Viva Disruption! How Uber outspent the casinos to buy Vegas
Later this month, Uber will begin operating legally in another US city. On the face of it, that's an unremarkable development: For all its battles with local lawmakers, the march of Uber seems unstoppable, in the US at least.
But I'm not talking about a normal city. I'm talking about the city of Las Vegas, Nevada -- home to the most aggressive taxi laws in the country, enforced by ski mask-wearing paramilitary cops. A place where you can't even set up a traditional licensed cab company without the permission of the city's existing cab cartel. A place that specializes in teaching rich, arrogant punks like Travis Kalanick a lesson about beating the house and getting rich quick.
Yes, Uber has won in Las Vegas, but only after its hardest, most political, and most expensive fight to date. A fight that still might not be over, and might even be about to get very, very ugly.
This is the story of that fight.
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It's little wonder that Uber would want to crack Las Vegas. Over 40 million people visit the city every year. According the Nevada Taxicab Authority, in 2011 there were approximately 27 million cab rides given by the 3000 or so taxis active at any given time in Las Vegas. The average fare was 15 dollars before tips and all of that money went to just sixteen legally operating cab companies in the city.
Until very recently, ride-sharing was illegal in Nevada. Straight up. Yet, as in other cities, illegality didn't dissuade Uber from bringing its services to Las Vegas. Nor did the company see any reason to stray from its tried-and-tested gameplan for entering new markets: (1) Get the local populace excited about a new option by crapping on the tired old taxi model (2) Just show up and operate (3) Ride the momentum and fend off the critics into profits.
When Uber arrived in Las Vegas in October of 2014, step one was already accomplished. Las Vegans hate the taxicabs for a number of reasons, but foremost is that on the rare occasion a local needs a taxi, they are nowhere to be found. Unlike in most cities, you can't hail cabs on the street in most parts of town -- instead you have to go to authorized taxi ranks or join a very long line at a casino.
And even if you call a cab and it does actually show up (after a call and maybe an hour or more wait), they frequently bail on the fare. Drivers prefer to remain close to the Strip, and the lucrative tourist trade where fast money and long-hauling (that practice of going the wrong way to run up the meter, pervasive in Las Vegas) is more readily available.
And so on to step two: Uber showed up in Vegas and started to operate. They even repeated a trick they pulled in LA where Ed Norton became the city's first Uber rider. Las Vegas "Rider Zero” was a hometown hero named Brandon Flowers, lead singer of the Killers. So far, so good.
It was at step three – ignoring the haters and fighting the law – that the wheels came off Uber's roll-out. Unlike other cities, Las Vegas' cab laws are neither fuzzy nor soft. Bluntly put: the city doesn't fuck around when it comes to illegal cabs. Rather Las Vegas has an iron-clad, hardcore, imminently enforceable, agent-funded law that hit back at Uber in a way that must have shocked even the famously pugnacious Travis Kalanick. Here’s how one local newspaper described the scene of that first bust from October 24, 2014:
Five unmarked white Nevada Taxicab Authority vehicles surrounded his blue Ford Focus [Uber car] as he was driving east on Fashion Show Drive about 3:30 p.m. He was pulled over while trying to drop off two passengers. Two undercover officers wore black ski masks.…His Focus was on top of a tow truck at 4:30 p.m.
Ouch. And not just an impound, but a $10,000 fine, and get this… Uber would have to post a bond for $20,000 dollars to spring the car back to its owner. But wait there’s more. The individual driver would be issued a misdemeanor citation with a minimum, mandatory fine of $500 dollars and a possibility of double that along with up to six months in jail. And that happened five times before Uber took a step back. Then, the Nevada Attorney General found a judge in Reno (after one failed attempt in Las Vegas) to issue a statewide injunction to make any further operation a trigger for further, large contempt fines. Oof.
So what’s a modest, billion-dollar company to do when faced with a mean-old impenetrable law that had been on the books for over 40 years?
