Here's How Uber Beat The Las Vegas Taxi Industry
The Las Vegas taxi industry used every political maneuver in its arsenal to keep Uber and Lyft off the strip. It didn't work.
On the evening of Oct. 24, 2014, swarms of tourists flooded the Las Vegas Strip, clutching massive drinks and gawking at the replica Empire State Building, replica London Eye, replica Eiffel Tower. Outside the Venetian, gondoliers in striped shirts and straw hats paddled couples down manmade canals. Everywhere, Top 40 radio pumped out indefatigably from tinny speakers, and a riot of bright lights and flashing video screens cast a blinding glow. In front of every hotel, there was a long, snaking line of people waiting for taxis.
But tonight, for the first time, there were Uber cars among the limos and cabs. One picked up a fare at Caesars Palace and embarked on what would have been one of the first Uber rides in Vegas. But before it could leave the hotel roundabout, the Uber was cut off by two unmarked cars, sirens blaring. Two men burst out, ordered everyone out of the Uber, and told the driver to put his hands on the car's hood. They were masked and wearing bulletproof vests.
They were officers from the Taxicab Authority and the Nevada Transportation Authority (NTA), and they had been tasked with stopping Uber from doing business in Las Vegas until it acquired the proper approvals from the city and county. The driver was cited and fined. Hours later, the NTA filed an injunction application against Uber in Carson City, Nevada. (In subsequent testimony before The Senate Committee on Transportation, NTA chair Andrew MacKay claimed the agency was not on scene at the sting.)
Uber had just gotten its first taste of Vegas.
Understanding why Uber was eager to enter the Vegas market is as easy as taking a cursory glance at the Strip — and those painfully long taxi lines — any weekend night. Vegas is one of the most lucrative transportation markets in the country, with some 41.1 million visitors passing through it annually and the city’s taxi industry raking in a whopping $290,354,312 this year to date. In 2014, when Uber began eyeing the market, it was dominated by taxis, black cars, and privately owned shuttle buses, making it often a transportation nightmare for visiting tourists, and a hell on earth for locals looking for rides beyond the Vegas Strip. In Vegas, Uber saw an opportunity to do what it does best: shake up entrenched local cab dynasties and dramatically increase its market share in the process.
Much like in the more than 180 other American cities Uber has entered since it was founded in 2009, Vegas’s incumbent taxi and limo companies had no intention of sharing. But what made Vegas unique — what made it Uber’s biggest challenge yet — was the extent to which local governments were willing to protect the incumbents. In Las Vegas, Uber and its pugnacious CEO Travis Kalanick really did run into the corrupt taxi cartel bogeymen that they had long claimed to be saving us from. And this cartel would prove to be their most formidable opponent. But when push came to shove and the fight turned ugly, the world's fastest-growing company ran right over its entrenched opposition.
Vegas lives and dies by tourism, and the city's taxi services are a key part of that industry’s success — in fact, several sources told BuzzFeed News that Vegas's transportation industry wields just as much power as its gambling industry. As a result, the region's taxi companies enjoy a great deal of political influence — so much that it’s not uncommon to hear members of the Vegas government and community refer to them collectively as the "taxi cartel.”
But the cozy relationship between the cab industry and its regulators may be more than a simple case of local governments protecting local business. State records show that Nevada cab executives contribute quite a bit of money to the campaigns of state and local officials. Since 2010, one of the state’s three largest cab companies, Frias Transportation, has contributed $434,125 to various local politicians, according to the Nevada campaign finance database. Whittlesea-Bell, which owns and operates 4 of the state’s 16 cab fleets, as well as a limousine service, has contributed a total of $179,300. A single entry in the database for Yellow Checker Star — the third of the state’s Big Three transportation companies — indicates the company has contributed $249,700 since 2006 (Several transportation companies disclose their contributions under a number of different accounts in the database). Together, Frias, Whittlesea-Bell, and Yellow Checker operate 11 of 16 cab fleets in Las Vegas Valley. On the receiving end of their political donations: Las Vegas mayor Carolyn Goodman, Clark County Commissioners Chris Giunchigliani and Steve Sisolak, state Sen. Michael Roberson, and others.
