Does Lollapalooza $hort Chicago?

August 1, 2011

This blog has been asking that question for quite some time: See “Is Chicago earning all that it should from Lollapalooza?” on Oct. 10, 2010, among other pieces. Today, in the midst of the worst budget crisis in the city’s history, rampant layoffs, cutbacks in city services, and a mayoral war with the teachers’ and city employees' unions, others finally are beginning to wonder the same thing.

In a piece headlined “Tax-free-palooza: Music fest that hired Daley nephew got pass on tax,” my former Sun-Times colleague Tim Novak, who has been relentless in exposing the havoc wreaked by the old mayor’s nephews R.J. and Mark Vanecko, followed earlier reporting here in noting the unprecedented and perhaps illegal exemption from the amusement tax awarded to Lollapalooza promoters C3 Presents of Austin, Texas, and their 50/50 partners, William Morris Endeavor, the Hollywood talent agency run by the new mayor’s brother, Ari Emanuel.

For a seventh straight year, the city and county are exempting Lollapalooza from paying the amusement taxes normally imposed on arts and athletic performances and even movies.

That will save the promoters — Austin, Texas-based C3 Presents LLC — more than $1 million in taxes on the 270,000 tickets sold for this year’s festival, which opens Friday.

Lollapalooza got its latest waiver from the city’s 5 percent amusement tax in the waning days of the administration of Mayor Richard M. Daley, whose nephew Mark Vanecko has been a lobbyist and lawyer for the festival promoters, helping to negotiate their current 10-year contract with the Chicago Park District.

Then, 18 days ago, Cook County’s revenue director, Zahra Ali, signed off on a waiver of the county’s 1.5 percent amusement tax for Lollapalooza.

Daley nephew and Lollapalooza attorney and lobbyist Mark Vanecko.

In typical media pile-on fashion, this old but still very relevant “news” promptly was reiterated by WGN-TV, NBC Chicago, and Fox News, among others. (The only new nugget was the recent county tax exemption, for which no reasoning was given—especially odd, since the county isn’t getting any of the concert revenues and its financial woes are as dire as the city’s. County spokesperson Jessey Neves has not yet responded to a request for comment.)

How is Lollapalooza getting away with this?

The concert’s long-term, competition-free deal with the Chicago Park District, negotiated in part by Daley nephew Mark Vanecko, is structured so that the nonprofit Parkways Foundation, a favorite of Maggie Daley lousy with family cronies, applies for all permits for the festival, including the liquor license (which is awarded to a firm co-owned by a Vanecko client with numerous underage drinking convictions on his record). In turn, Parkways takes in a maximum of 10.25 percent of the concert’s gross revenue—$2.17 million last year, it says—that goes to parks improvements.

The rest of the money—$19 million in 2010, before the expenses of staging the festival (according to Lollapalooza, and there is no way to independently verify that figure)—goes to C3 and William Morris. But the municipal code (4-156-020) is quite clear on the point that exemptions only can be granted if 100 percent of the profits after expenses “inure exclusively to the benefit of societies or organizations conducted and maintained for the purpose of civic improvement.”

So what, you ask, isn’t the city still getting a big lump of dough here? It is indeed. But watchdogs question whether it’s only getting half as much as it should for “renting out” Grant Park, which is entirely closed to the non-ticketed public throughout the concert weekend and shut in large part for weeks before and after during set-up and tear-down. Should it be getting the amusement taxes on top of the monies to Parkways, or about half again as much as it’s earning now?

What would it cost Lollapalooza to rent all of Grant Park? In 2008, I questioned former Chicago Park District Superintendent Tim Mitchell about how the city could have awarded the concert to C3/William Morris without competitive bidding. "We don't have to bid this out: it's a three-day festival. There's 25 more weekends someone can come and say we want to have a festival. Anyone can do a concert in Hutchinson Field if they pay a $250,000 fee." (Never mind that that's not actually true, since the city agreed to Lollapalooza's contract stipulating that no similar festivals will happen in Grant Park as long as its deal is in effect, with the exception of the city-run Taste of Chicago and other fests.) Well, if we consider that Hutchinson is only about one-eighth the total acreage of Grant Park, and Lollapalooza takes over all of it, it's safe to assume that renting the entire park would cost... $2 million or more.

Given the mad scramble to cut costs and increase revenues wherever possible, will the Emanuel administration re-examine the deal with Lollapalooza? Mayoral spokeswoman Tarrah Cooper has not yet responded to a request for comment. (UPDATED: Though it took us a while to connect, Cooper did respond in a timely fashion. See the next post for those comments.) When this blog first revealed that 15 agents from the firm run by Rahm’s brother Ari donated a total of $141,000 to Emanuel’s mayoral campaign, the candidate vowed to “ask the City Council to appoint an outside negotiator to handle any negotiations with [Lollapalooza] so that there wasn’t even a question of favoritism.” He reiterated that pledge several times after his victory.

Novak and this blogger aren't the only ones who have asked whether Lollapalooza’s deal needs to be reevaluated. In a piece last October, before the mayoral election, Crain’s Chicago Business bulldog Greg Hinz examined my initial reporting on Lollapalooza’s sweetheart tax deal. He concluded:

There still is a nagging question about how C3 got the exemption from paying the city’s amusement tax.

The Revenue Department says the break was given based on a section of city law that exempts any amusement whose proceeds “inure exclusively to the benefit of societies or organizations conducted and maintained for the purpose of civic improvement.”

Parkways would appear to fit that definition. But C3, which is in the business of making not only music but a buck? I've not been able to get an answer.

Then there’s the question of how to value the cost of C3 exclusively occupying a big chunk of Chicago's front yard for a long weekend in the summer.