In Uber's case the answer was disruptive in both the new and the old sense of the word. The company would write a brand new private hire law for Nevada and spend an obscene amount of money to convince both Republican and Democratic lawmakers to pass it.
To effect its plan, Uber registered a whopping 18 lobbyists with the Nevada legislature, the largest by far of any private company. To put that number in perspective, the Nevada Resort Association, which represents the interests of Nevada’s singularly biggest and most important industry, gambling, lists just 13 lobbyists. And Uber didn’t just hire any old lobbyists, but a group including the “Griffin Boys” a powerhouse lobbying group whose clients also include Amazon, Zappos, Sprint and Barrick Gold. This in addition to a small, but mighty force of high-profile Nevada lawyers, retained to tackle the existing taxi laws. (Lyft also added seven more lobbyists into the mix.)
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Before I get to Uber's new law, it's worth understanding the history of Nevada taxicab regulations. Protectionist as it most certainly is, there was a method behind the steely statute – something called the Vegas Taxicab Wars of 1966.
In 1969, the Nevada Taxicab Authority was created and charged with regulating the madness – burning of cabs, strikes, and violence – that had descended upon a growing city and its tourist trade. The wealthy taxicab companies of course had a hand in the great compromise to make sure the money flowed, but that the violence subsided.
As a result, they created a lot of rules like the fines, impound-penalty, a code of conduct for drivers (including a no swearing restriction), arduous background checks, insurance requirements, and a broad claim of jurisdiction over anyone who drives another person for a fee. The Taxicab Authority is also self-funded and has 30 peace officers, designated for enforcement, 24/7 in a 24/7 town.
So powerful is the taxi lobby in Nevada that they were even able to insist on a provision which restricts whether new cab companies can even enter the market:
The granting of the certificate or modification will not unreasonably and adversely affect other carriers operating in the territory for which the certificate or modification is sought.
If a new operator is even to be considered to operate in Nevada, they have to show that it won’t adversely affect the bottom-line of the existing companies. Which is possibly why there are only 16 companies serving 27 million fares in Las Vegas.
It was this highly restrictive legislation that made the Las Vegas taxicab cartel, if you will, pretty confident that ride-sharing was going to fail. And it would have, if it weren’t for those pesky lobbyists and their dogs in the Nevada legislature.
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James Settelmeyer is a 44-year old Republican from a tiny rural community called Minden, Nevada (pop. 3000) nestled in a land-locked dusty desert environment with little in common with its more “urbane” neighbor to the west, Lake Tahoe.
Settelmeyer wears a cowboy hat in his promotional materials and has a Bachelor of Science in agriculture and lists his occupation as “agriculturist.” He touts “some law classes” at Concord Law School, which is an unaccredited, on-line Kaplan venture. He was elected as a State Assemblyman, then a State Senator from Minden, and in 2013 was voted one of the “legislators of the year” by the American Legislative Exchange Council (ALEC). His website states “I believe as the founding fathers did, that religion is of grave importance. We must remember that they believed in freedom of religion not its abscence (sic).” Obviously, Settelmeyer – in his leadership role on the Senate Committee on Commerce, Labor and Energy – became Uber’s champion.
Prior to his introduction of the new piece of legislation that would allow a new law that would create something called a “Transportation Network Company,” not covered by the laws affecting normal taxicabs, Settelmeyer was best known during the 2015 Legislative session for sponsoring SB 105 which thoughtfully was designed to allow tavern owners to allow dogs on their premises.
On April 15th 2015, Settelmeyer stood on the Nevada Senate floor dramatically holding a candle in one hand and a light bulb in the other. His colleagues were puzzled, until Settelmeyer explained...
"No one, in my opinion, should have the authority to preserve the status quo and stifle technology."
Uber is the lightbulb. Taxicabs are the candle. Got it. Shortly thereafter another Republican State Senator piped in that "we don't have Blockbuster anymore, but we do have HBO Go." That was pretty much the entire debate. Uber brings us Game of Thrones, otherwise we’re stuck watching VHS copies of Clash of the Titans.