There’s nothing untoward — or uncommon — about politicians accepting campaign contributions from local businesses. But over the course of a months-long investigation, sources close to the Nevada state legislature and the Vegas transportation industry and its lobbyists told BuzzFeed News that the Las Vegas Taxicab Authority and the Nevada Transportation Authority sometimes appear to act as an extension of the very industry they’re charged with regulating. These same people all said that Uber’s early ouster from the city was a prime example of the cab companies wielding their influence.
According to a transcript from the injunction hearing that followed the Oct. 24 Uber sting, the NTA officers who carried it out were accompanied by an executive from Whittlesea-Bell: Jonathan P. Poteat, the company’s director of technology. Poteat’s role in the sting according to that same transcript? A "so-called undercover agent" and “a cooperating individual.”
Like other Las Vegas transportation incumbents, Whittlesea-Bell is allowed to employ its NTA-sanctioned “competitor’s veto” and contest operating license applications from new entrants and applications for more medallions for existing, smaller companies. But in Uber's case, it didn't get the chance. The company never bothered to submit an application.
Las Vegas’s cab and black car industry is checkered with scandal. In the ’60s, violent “taxi wars” pitted drivers from rival companies against one another over access to McCarran International Airport. Back then, men who never underwent background checks got behind the wheel without insurance. This period of unrest over fares in a wholly unregulated market ultimately led to the formation of the Nevada Taxi Authority in 1969. More recently, the industry has been troubled by debacles like the one that felled Charles Horky, CEO of limousine company CLS Nevada, who — along with two lieutenants — pled guilty to a multimillion-dollar racketeering conspiracy involving prostitution, drug trafficking, and fraud. According to a 2012 indictment, Horky "required CLS Transportation’s drivers to periodically pay him fees knowing and expecting that drivers would obtain a portion of those sums from the distribution of controlled substances and other criminal activities including facilitation of prostitution.”
That Horky was indicted in 2012 and was allowed to operate and manage CLS Nevada under the oversight of a court-appointed attorney until late last year, in October 2014, speaks to the power of the taxi and transportation industry in Vegas. When Andrew MacKay, chair of the Nevada Transportation Authority, finally revoked CLS Nevada’s operating licenses, he described the decision to do so as among the hardest he’d had to make in his role.
On the morning of Oc. 24, Uber launched its UberX service in Las Vegas — apparently without permission to do so. The company didn't have the required business license from Clark County, nor had it applied for one.
Uber claims that it didn't think it needed to. But entering a market before it’s legal and asking for forgiveness rather than permission is a standard marker of the Uber playbook. Asked at a Nov. 25 hearing why it didn’t resolve any regulatory issues before operating, company attorney Don Campbell said to a District Court judge, “Because we don’t believe the statutes apply.” The company has long maintained that it’s a technology platform, not a transportation service; why should it need the common carrier license all taxi and limo companies require?
Though the NTA had allowed Horky's company to continue operating for two years following his indictment, it dropped the hammer on Uber almost immediately. Apples and oysters? Sure. But given Vegas's history, it's hard not to contrast the regulatory treatment afforded an incumbent like Horky with that given an interloper like Uber. The Oct. 24 sting on Uber was conducted a month before the NTA's case was heard by a judge, and involved the participation of at least one taxi company executive. It was followed quickly by injunction applications in multiple districts, and citations, fines, and vehicle impoundment for any Uber drivers who continued to operate in Vegas. The agency said Uber had only itself to blame for the sting and all that followed it, citing the company's blatant disregard of the NTA application process.
The fight between Uber and the NTA lasted for about a month. On Nov. 26, 2014, a Washoe District judge granted the NTA's preliminary injunction against Uber. Uber left Las Vegas the same day.
During this process, Whittlesea-Bell Transportation also tried to intervene, filing suit to block Uber from the market until it was licensed by the NTA. But its suit was rejected, so the Vegas taxi behemoth — Frias Transportation and Yellow Checker Star as well as Nellis, Desert Cab, and others — turned to the state legislature.
Uber's foray into the city was particularly troubling for one Vegas taxi executive: Mark James, CEO of Integrity Vehicle Solutions Company (formerly of Frias Transportation). Just a month prior to Uber's Vegas debut, James's company had launched a taxi-hailing app called Ride Genie — the first and only technology-based transportation solution available in Las Vegas at the time. Ride Genie is a rudimentary black car and limo hailing app; as such, it's hard to imagine it going toe-to-toe with Uber and coming out as anything other than a bloody mess.
