal. “If you are not willing to give us X amount of public dollar, we will show you another city that will,” Auxier said.
Amazon’s HQ2 search is a brilliant marketing move, said David Zipper, urban and regional policy fellow with the German Marshall Fund of the United States. “The company is getting a huge amount of free media coverage in addition to the cash incentives that the “winning” city will ultimately provide,” he said.
However, it’s likely that Amazon already has an HQ2 location in mind, Auxier said. But by inciting a call for proposals, Amazon was able to force cities to outbid one another and reap more tax incentives than imagined, he added.
“The fact that Newark went high and [Austin] went higher than they wanted to, Amazon is just going to collect that and say thank you,” Auxier said.
The HQ2 city needs the state and local city economy to boom with Amazon’s presence, Auxier said. If HQ2 doesn’t produce the city-wide economic growth proponents are hoping for, the city and state will likely lose tax revenue from taxes not collected from Amazon, he added. This could force cities and states to use other funds, such as from schools and roads, to make up the difference.
“I’m very skeptical it [HQ2] will be a net positive for the winning city, given how much tax revenues will almost certainly be committed to the company—whose next 10 years may look nothing like the past 10,” Zipper told Bloomberg Tax in an email.
“This is why state/cities need to know exactly what they’re offering, what they expect to get in return, and then track and analyze the results,” Auxier told Bloomberg Tax in an email.
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