“Chicago does not charge C3 a rental fee,” Mr. DeRogatis notes. Should it? And would it be more or less than what C3 already is paying after its amusement tax exemption?

Such fees can be considerable. For instance, the Chicago Marathon paid about $300,000 to the district for last weekend's event, the district says.

Those strike me as pretty good questions for the candidates to ponder as half the city prepares to run for mayor and alderman.

Unfortunately, Crain’s seems to have no institutional memory, or access to the Internet for a quick search on the issue of how much Chicago really benefits from Lollapalooza. Today’s publication boasts a piece written by reporter Brigid Sweeney and headlined “Lollapalooza vies with Chicago’s top conventions in spending impact” that is an embarrassing epic of unabashed boosterism, press-release puffery, and poorly or non-sourced hype. Sweeney/Crain's writes:

While many Chicago summer events are shrinking or disappearing altogether, Lollapalooza has quadrupled attendance from its debut to an expected 270,000 people this year, generating $85 million in local spending at hotels, restaurants and clubs, according to Parkways Foundation, the non-profit fundraising arm of the Chicago Park District, Lolla’s host.

The problems here are numerous. Neither Parkways, Lollapalooza’s owners, nor the city ever has done an economic impact study of how much money the concert really is generating, so this number might as well be pulled out of thin air.

Sourcing these claims to Parkways, as the story does, ignores an obvious conflict on interest: Parkways partners with the owners of the concert in return for its chunk of the change, and Parkways executive director Brenda Palm, who later is quoted by name in the story, has personally benefited from her organization’s connection to Lollapalooza: In the years since the festival came to Chicago, her annual salary has jumped from $62,000 to more than $109,000, according to financial statements from the nonprofit on file with the Illinois Attorney General.

Parkways executive director, Daley crony, and Lollapalooza shill Brenda Palm.

Finally, Crain’s makes no mention whatsoever of Lollapalooza’s impact on the rest of the Chicago live music business. The festival’s egregious radius clauses—subject of an investigation by the Attorney General—bar acts from playing in the city for a total of nine months before and after the festival. Other Chicago clubs, theaters, and arenas therefore lose out on dozens of nights of business they might otherwise have had, and there’s no denying that many venues have been closed or “dark” on more nights during the summer than they were before Lollapalooza.

It’s important to remember that whatever income Lollapalooza generates, it pales in comparison to what’s produced by Chicago’s permanent musical infrastructure: A few years ago, the Cultural Policy Center at the University of Chicago concluded that music in this city generates $1 billion annually and employs 53,000 people. An argument could just as well be made that by redirecting so many dollars that might have otherwise been spent on local businesses to out-of-town concert promoters and global hotel chains, Lollapalooza is hurting the Chicago economy instead of helping it. But why should Crain’s worry about complicated economic conundrums like that or conduct the economic impact study no one else has bothered to do when it can just quote a few hoteliers and restaurateurs crowing about how business is booming for them, thanks to the musical Walmart on the Lake?

Another significant fact missing from Sweeney’s reporting: The nepotism at the heart of Lollapalooza’s contract with the city. She writes:

Local nightclub owner Billy Dec was at the 2006 meeting with Mayor Richard M. Daley and C3 executives that resurrected the festival and reimagined it as a Chicago-based destination event.

“Mayor Daley said, ‘I really like these guys, and it'll have a great effect on everything you can imagine, from hotels to taxis to literally the baggage handlers,’” Mr. Dec recalls.

Um, gee, Crain’s: Don’t you think the fact that the mayor’s nephew was hired by C3 to act as their attorney and lobbyist might have had something to do with Daley’s fondness for the so-called “three Charlies” from Texas?

Oh, and in case you’re wondering, what the heck was Dec, the owner of Rockit Bar & Grill, doing at that meeting when no one from any of Chicago’s existing concert promotion companies ever was invited to weigh in on Lollapalooza—pro, con, or otherwise? Well, numerous “social column” entries place Dec at a lot of the same parties as various Vaneckos and other Daley cronies, and Dec was part of the Chicago 2016 Olympics bid, in which C3 played a major role. All very cozy, isn’t it?

Earlier reporting in this blog about Lollapalooza’s shenanigans:

July 13, 2011: Lollapalooza: 'No concerns' about Eminem's hate

April 7, 2011: Two key differences between the mega-fests, Dave Matthews Caravan vs. Lollapalooza

Feb. 24, 2011: Dear Rahm: How to quell fears about your ties to Ticketmaster/Live Nation and Lollapalooza and fix relations with the Chicago music scene

Feb. 21, 2011: Tomorrow we vote, but still no answers from Rahm on his cozy ties to Ticketmaster/Live Nation and Lollapalooza

Feb. 7, 2011: Rahm Emanuel pledges hands off all dealings with Ticketmaster/Live Nation and Lollapalooza

Feb. 4, 2011: Rahm Emanuel: Pal$ with thuggish concert giants Ticketmaster/Live Nation and Lollapalooza

Nov. 19, 2010: Lollapalooza goes South

Oct. 19, 2010: Crain's Agrees: Lollapalooza tax deal warrants scrutiny

Oct. 6, 2010: A second look at my Lollapalooza tax math

Oct. 5, 2010: Does Austin get a crappy deal from Lollapalooza's "little sister"?

Oct. 4, 2010: Is Chicago earning all that it should from Lollapalooza?

July 13, 2010: Lollapalooza, liquor sales, and the links to the mayor's nephew

June 29, 2010: What's behind the Attorney General's investigation of Lollapalooza?

June 24, 2010: Illinois Attorney General investigating Lollapalooza for anti-trust