Here's How Uber Beat The Las Vegas Taxi Industry

Photo illustration by Jared Harrell / BuzzFeed News; Photos: Getty images (4)

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.

Moyan Brenn CC BY

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.

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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.”

Joe Shoe

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.

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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.”

A court-ordered wiretap revealed CEO of CLS Transportation Charles Horky was facilitating prostitution using his fleet of cab drivers. This portion of the transcript shows Horky asking his assistant for prostitutes for a customer.

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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.

BuzzFeed News / Via leg.state.nv.us

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