Analysis: What's behind the Attorney General's investigation of Lollapalooza?

June 29, 2010


Jam Productions co-founder Arny Granat with Illinois Attorney General
Lisa Madigan at the Obama inauguration festivities
 

The revelation that Illinois Attorney General Lisa Madigan is investigating the giant three-day Lollapalooza festival in Grant Park came as a shock to the local and national music communities, and it has left just about everyone on the concert scene wondering: What the heck is going on?

This blog first reported last Thursday that Madigan’s office is investigating anti-trust issues stemming from the so-called “radius” or “exclusivity clauses” that Lollapalooza promoters C3 Presents impose on all acts performing at the festival, prohibiting them from playing within 300 miles of Chicago for as much as six months before and three months after the August concert.

Subpoenas have been issued to key players at C3 and its partner, the Hollywood-based William Morris Endeavor talent agency. Yet the executives who’ve been subpoenaed and the Attorney General’s office both have declined to talk about the specifics of the investigation, and it is unclear if the radius clauses are the only aspect of Lollapalooza that is under legal scrutiny by the state.

Here is a look at the key questions about the investigation and the ongoing issues behind the scenes.

IS THE INVESTIGATION JUST ABOUT THE RADIUS CLAUSES? AND ARE THEY REALLY THAT BIG OF A DEAL?

Many promoters and booking agents regularly include some form of radius clause in a performance contract for any venue above the level of the smallest clubs. They say it makes solid business sense to insure that a group does not undercut ticket sales for a show on Oct. 1 by playing a show on Sept. 20 and another on Oct. 10. At Lollapalooza, bands and their agents willingly agree to the radius clauses in return for a lucrative festival payday and the chance to perform in front of a much larger crowd.

Yet as the festival model has proliferated in the concert business, replacing individual tours that crossed the country each summer and performed at outdoor amphitheatres, indoor theaters, or clubs, the radius clauses for major festivals such as Lollapalooza, Coachella, and Bonnaroo have been criticized by smaller club owners and promoters in surrounding communities who protest that their venues are being denied the right to present hundreds of acts, as Steve Knopper noted in a story for Rolling Stone on June 10. (Here is a link to his follow-up piece; the original story is subscription-only.)

In his own analysis for The Chicago Tribune, Greg Kot questioned whether the Attorney General will look into other festivals and street fairs that impose radius clauses on bands. But as Kot’s breakdown of the radius clauses makes clear, the terms at Lollapalooza are the most extreme in the concert biz.

The Pitchfork Music Festival restricts its acts from playing in Cook Country or at another festival in neighboring states for two months before the Union Park concert and 14 days after it. Southern California’s Coachella Festival imposes a radius clause of about four months before and one month after its desert celebration for several states in the southwest. And Bonnaroo issues a 300-mile radius clause for two months before and two months after the big jam-fest in rural Tennessee.

Todd Martens of The Los Angeles Times, who’s written about California promoters attacking Coachella’s radius clauses, addressed the news of the Lollapalooza investigation by writing an open letter to the city of Chicago and jokingly thanking us, saying we’ve “reminded music fans here in L.A. that our annual Coachella Valley Music & Arts Festival may indeed appear to be downright altruistic in comparison with your annual waterfront party, Lollapalooza.” However, writing for TimeOut Chicago, Brent DiCrescenzo echoed the question voiced by some Chicago music fans when he asked, “Is Lollapalooza’s radius clause that big of a deal?”

In earlier interviews, executives at C3 Presents have said they waive the radius clause for any band that asks, in addition to working with local clubs to present official Lollapalooza after-shows. (Update: Sources say C3 often has a stake in ticket sales at the official after-shows in local clubs.)

But if the clause is waived so frequently, why is it in the contract at all—especially considering the ill will it generates on the local music scene?

The existence of these clauses in the Lollapalooza contracts gives C3 an unprecedented amount of control in the Chicago concert market and a powerful tool to use against competitors, if it chooses to enforce its own legalese.


