Super Bowl - Super Tax Breaks

Unless you live under a cold rock, you know that Super Bowl 52 is being held at U.S. Bank Stadium. News flash: the Minnesota Vikings will not be playing in the game. However, the Vikings’ beautiful facility will be in the spotlight. The stadium cost approximately $1.1 billion to construct. Public sources of revenue covered about half a billion of that cost. Other NFL franchises that have recently opened stadiums, like the Giants/Jets, Cowboys, Falcons, and the 49ers (but certainly not the Packers) have undertaken similar complex transactions, often through the issuance of tax-exempt bonds. Investors like to buy tax-exempt bonds because the interest income is exempt from federal income taxes. Tax-exempt bonds are also unique in that they are typically issued for public purposes and uses, such as streets, sewers, roads, etc. So how can an opulent stadium with sky-high ticket prices be considered a public use?

For a bond to be a tax-exempt bond, it must meet both of the following tests: (i) not more than 10% of the bond proceeds are used by a private business/individual; and (ii) not more than 10% of payments made on the bond are paid through private sources. Clearly, professional sports stadiums are primarily used by private businesses, such as the Vikings, so the first test is failed. However, these transactions are structured so a very small amount of debt service payments are made by the professional team. Often the team kicks in some amount of cash for the project (the Vikings contributed nearly 52% of the cost), but when the bond financing is calculated, the private team will typically not pay more than 10% of the principal and interest on that bond. Who pays for that portion? Typically the governmental entities involved, in this case the State of Minnesota and the City of Minneapolis.

Interestingly, in 1986 Congress eliminated a tax code provision expressly allowing tax-exempt financing for sports facilities. Nevertheless, professional sports facilities continue to be financed with tax-exempt bonds despite the fact that privately owned sports teams are the primary, if not exclusive, users of such facilities. In 2017, the U.S. House of Representatives adopted a provision in its tax bill prohibiting the issuance of tax-exempt bonds for professional sports stadiums, defined as any facility which during at least five days in any calendar year is used as a stadium for professional sporting events. The U.S. Senate did not have a like provision in its tax bill, and the final bill did not include the prohibition.

So if you are lucky enough to attend the big game, make sure to thank the taxpayers of the State of Minnesota and the City of Minneapolis for making it possible!


ABOUT THE AUTHOR

Andy Pratt is lead attorney in Eckberg Lammers' Public Finance law group. Andy has exceptional acumen for guiding local government clients in Minnesota and Wisconsin through complex economic development projects, bonding transactions, and land use planning matters. He may be reached at 651-439-2878 or apratt@eckberglammers.com.

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