For Economic Development Gold, Listen to the Music

The stadiums that cities invest in often end up losing money. There’s another, more profitable option: music festivals.
by | October 2016
Lollapalooza, held annually in Chicago, is projected to sell $30 million worth of tickets. (Flickr/Sara Cooper PR)

Alan Ehrenhalt

Alan is a Governing senior editor.

Economists and public policy experts have been telling us for decades that sports stadiums are a terrible investment for governments to make with taxpayers’ money. These expensive buildings almost never bring in the windfall of jobs and local business development that team owners promise; within a few years they are white elephants and the sponsoring localities are struggling to pay off many millions of dollars in debt.

So the argument goes. Research from a wide variety of places over a long period of time seems to bear it out. The mammoth sports palaces built in the 1970s and 1980s have failed to meet the grandiose expectations that surrounded them. Many are already being replaced.

But if the folly of stadium subsidies has become accepted wisdom among economists and other urban policy scholars, it hasn’t fully convinced the elected officials responsible for making the decisions. A few weeks ago, the Minnesota Vikings began playing football at their brand-new home, U.S. Bank Stadium, in Minneapolis. The stadium cost just over a billion dollars, and about half of the money came from taxpayers at the state and local level. Cobb County, Ga., a suburb of Atlanta, is borrowing nearly $400 million in bonds to finance a new baseball stadium for the Braves. Last year, the city of St. Louis made a similarly extravagant proposal to prevent the NFL Rams from moving to Los Angeles. The team moved anyway.

Meanwhile, the volume of skeptical scholarship on this issue continues to grow. In fact, it has grown more sweeping. The most original of the recent critics is Jonathan Wynn, who teaches sociology at the University of Massachusetts. Wynn makes all the standard arguments against gargantuan public stadium subsidies. But he doesn’t stop at sports arenas. He goes on to argue that virtually all the public entertainment facilities that cities like to invest in -- art museums, aquariums, “hall of fame” headquarters for this and that -- turn out to be unwise gambles with public money. “Why,” he asks, “do museums, stadiums and other ‘concrete culture’ receive such a privileged place in urban development?”

Wynn has an answer for his own question. “You want that symbol,” is the way he put it to me. “You want to be a franchise location. But it’s truly astounding that cities make such a large bet on such intangible grounds.”

Wynn makes more than a rhetorical case. He cites, for example, the NASCAR Hall of Fame that opened in Charlotte in 2010. If any entertainment edifice seemed like a sure thing, it was a museum devoted to racing cars in North Carolina, where the sport largely grew up. But the NASCAR museum not only hasn’t done much for the Charlotte economy, it’s been a money loser itself. Projected to attract 400,000 visitors annually, it was struggling after four years to draw 170,000. The city is still paying off a $22 million loan on the facility.

Art museums are a different phenomenon. They are rarely offered to the public primarily as economic development magnets; they are valued for the broader benefits they can bring to a community. But promises of increased public revenue are nearly always part of the deal. Ever since the Guggenheim Museum in Bilbao, Spain, became a worldwide sensation in the 1990s, cities all over the globe have dared to dream about what a similar project might do for them. Many have backed up those dreams with public money. But the one substantial effort to measure the impact of the museums, a study called Set in Stone published by the University of Chicago in 2012, reported that of 725 art museums built or expanded in the United States over a period of 15 years, at a combined cost of $15.5 billion, only 12 percent could claim significant increases in attendance.

Wynn, who admits to being a sports fan, feels the same way about mega-sports events like the Olympics and the Super Bowl as he does about the buildings in which they take place. I haven’t seen a definitive study of Super Bowl economics, although I imagine that one has been done. But Wynn’s point about the Olympics seems to hold true virtually every time. Since Los Angeles made money as an Olympic host back in 1984, cities have been bidding for the games in the hope that they will produce a similar windfall. But it doesn’t happen. Some Olympic cities manage to break roughly even, but most of them end up losing at least a few billion dollars.