Cover sheet for the agreement that assures Lollapalooza
a place in Grant Park through 2018

 

IS THE ATTORNEY GENERAL LOOKING AT OTHER ASPECTS OF THE DEAL BETWEEN LOLLAPALOOZA AND THE CITY?

In addition to investigating anti-trust complaints, the Attorney General's office has oversight of all non-profit 501(3)C corporations in Illinois. And Lollapalooza has been set up in a unique way: All of the city permits and licenses actually are issued in the name of Parkways Foundation, the non-profit entity set up by the city to oversee fundraising for parks improvements, and headquartered within the offices of the city Park District.

“Parkways Foundation is established as the philanthropic partner of the Chicago Park District,” reads the organization’s official mission statement. “[Its] purpose is to seek private investment to preserve and enhance the physical and cultural landscape of Chicago public parks.”

It is not uncommon for non-profit groups to apply for the permits for festivals and street fairs on the level of the Old Town School of Folk Music Folk & Roots Festival or the Green Music Fest sponsored by the West Town Chamber of Commerce. But Lollapalooza is several hundred times bigger than any other music event in the city. It charges steep, fixed ticket prices for entry to the city’s biggest public park, rather than suggesting a donation to walk down a closed-off street or through a neighborhood park. And, beyond permitting and licensing, the city has no direct involvement with the many smaller festivals and street fairs the way that it does with Lollapalooza.

The 10-year deal that the city made with Lollapalooza essentially makes Parkways Foundation and the Park District partners in the giant concert and players in the music industry. Approved in late 2008 and obtained under a Freedom of Information Act request to the city, the new deal replaces the original five-year agreement that was negotiated in 2006 by C3’s attorney Mark Vanecko, a nephew of Mayor Daley, and it assures Lollapalooza a home in Grant Park through 2018.

The city’s deal with Parkways and C3 Presents stipulates that the Texas concert promoters will cover all expenses for the festival, including the substantial cost of clean up; that it will contract with all vendors, and that it will pay for all services. In return, and no surprise given C3′s fondness for them, the deal includes a radius clause protecting C3 from competitors and assuring that the Texas company is the only entity besides the city that will present a major concert in Grant Park.

“In any year that the Festival is held, the CPD [Chicago Park District] shall not authorize any other person to hold in the Festival Area a multi-day, multi-stage music festival which is the same or substantially similar to the Festival,” the clause reads, before listing the only exceptions as the city-run Taste of Chicago, Country Music Fest, Gospel Fest, Jazz Fest, Viva! Chicago Latin Music Fest, and Celtic Fest.

For its part, the deal stipulates that Parkways shall “obtain the Festival Permit… obtain a liquor license in the name of Parkways… and assist C3 in making appropriate filings (in Parkways’ name if necessary) to eliminate or reduce the amount of taxes, including sales tax and amusement tax, that must be paid in relation to the Festival.

Is Lollapalooza, thanks to its partnership with the non-profit Parkways, shirking the tax responsibilities that another for-profit concert in Grant Park would face? Or is that question even relevant when the concert has generated about $4 million since 2005 for parks improvements?

Non-profit organizations such as Parkways are required by law to make their tax filings public. Because the tax documents for Parkways on file with the Attorney General’s Charitable Trust Database Search are incomplete, the full set of documents for 2005 to 2008 was obtained via a Freedom of Information Act request to Parkways. The 2009 filing apparently has not yet been made.

A review of these documents reveals that Parkways reports income from Lollapalooza as “royalties.” In 2005, Parkways collected $400,000 in royalties from Lollapalooza; in 2006, it collected $928,229; in 2007, it collected $1,010,870, and in 2008, it collected $1,505,725, for a total of $3,844, 824.

But Parkways has had some additional Lollapalooza income, as well as expenses, stemming from the annual “Galapalooza” kick-off party and fundraiser for VIPs on Thursday night before the start of the festival weekend. According to its tax filings, Parkways spent $69,039 on Galapalooza with no income from the party in 2005; it spent $30,656 in 2006 but took in $22,343 after expenses, and it spent $41,946 in 2007 but took in $97,444 after expenses (though it does list an additional $6,606 in unspecified “Lollapalooza expenses”). The statement for 2008 does not provide specific breakdowns for expenses, but the total figure for “special event expenses”—which also includes Mayor Daley’s Garden Party—was $199,978.

