NPRI's Transparency Project on the LVCVA: May 19, 2009 update

LVCVA vice chair ducks advance payments issue

  • Tuesday, May 19, 2009

Original Dec. 3, 2008 report
Feb. 4, 2009 update
Feb. 16, 2009 update
 Apr. 9, 2009 update
• Apr. 20, 2009 update  

Las Vegas Convention & Visitors Authority Vice Chairman Keith Smith is refusing to answer questions about the authority's long-standing policy of advancing millions of dollars in interest-free operating funds to Airwave Productions, an affiliate of the authority's advertising firm, R&R Partners.

There is no provision in the current agreement for the LVCVA to provide advance payments to R&R or any of its subsidiaries or affiliated companies, including the advertising firm's production arm, Airwave Productions. The LVCVA has routinely advanced millions of dollars to Airwave since at least 2005.

Smith, who is also president and chief executive officer of Boyd Gaming, has direct oversight of the LVCVA's contract with R&R as chairman of the authority's audit committee. The committee is reviewing a proposed three-year contract with R&R that will be presented to the full LVCVA board next month for approval. R&R has controlled the LVCVA contract since 1980. The LVCVA board voted in April to extend the R&R advertising agreement rather than open the contract up to competitive bidding.

The Nevada Policy Research Institute approached Smith minutes after the LVCVA monthly meeting concluded last week and attempted to interview the high-profile gaming official about the authority's cash advances to Airwave. But Smith's public relations assistant at Boyd Gaming, Rob Stillwell, repeatedly attempted inside the convention center to physically interpose himself to disrupt the interview. Smith declined to comment on the LVCVA's advance payments to Airwave and whether the practice will continue in the future.

Smith is a highly respected gaming official who in January was appointed to a three-year term as a director of the Federal Reserve Bank of San Francisco. He is also vice chairman of the American Gaming Association and chairman of the Nevada Resort Association. R&R is a lobbyist for the Nevada Resort Association.

Smith's reticence to discuss LVCVA issues related to the advertising agreement and the advances is mirrored by a refusal of every member of the 14-member LVCVA board to accept NPRI's request for a sit-down interview. Only one board member, Wynn Resorts president Andrew Pascal, returned calls and messages requesting an interview, and Pascal declined. LVCVA board chairman and Las Vegas Mayor Oscar Goodman initially agreed to an interview last week, but his public affairs spokesman later called and said Goodman was too busy for an interview but that NPRI was welcome to ask questions at his weekly press conference.

The advance payments to Airwave Productions have raised serious questions about the propriety of the relationship between the authority and Las Vegas lobbyist and advertising executive William Vassiliadis, who controls both R&R and Airwave. State law forbids a public agency from providing gifts to a private company.

Vassiliadis is the CEO of R&R, which has the lucrative advertising contract with the LVCVA that is worth $89 million in fiscal 2009. Airwave is a separate corporate entity that was created in 1986 and is 100 percent owned by Vassiliadis. Airwave's offices are located at R&R's South Pavilion Center Drive headquarters in Las Vegas.

The Nevada Policy Research Institute uncovered the longstanding practice where the LVCVA routinely advances millions of dollars to Airwave in connection with the production of television and radio ads for the authority's advertising campaigns. The LVCVA provides the cash advances to Airwave with scant documentation, LVCVA records reveal.

The issue of the advance payments to Airwave has simmered for months since it was first reported by NPRI in December. Vassiliadis has denied that Airwave Productions has benefited from the advance payments, but he has acknowledged that he does not have a sufficient line of credit from private lenders to cover the costs associated with producing advertisements for the authority without the assistance of the LVCVA advances.

The refusal by Smith and other board members to discuss the LVCVA's relationship with Airwave Productions and R&R comes as the authority is facing its most serious financial crisis in its 50-year history. The LVCVA's budget has been in free-fall in 2009, as officials were forced to repeatedly slash estimated bed-tax revenue from $243 million in May of 2008 to the latest estimate of $179 million released last week.

The $64 million plunge in the authority's primary revenue source, which comes from a share of the 13 percent tax on Clark County hotel and motel rooms, has forced the LVCVA staff to slash spending across the board, except for advertising. The LVCVA will spend $89 million with R&R on advertising in fiscal year 2009, up 2 percent from 2008. Advertising spending is projected to decline 4 percent next year, to $86.5 million.

The advance payments to Airwave Productions were discovered during NPRI's yearlong review of LVCVA public records. The advances range from million-dollar-plus payments for major television productions to relatively small advances of less than $50,000, LVCVA records show. In some cases, the advances were made many months before the ads were produced.

LVCVA officials state that the advances were issued to Airwave to cover deposits and up-front costs demanded by third-party vendors before work could begin on making advertisements. But the authority routinely issued far more cash to Airwave than was sought by Airwave's subcontractors for deposits, records show.

In addition, the authority has not explained why it is necessary for the LVCVA to cover any of Airwave's production costs and how the public benefits from this arrangement. Airwave receives a financial benefit, as it need not borrow money and incur the expense of interest charges while it operates.

Airwave also charges the LVCVA a 17.65 percent commission on most of the work it passes through to third-party vendors. Once the work is completed, Airwave submits a final invoice to R&R, which forwards it to the LVCVA for payment. The final R&R invoice to the authority factors in the advance payments previously made to Airwave by the LVCVA. The advance payment scheme requires the LVCVA staff to devote time to tracking the advance payments and reconciling invoices, records show.

State and county officials have told NPRI that public agencies rarely make advance payments to private vendors. Kimberly Tarter, deputy administrator of the Nevada Purchasing Division, says the state "does not make advance payments" to vendors for goods and services.

"I know vendors sometimes ask to be paid in advance, but a payment in advance runs many risks," Tarter said. "We are not willing to take that risk."

Smith was also audit committee chairman in 2007 when the LVCVA internal audit staff concluded that the LVCVA advertising agreement with R&R was in "breach of contract" for more than seven years.

The LVCVA audit concluded that the breach constituted an "actual or likely violation of laws, regulations or control deficiencies that could result in significant loss to the Authority or result in bad publicity."

The audit found that an R&R subsidiary, R&R Live, violated numerous provisions of the Advertising Agreement and operated without LVCVA oversight.

Despite the audit findings, the LVCVA never determined how much it had been overcharged by R&R Live.