Of course, there are other reasons to want to take on the challenge of being an Olympic host; Barcelona, Seoul and Sydney acquired new global reputations as a result of their Olympic splurges. But that doesn’t refute the dollars-and-cents argument that Wynn is making. Rio de Janeiro is almost certainly the latest piece of evidence for his case.

If stadiums, museums and sports extravaganzas are nearly always bad investments, as Wynn believes, what can cities do to create a genuine economic development windfall?

Wynn thinks he knows the answer. He says there ought to be more music festivals. That’s the argument of his new book, Music/City. 

There’s no disputing that music festivals are big moneymakers. If, like me, you’ve never been to one, you may not have noticed just how big a deal they have become. This year, there will be roughly 800 music festivals held in the United States, according to Trips Reddy of the Umbel consulting firm, a prolific source of information on this subject. Some 14.7 million millennials will go to at least one event. The total attendance will be more than 30 million.

Many of the festivals will be modest neighborhood affairs. But if recent history is a guide, the top five will take in a combined $200 million in 2016 in ticket sales alone. Lollapalooza, the annual bash in Chicago that was held this August, was projected to attract 160,000 people and sell $30 million worth of tickets, at prices ranging from about $200 for a single day’s general admission to as much as $6,205 for a four-day platinum VIP pass. In case you’re curious, it cost $18 to party at Woodstock for four days back in 1969.

Electric Daisy Carnival, the electronic dance music festival whose flagship event is held annually in Las Vegas, drew more than 300,000 people this year. Based on past years’ receipts, it will pump at least $300 million into the economy of surrounding Clark County and add more than $20 million to the city and county tax rolls. SXSW, the weeklong extravaganza held in Austin each year, has evolved over the years from a music festival to a convention of entrepreneurs in everything from film to computer technology to environmental stewardship, and has dramatically enhanced the city’s global public image.

As Wynn sees it, these events are economic development gold. They bring in millions of dollars while costing very little to stage. They don’t require big buildings; Electric Daisy Carnival is held at the motor speedway. Unlike the “concrete culture” investments that Wynn decries, they involve few fixed costs of any sort. The biggest problem is security. “Festivals are nimble,” Wynn says. “They’re able to switch venues and change programming if necessary.”

And if a city wishes, it can pour festival money directly into the local cultural scene. Nashville uses some of the proceeds from its Country Music Association (CMA) Festival to finance music education programs. Altogether, the festival is estimated to have contributed $30 million to charitable causes in the city since 2000. “The majority of the funds from CMA,” Wynn says, “go back into the city of Nashville” one way or another.

All of this may strike you as a little too good to be true. It seems that way to me as well. No doubt a few more cities could take a close look at Electric Daisy Carnival or SXSW, find a way to encourage or sponsor something like it, and come away with a substantial windfall. But it can’t work in that many places. A few hundred more music festivals a year, and the whole concept would begin to look tiresome. Wynn doesn’t dispute this. “There’s certainly a saturation factor,” he admits.

Beyond that, the big music festivals aren’t exactly local events. They make their money by bringing in people from far away. Trips Reddy calculates that the average attendee at a major music festival travels 903 miles round-trip. Even iconic events like SXSW, CMA and Rhode Island’s Newport Jazz and Folk festivals have to deal with local residents who resent seeing their daily lives disrupted by noise, traffic and general public mischief. If I lived in the vicinity of CMA, I’m not sure I could be bought off by donations to music education.

So Wynn’s idea isn’t likely to be the answer for the average medium-sized city struggling to come back from decades of failed economic development. Still, he has a point. There are reasons why spending a billion dollars on a new stadium or cultural institution may be worthwhile. But annual rate of return usually won’t be one of them. And once the building is built, somebody is going to be paying for it for a generation, whether it’s a success or not. On the other hand, there’s one thing you can say for a music festival: If it doesn’t work, you can always fold it up and try a different panacea next year.

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