By no means is Lollapalooza the only entity generating income for or making contributions to Parkways. Other 2008 contributors included rival concert promoters Live Nation ($25,000), Wilson Sporting Goods ($84,030), Kraft Foods ($287,500), and Tiffany & Co. ($1,250,000). But since the concert arrived in 2005, Lollapalooza has become the biggest and most reliable source of annual income, and Parkways’ board obviously believes executive director Brenda Palm is doing a very good job partnering with the concert.

In 2005, Palm's salary was $62,000. In 2006, it jumped to $78,200; in 2007, to $85,000, and in 2008,‚  to $95,000 plus $14,273 in "other compensation from the organization and related organizations." This year, the city also has allowed Lollapalooza to expand beyond the geographic perimeters and attendance levels set in the 10-year contract, stretching the site of the concert to include an additional 80 acres (almost all of Grant Park, plus Columbus Drive) and allowing 20,000 additional people a day on top of the earlier capacity of 75,000 for a total of 95,000 concertgoers per day. Is the Attorney General examining the deal between Lollapalooza, Parkways, and the city and scrutinizing the financials at Parkways? "Parkways has not been subpoenaed," Palm wrote in an email response to that question on Monday.

IS THE INVESTIGATION AN OUTGROWTH OF A TURF WAR BETWEEN RIVAL CONCERT PROMOTERS JAM PRODUCTIONS AND LOLLAPALOOZA'S C3 PRESENTS?

 

While the sheer size of Lollapalooza has had an impact on every club and concert venue in Chicago—tying up more than 120 acts every summer—the biggest hit has been on local independent concert promoters Jam Productions, which would otherwise book many of the alternative-leanings acts that play the festival at indoor venues such as the Aragon Ballroom and the Vic and Riviera theaters. Several years ago, Jam also announced plans to build a new outdoor amphitheatre in Hoffman Estates, but that project has been put on hold because of the changes festivals have wrought in the summer concert business and the overall downturn in the economy.

Jam was co-founded three decades ago by Chicagoans Jerry Mickelson and Arny Granat, who now is much less involved in the trench warfare of the day-to-day concert business.

Jam does not impose radius clauses on any of the bands it books, whether those groups are playing small clubs such as the Double Door or Schubas, mid-size theaters such as the Vic, the Riviera, or the Aragon, or arenas such as the United Center and the Allstate Arena. Instead, the company builds on its long history of working with artists and their booking agents, relying on “mutual trust” that none of the parties involved will make another deal undercutting a show’s chances for success.

In this increasingly litigious and contract-crazed society, this policy not only seems anachronistic, but almost unbelievable. Yet it has been confirmed by several industry sources.

Jam is hardly a saintly or altruistic enterprise, however. For years, the company was the 800-pound gorilla in the Chicago concert business, and it often was criticized by other local promoters for heavy-handed tactics against smaller competitors. But the business changed in the mid-’90s with the emergence of the corporate giant Live Nation, which recently grew even more powerful after its merger with Ticketmaster, pitting the once powerful Jam simian against a new 800,000-pound King Kong.


Jam co-founder
Jerry Mickelson


 


The "three Charlies" of C3 Presents: Jones, Attal, and Walker
 

Jam point man Mickelson is famously frank and outspoken about any issue that threatens his business. But like Captain Ahab chasing the white whale, Mickelson has focused most of his ire in recent years on Ticketmaster/Live Nation, and he has made no criticisms on the record about C3 or Lollapalooza—even after former Live Nation top executive Charlie Walker joined Charlie Jones and Charles Attal of Capital Sports & Entertainment, and they formed the offshoot company C3 Presents, named after the “three Charlies” who run it. (Walker’s name is the one on the new 10-year deal with the city.)