And so came a vote on the Transportation Network Company (TNC) which is absolutely, positively not a taxicab company and, in fact, excludes these drivers of vehicles that pick up fares and deliver them from one location to another from any and all existing taxicab regulations.
The vote failed.
It failed because Nevada's Democrats balked. They didn't balk because Uber drivers have raped and assaulted passengers or that the company has failed to perform adequate background checks or that it has threatened or stalked journalists or because Uber treats its drivers like employees but notoriously avoids any labor law responsibilities. Rather, the Democrats balked at Uber's lobbyist-drafter new law because didn't contain enough revenue generating aspects (read: taxes).
And so Uber's lobbyists went back to the drawing board, adding significant additional taxes and fees, and the new law quickly returned to the vote. Unabashedly, proponents of the new law were already earmarking that tax revenue to fund a 27 million dollar medical school for Las Vegas before the law even went to a second vote.
This time Uber prevailed: Nevada would allow TNCs to operate.
In fact, it went further than that. Rather than having Uber be regulated by the taxicab authority, the politicians backing the bill “accidentally” voted for drivers to be regulated by the Public Utilities Commission, an entity normally responsible for electricity and gas supply and with no enforcement officers. Once their mistake was pointed out, the Legislature quickly amended the law, and now, and despite it not being a taxicab company in any way, Uber is to be regulated by the Nevada Transportation Authority, which isn’t exactly the Nevada Taxicab Authority, but a similarly vested agency that enforces limos and taxicabs, in all of Nevada other than greater Las Vegas.
There are plenty more signs that the new TNC law was hastily conceived in the name of “progress” rather than being the result of a comprehensive dialogue in the legislature regarding all of Las Vegas' many transportation challenges.
The law requires the Nevada Transportation Authority to begin accepting TNC applications by June 29, 2015, but even under the expedited process of the government agency -- rushing through the usual public hearings, workshops etc -- that wouldn't happen until October 2015. And so at a June 11, 2015 meeting, the appointed Nevada Transportation Authority voted 2-1 that an “emergency” existed because of the TNC law’s quick June 29, 2015 start date. This means the entire process is now anticipated to be completed by July 1, 2015. In other words, instead of the normal three to four month expedited vetting process for regulations, the Nevada Transportation Authority has decided to do it in a way to have Uber possibly up and running in less than three weeks.
With the new law about to come into effect, the rest of Las Vegas is rushing to figure out how to accommodate Uber drivers. I contacted McCarran Airport's Public Information Administrator, Chris Jones, to ask how the airport intends to manage the newly-legal ride-sharing cars. Jones told me that all the TNCs will have to apply for permits to operate Vegas’ bustling airport but “because things are still in the nascent stages, having so recently come out of the Legislative process” work on the what-fors and the how-tos couldn’t yet begin in earnest. Meanwhile, “TNC drivers will not use the taxi queues at McCarran.” Those queues are where arriving passengers are directed for ground transportation, so how the airport handles Uber will be interesting if not confusing.
Likewise no one seems to know what will happen when cab drivers – bound by their own highly restrictive law – come into conflict with Uber drivers – bound by much less restrictive, much more hastily drafted rules. No one is suggesting that there’s going to violence -- not in Las Vegas! -- but when a taxi gets into a legitimate beef with an Uber over a fare, the taxi drivers know they bear the greater risk of any enforcement action.
Certainly, as in other cities, the taxis aren't happy with the arrival of Uber. On the day Nevada Governor Brian Sandoval signed the so-called “Uber law” – hundred of taxicabs staged a shut-down protest on the Las Vegas Strip. And, with Las Vegas Strip hotels, not to mention the Airport, still in play as to what is and isn’t allowed (the law doesn’t explicitly outline any rules), or what recourse disgruntled passengers have against Uber, things aren't likely to calm down any time soon. One can only hope that the candle hasn’t given way to the Molotov cocktail.