A second look at my Lollapalooza tax math

October 6, 2010

As noted in an update Wednesday afternoon to Monday's blog post about Lollapalooza not paying city taxes, Department of Revenue spokesman Ed Walsh emailed to say that my reading of the Municipal Code was wrong -- and by no means is that a hard thing to do -- and I cited an incorrect figure for the taxes that a concert like Lollapalooza should be paying.

"The amusement tax percentage you quoted in your posting was incorrect," Walsh wrote. "The percentage is 5% not 9% foe [sic; for] live theatrical, musical, and other cultural performances held in a space with a maximum capacity exceeding 750 persons." (The capacity clause is what threw me.)

This changes the math in one of the key paragraphs of my original post thusly:

The average payment of $1 million a year that Parkways has been collecting hardly is chump change, especially in this economy. It is more than $862,585.75 -- or the 5 percent in amusement taxes any other concert would pay on a total ticket gross of $17,251,715 last August. But it is less than $1,768,301 -- or the 10.25 percent of that gross figure due per the contract.

And that does not even take into account the 8.5 percent of sponsorship revenue that the city should be collecting from Lollapalooza per the 10-year contract -- a figure we have no way of determining, since Lollapalooza does not report the amount it collects from deals with its sponsors.

One commentator posted to Chicagoist's recap of my story that it would seem to be the Park District and the non-profit Parkways Foundation that are falling short in doing their job to collect all of the revenue that the city is due per the contract. But the contract relies on Lollapalooza promoters C3 Presents to report two revenue figures -- for ticket sales and for sponsorship dollars -- and then pay their cut to the city. And the hitch is that C3 is the only entity in a position to track exactly how many tickets it sells, or how much it collects from sponsorships.

The fact also remains that any other for-profit concert would have to pay a substantial sum to rent Grant Park and close it for several weeks in the middle of the summer -- and sources have put the value of that at as high as a million dollars. So all of this still leaves the politically connected promoters coming up short in paying what any other business would have to pay to host an event even a fraction of the size of Lollapalooza.

In his Twitter feed, Frank Sennett, Time Out Chicago editor in chief and freestyle 140-character media critic, took Monday's post to task for not taking into account what he called "trade show context" -- that is, the city giving tax breaks to trade shows in consideration of the tourist dollars that major events bring to town, benefiting hotels, restaurants, and the travel business.

My story did note that civic boosters in C3's hometown say that Lollapalooza's smaller "sister fest," the Austin City Limits Festival, brings $80 million a year into the local economy in Texas. I have never seen a specific figure quoted for Lollapalooza and Chicago, but since the ACL Fest has a capacity of 75,000 a day versus 90,000 daily at Lollapalooza, we might assume that the alleged ancillary benefits to the Windy City are worth $100 million or more.

But plenty of big concerts also draw people to Chicago from far and wide, and none of them get tax breaks. And if we should consider the positive effects on the local economy from Lollapalooza, we also should consider the down side.

One can debate or dismiss my contention that Lollapalooza is having a considerable negative impact on the city's club scene, leaving hundreds of sound technicians, bartenders, and club staffers underemployed for several months each year as the clubs go dark in the wake of the giant musical Walmart on the Lake. The most restrictive radius clauses in the concert business prevent bands that perform at Lollapalooza from playing elsewhere in the city for a total of nine months around the festival, unless they have the explicit blessing of C3. And this remains enough of an issue to have prompted an ongoing anti-trust investigation by the Illinois Attorney General.

In any event, unless I am once again misreading or missing something in the Municipal Code (section 4-156-020), exemptions for the amusement tax only are allowed for events "the proceeds of which, after payment of reasonable expenses, inure exclusively to the benefit of"¦ societies or organizations conducted and maintained for the purpose of civic improvement."

The non-profit Parkways Foundation applies for and is granted an exemption for the taxes at Lollapalooza. But Lollapalooza is very much a for-profit venture, and proceeds from it, after payment of expenses, do not inure exclusively to the benefit of Parkways for the purpose of park improvements. They flow into the bank accounts of the Daley Administration's good buddies at C3 Presents.

I have yet to hear from any city official telling me how or why my read of this situation is wrong, or to read the work of any other reporter either furthering or disproving anything I've written about Lollapalooza's sweetheart deal with the city. (Hey, Frank and everyone else: It's a big story, and there's more than enough to it to keep a lot of reporters busy!) So I repeat the conclusion in my original post:

Lollapalooza's financial deal with Chicago is ripe for examination by a City Council grappling with a staggering budget deficit and slashing city services at a time when lay-offs of police officers, sanitation workers, teachers, and other civil servants are looming or are already underway.

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Earlier reports in this blog about Lollapalooza:

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

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

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

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

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

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