James wasn’t prepared to deal with Uber at all. A former state senator and Clark County commissioner disgraced by scandal, James was also a big political contributor. Between 2010 and 2015 he donated a total of $64,750.00 to campaigns including those of Nevada Gov. Brian Sandoval, state Sen. Mike Roberson, and Clark County District Attorney Steve Wolfson. And these were just his personal contributions. During his tenure at Frias, according to a single entry in the Nevada campaign finance database, the company donated $152,741.66 between 2006 and 2013, distributing considerable funds to Clark County Commissioners Steve Sisolak, Chris Giunchigliani, Mary Beth Scow, and others at the state level. James had skin in the game, and he had influence.
“When Mark James left Frias, that hurt our industry,” Mike Sullivan, a lobbyist representing Whittlesea-Bell, told BuzzFeed News. “Mark used to spend hundreds of thousands of dollars in contributions when he was the CEO of Frias. Mark would have seven lobbyists on his team. Frias not contributing as much hurt the industry this session. The other lobbyists are good, but Frias was just such a huge part — we relied on them for years.”
“Mark gave so much,” he continued. “He knew how to play the game.”
And if Uber and Lyft's move into Vegas was worrisome to James, it was even more so to the city's taxi drivers. For them, the ride-hail company entering Vegas meant more than just one more company chasing passenger fares on the Strip — it was a threat to a kickback system built over decades and closely tied to the city's tourism industry. In Las Vegas, taxi and limo drivers often receive a commission for ferrying passengers to a particular strip club, massage parlor, or gun store — or recommending certain full-service escort services. And those commissions can very quickly add up.
According to four Vegas cabbies, some off-Strip massage parlors pay commissions of between $50 and $150 per passenger to drivers. Others, and some escort services as well, provide numbered referral cards to drivers. “Every time someone calls the escort service using my referral number, I get $150,” one driver told BuzzFeed News. The cabbie, who drives only during the day, said those commissions can amount to as much as $1,400 a month; night drivers can make double or triple that. According to allegations made in a 2009 lawsuit, 14 strip clubs paid out $100,000 a week and an estimated $40 million in commissions that year to cab and limo drivers.
These finders’ fees are a part of doing business in Vegas. And the strip clubs, massage parlors, and the like don't particularly care who they’re paying, so long as customers are walking through the door. So when Uber began operations in the city, they were quick to extend the company's drivers the same deal.
But cabbies weren’t so happy to roll out the welcome mat. They had cornered a small but very lucrative market and established a strip club kickback system that made it more so. The last thing they wanted was to share it — particularly with the likes of Uber and Lyft.
Uber is well-known for its hard-charging business style. During its ascension to ride-hail market supremacy, the company developed and stress-tested an effective playbook for entering even the toughest of markets. A combination of clashing with local governments, grassroots activism, and lobbying, it brought Uber success in cities like Portland, Oregon, which vehemently opposed it. Uber brought that blueprint to bear on Vegas as well. It entered the market without permission; it called on locals to sign a petition to the governor; it hired more than a dozen of the best lobbyists in the state to make its case. The five-year-old company, and later its younger competitor Lyft, had to move quickly — the Nevada state legislature is only in session 120 days every other year beginning in February, and 2015 was an on-year. In other words, it was either now or two years from now, which in tech startup years is practically an eternity.
Meanwhile, the taxi industry was already pretty sure that it had this fight in the bag.
“We were given assurances by the major players that they would not bring a bill this session,” Sullivan, who has lobbied for Whittlesea-Bell Transportation for 10 years, told BuzzFeed News. “[Senate majority leader Mike Roberson and Sen. James Settelmeyer] were very clear that they saw what we saw... They thought we had a point and they said they would be on our side or at least be very critical of TNCs.”
The taxi cartel's efforts to rebut and hamstring Uber and Lyft's moves into Las Vegas pivot around a handful of bills and amendments to them. Like a lot of legislation, they are often messy and difficult to understand. But they speak to the forces aligned against the two companies and the system that slowed their entrance to the city.