C3′s Charlies have long maintained that they are not competing with Jam. In fact, through S3, Inc. (Safety Services Systems), which is partly owned by Jam, Jam has claimed a significant piece of business with Lollapalooza every summer, providing the hundreds of security staffers who work 24 hours a day throughout the festival and during the weeks of set-up and break-down before and after.

Nevertheless, sources say that several local music promoters—including Jam, as well as several clubs that Jam works with but does not own or control—filed complaints about Lollapalooza’s radius clauses with the Attorney General’s office in the months before subpoenas were issued about two weeks ago.

In an effort to determine exactly which clubs and promoters filed complaints about Lollapalooza with the Attorney General, this reporter reached out to every rock promoter in Chicago above the level of the smallest club bookers. The owners or bookers at Schubas and Lincoln Hall, Empty Bottle Presents, and Martyrs said they were not among the complainants. But none of the other players on the concert scene who were contacted responded to a request for comment.

Jam’s Mickelson also failed to respond to a request for comment.

In numerous interviews, C3 Presents has said it would like to play a bigger role in the local concert market beyond Lollapalooza, thereby challenging Jam with even more competition at a time when it already is struggling against Ticketmaster/Live Nation. Yet while C3 has promoted other high-profile events in Chicago—including the election night celebration for President Obama in Grant Park and several big-ticket VIP events when the city was unsuccessfully wooing the 2016 Olympics—it has promoted few concerts here besides Lollapalooza.

Sources say that C3’s deal to book shows at the Congress Theatre unraveled several months ago after two years of inaction, and the contract that C3 won from the Park District in 2008 to promote non-sporting events at Soldier Field—beating out an elaborate plan that Live Nation crafted in response to the same request for proposals—has to date resulted in no C3 concerts at the home of the Bears. (UPDATE: C3 is promoting a show by Deadmau5 at Stadium Green at Soldier Field on July 2.)

In addition to declining to comment on the Attorney General’s investigation, C3 spokeswoman Shelby Meade declined to comment on the company’s activities at the Congress and Soldier Field, or what sources say is its role in starting a new Website called Do312 devoted to advertising and promoting musical events in Chicago. Modeled on Do512, a Web site in C3’s hometown of Austin, Texas, that trumpets all of C3’s concerts there, the current Do312 calendar lists numerous small club shows here, as well as Taste of Chicago concerts and Downtown Sound gigs at Millennium Park—though it does not list any shows promoted by Jam. (CORRECTION: Several Jam shows are listed in the calendar section “Big Stuff.”)

HAS JAM DECIDED THAT C3 IS NOW AS BIG A THREAT TO ITS BUSINESS AS TICKEMASTER/LIVE NATION, AND HAS THE CHICAGO COMPANY DECLARED WAR ON ITS TEXAS RIVALS?

If so, the battle is being fought in secret and well under the radar, in stark contrast to the high-profile, all-out death match between Jam and Ticketmaster/Live Nation, which has found Mickelson railing against the merged giant in every interview he grants as well as in televised hearings on Capitol Hill.

The Attorney General’s office would no doubt protest the notion that it does the bidding of any local company, or that it would launch an investigation solely on the request of Jam  protesting a competitor’s policies. But, as noted earlier, Madigan’s office is refusing to comment on the ongoing probe.

Whatever the scope of and motivations behind the investigation, it is clear that all of these questions will hover over the Chicago music scene until Madigan finally says exactly why her office has set its sights on Lollapalooza–or if she takes one of several possible actions ranging from a lawsuit filed on behalf of Chicago residents, to crafting a consent decree whereby Lollapalooza agrees to change the way it does business, to giving the concert a clean bill of health and ultimately doing nothing at all–which sources say is the least likely outcome of all.

UPDATE, TUESDAY 1:50 p.m.: The Hideout has responded, and it is another among the local clubs and smaller festival promoters that have NOT filed a complaint about Lollapalooza with the Attorney General.

UPDATE, WEDNESDAY 4:30 p.m.: The Abbey Pub has responded, and it is another among the local clubs that have NOT filed a complaint about Lollapalooza with the Attorney General. Numerous other clubs and promoters still have not responded, including Jam Productions and Live Nation.

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