On Feb. 18, 2015, the Nevada state assembly introduced two bills that had little to do with regulating so-called transportation network companies (TNCs) like Uber and Lyft. Bill 175 and Bill 176 mandated new seatbelt requirements for all vehicles and established a first responders Yellow Dot program in Nevada, among other things. They affected Uber and Lyft insofar as they affected any car on the road.
At the same time, the Nevada state Senate was considering two bills that clearly were intended to regulate TNCs like Uber and Lyft. SB 439 would give authority over TNCs to the Public Utilities Commission and mandate a 25-cent per-trip tax that would go to the state. SB 440 was a simple insurance regulation that would have established a framework within which TNC drivers could be insured. But when these bills were introduced, Senate Minority Leader Aaron Ford, a Democrat, proposed amendments that would require formal FBI background checks for all TNC drivers, and the dissolution of Uber's surge pricing model in Vegas.
All four bills inspired heated debate on the assembly and Senate floors, according to Settelmeyer, the chair of Nevada’s Commerce, Labor, and Energy Committee.
"The session was extremely intense, to say the least,” Settelmeyer told BuzzFeed News. “We thought if for some reason we could not get Uber and Lyft authorized we would at least get them insured.” But, he said, “the taxicab industry was worried 440 would be used as a vehicle to amend and legalize TNCs later. They fought everything tooth and nail."
In the end, Ford’s proposed amendments failed and the Democrats voted SB 439 down.
“[The transportation industry] actively lobbied all bills,” Settelmeyer said. “Even though they would continually say, ‘We’re not against competition.’”
But according to Sullivan, the Whittlesea-Bell lobbyist, the taxi lobby had no arguments against licensing TNCs. “They just needed to do what we did,” he said. “They needed to pay all the fees and licensing fees we pay, and they needed to be regulated by the people that regulate us. They’re not tech companies.”
Hoping to build a modicum of consensus and appease the taxi group, Settelmeyer sponsored a new bill on March 17. Senate Bill 376 would lift the geographic and hourly restrictions that limited cab companies, allowing them to operate where and when they pleased. It was an olive branch of sorts, and Nevada legislators embraced it. The bill floated through both the Senate and Assembly without incident. And while the regulation wasn't slated to go into effect until early 2016, the NTA and Taxi Authority quickly implemented it, lifting the restrictions in a matter of weeks.
“We said, ‘Let’s make your industry better,’” Settelmeyer said. “We eliminated [some] arcane laws that were causing them problems. But no matter what we did or how right it was for the industry, they weren’t happy.”
Though well received, Settelmeyer's bill didn't do much to soften resistance to Uber's move into Vegas.
“They finally took out some of the regulations,” Sullivan said. “They did a couple of things that made it at least possibly competitive. But we wanted them to cut out the Strip. We said, ‘Let’s geofence it. Let’s say cabs can operate on the Strip and convention center and [TNCs] get where everybody says we did a horrible job: in the outlying areas.’”
Roberson, the state Senate majority leader, was particularly dubious of TNCs. Sources in position to know told BuzzFeed News that Roberson was reluctant to allow them into the market this session. These people said Roberson felt the safety issues the taxi lobby raised around Uber's operations were cause for concern, and he worried that the legislature didn't have the bandwidth to properly vet them during the current session.
That was in February. By April, Roberson had adopted a very different position on SB 439 and SB 440: He'd become a staunch advocate for both of them. Ironically, the taxi guys were partially responsible for his change of heart. Sources close to Roberson said the Senate majority leader began to reconsider his support for the bills, put off by what one described as the “thuggish behavior” of the taxi cartel.
Between February and April, Roberson was contacted four times by taxi and transportation company owners and their lobbyists in person and via text message, said two sources close to the senator who witnessed the encounters and two others who saw the messages. On one occasion the owner of a taxi company — whom sources refused to name for fear of exposing their identities — stopped Roberson in the hallway and aggressively questioned him about his views on SB 439 and SB 440. When the senator demurred, the owner pressed him further, nearly nose-to-nose. “We aren’t seeing any leadership from you or the governor," he said.
According to Sullivan, the taxi companies felt they were being shut out of the process. Typically amendments are discussed with both sides before they’re proposed. Yet on a few occasions this session, Sullivan said, the taxi lobby wasn’t aware of a new amendment until its approval hearing. It felt betrayed.
In April, when yet another cab company owner texted Roberson demanding he lobby Sens. Becky Harris and Patricia Farley to vote against SB 439, the Senate majority leader appeared to have had enough. On April 15, he voted yes on the bill, which would regulate and allow TNCs to operate. The bill failed to get the two-thirds majority it needed to pass, but Roberson had sent a message to the taxi industry.
“It got very personal,” Sullivan said of Roberson’s about-face. “[The taxi owners] went up there and he got very upset. [The taxi] owners [have] been in the cab business for generations and generations, so they got very upset and they let him know it and he got very personally upset.”
After the vote Sullivan paid Roberson a visit in his office to express his client's dissatisfaction with his vote. Sources in position to know tell BuzzFeed News that Sullivan asked Roberson "how dare" he vote yes on SB 439, arguing that Whittlesea had played a role in putting him in "that big office."
"How could you do this to us?" Sullivan concluded. Shortly afterward, several members of Roberson’s caucus received calls from another taxi company owner warning them that the company doesn't contribute money to Republicans who do “things like this.” Roberson is currently running for a seat in U.S. Congress.
Sullivan acknowledged this encounter, but disputed its intensity. "That’s not an accurate depiction of the meeting,” he told BuzzFeed News. "I never raised my voice at all. I was pleading with him to explain to me why he had changed his mind on the subject after telling us all during election season that he was with us and had our back. I was incredulous. … I knew we were in trouble and that Uber and the TNCs had gotten to him and found a way to change his mind on the subject."
For Sullivan, Roberson’s endorsement of SB 439 was an affront to the way business is done in Las Vegas.
“We support the people we think support us,” he said. “If you think someone has your best interest at heart you support them, you give them a contribution — that’s the game we play. We contributed pretty strongly to Mike Roberson’s campaign. We thought having Republicans there was our best chance. We put into office the very people who destroyed us — I don’t want to say destroyed; we worked very hard to get them into office and they turned around and made a very unregulated system with Uber.”
Asked if the transportation companies he represents might contribute to Roberson's campaign, Sullivan laughed. "None of the cab companies will — to anyone," he said. "Except Democrats in the assembly who were in support of real laws to keep parity."
On April 7 and April 21, respectively, AB 175 and AB 176 finally landed on the Senate floor. In draft form they'd had very little to do with TNCs like Uber and Lyft. Now they included language specific to their regulation, including mandates that would dictate TNC-related fees and TNC insurance requirements. In a nod to conflicted state legislators, AB 175 included a provision to impose a 3% excise tax on all existing common motor carriers in addition to Uber, Lyft, and companies like them. The first $5 million of this revenue was earmarked for the state highway fund, the rest of it for building the University of Nevada, Las Vegas, Medical School. When a study presented to the session found that the excise tax would generate $70 million in revenue for the state, AB 175 was passed by the Senate 18–1.
AB 176 didn't make it through quite so easily. There was significant pushback over provisions to prescribe authority over the TNCs to the Public Utilities Commission. But in a last-minute act of political compromise intended to get Uber and Lyft on the road by late summer, the Senate amended the bill to prescribe the NTA authority over TNCs just as the taxi lobby had demanded. It stopped short of giving the taxi group everything they wanted, though; it also included a clause that barred the agency from implementing onerous requirements like FBI background checks and state-administered drug tests. On May 23, AB 176 was approved unanimously by the senate.
With Nevada Gov. Brian Sandoval slated to sign AB 175 and AB 176 into law at the end of May and a goal of getting Uber and Lyft on the road by late summer, the state legislature — which was to end its current session on June 1 — gave the NTA a 30-days-from-enactment deadline to begin accepting TNC applications. Worried by that very tight timeline, the NTA on June 11 held a hearing to determine whether or not to petition Sandoval for an emergency designation that would expedite the process. The taxi lobby showed up in force at the hearing to oppose the designation, but the NTA voted 2–1 to request it anyway and Sandoval granted it.
“We simply followed the law," said NTA Commissioner Keith Sakelhide. "There was no time during our process that I saw the taxi limousine industry try to derail the process. ... They actively participated in the workshop. A lot of their recommendations were adopted in our final drafts."
On Aug. 7, the NTA proposed a revised draft of the rules that would regulate TNCs in Nevada. The revised regulations were far shorter than what the NTA originally proposed and omitted rules that would impose the same pre-employment requirements currently imposed upon taxi companies and drivers. “There’s certain things that are not in there anymore that some folks might think is a major deletion,” NTA Chair Andrew MacKay, who is slated to resign later this month, said of the revised NTA draft. “But it’s in the eye of the beholder.”
On Aug. 10, the Legislative Commission, which Roberson chairs, preapproved the rules, further speeding the process along.
By Sept. 15, the rules were law and the NTA had approved Uber and Lyft’s applications to operate in Las Vegas. While the NTA's approval was unanimous, two of the agency's three members made it a point to note that they disagreed with parts of the regulations, but had no choice but to approve them. “The reality is we do have to deal with the legislation that was enacted this past session,” Sakelhide said after the hearing. “I do have concerns about the system the legislature included, but I can’t substitute my judgment for the legislature’s.”
The taxi cartel had not been sitting idly by during this process. Once it became clear it had lost the battle at the state level, it went local. The taxi lobby hit the Clark County Commission, which has jurisdiction over business licenses in Las Vegas and Henderson, as well as McCarran International Airport. By early summer the agency was considering regulations that would have hamstrung Uber and other TNCs. Drafts of those regulations obtained by BuzzFeed News included mandates that, had they been adopted, would have relegated Uber and Lyft to out-of-the-way staging locations at Strip hotels, the airport, and convention centers, while giving incumbent taxi guys the primo real estate.
The regulations never saw the light of day. In the end, the Clark County Commission was obliged to cobble together regulations that reflected the limited scope the state granted them — but not without one last attempt at obstructing the TNCs’ entrance into Las Vegas. Clark County commissioner Steve Sisolak is mulling a run for governor, two sources close to the situation told BuzzFeed News, suggesting he was hoping to safeguard his relationship with local power lobbyist and fundraiser-extraordinaire Jay Brown. Brown was tapped to represent Bell Transportation at the local level. But the Clark County Commission had just one last card to play: delaying Uber and Lyft. The timeline for operations the commissioners had in mind slated Uber and Lyft’s entrance into Las Vegas and Clark County for late October or early November. But the laws that the NTA approved just a few days beforehand made it clear: A TNC must begin operating 30 days after its business application is approved. Both Uber and Lyft’s NTA applications were approved on Sept. 15, giving them only until Oct. 15 to begin operating. If they didn't meet that deadline, they'd be legally obligated to resubmit their applications.
At the Sept. 16 hearing convened to introduce draft regulations that would dictate the terms of Uber's and Lyft’s business licenses, Commissioner Larry Brown repeatedly asked Josh Griffin and Kelly Kay, attorneys representing Uber and Lyft respectively, for assurances the companies wouldn’t begin operations until they were officially licensed by Clark County.
Griffin and Kay declined to provide any and the hearing concluded. A few hours later Uber and Lyft began operating in Nevada.
Roberson quickly endorsed the move, saying the two companies had waited long enough. "Getting [these drivers] on the road is good for them, and it's good for Nevada," he said. Lyft celebrated what it generously described as "a thoughtful and thorough process.” And Uber congratulated itself on a job well done.
“We spent a lot of time working with regulators to explain how Uber works and how the service offers a different model that connects riders and drivers,” Uber spokesperson Eva Behrend told BuzzFeed News. “This was something new to the Nevada market and, initially, there was a tendency to try and fit this new model into existing frameworks. Now, we continue to take the time to explain how Uber and similar applications work and, thus far, have received a largely positive reception from cities across Nevada.”
Uber and Lyft have been on the road in Las Vegas for about two weeks now, but not without incident. As of Sept. 22, their drivers had been cited by local police some 87 times for taking fares to and from McCarran International Airport without the business licenses to do so. A hearing on the matter is scheduled for Oct. 20. The NTA is already gearing up for a state legislature–mandated study to evaluate the TNC regulations it just passed. Roberson is fundraising for his congressional campaign. And Mark James has pulled Ride Genie down. He wants to revamp it and "make it work more like a TNC." For the time being, there’s an uneasy peace between the TNC companies that muscled their way into Las Vegas and the incumbent taxi and limo companies that fought tooth and nail to keep them out.
Update: This article was updated to note NTA chair Andrew MacKay's testimony on the Uber sting before The Senate Committee on Transportation.