City extends Lollapalooza until 2021, but yanks tax breaks

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Fans of Death From Above 1979 anticipate the start of the concert on the Bud Light stage Saturday August 6, 2011 during day two of Lollapalooza in Grant Park. | Tom Cruze~Sun-Times

The city is extending Lollapalooza’s run at Grant Park until 2021, but yanking the giant music festival’s tax-free pass – meaning organizers will have to pay millions more to local governments under a deal reached Wednesday.

The deal, approved at a meeting of the Chicago Park District board, removes the exemption Lollapalooza had been receiving from paying the city and county amusement taxes as well as state liquor taxes.

The deal, officials say, will extend Lollapalooza’s use of the city’s premier park to hold one of the largest music festivals in the world for three years, and possibly more, beyond the current agreement. But it also means Texas-based C3 Presents, Lollapalooza’s organizer, will pay a minimum of $4.05 million in local taxes this year, up from $2.7 million under the old deal. Officials said that amount will increase to $5.4 million by 2021.

In addition, the Park District’s shares of ticket sales will grow from 10.25 percent to 11 percent this year, and eventually to 15 percent in 2021. There is a guaranteed minimum payment of $1.5 million, up from $1.1 in the old deal.

And if Grant Park’s landscaping is decimated to the degree it was in recent years, the contract stipulates that organizers pick up the tab – something the old deal didn’t stipulate, officials said.

In the past, C3 hired a crew and covered the cost of fixing it. Under the new deal, the park district will assess the damage and C3 will cut a check for the damage, said spokeswoman Jessica Maxey-Faulkner.

“This is a big win for the taxpayers, hotels and restaurants, our cultural community and, inevitably, the local parks that will benefit from these new revenues,” said Chicago Park District Supt. Michael Kelly. “Lollapalooza is a remarkable event that draws hundreds of thousands of people from all around the world to downtown Chicago every summer. We appreciate C3’s recognition of the changing scale and nature of this event and their willingness to re-structure the agreement.”

The negotiations, which sources said were at times heated, went on over several months.

A C3 representative said it’s “100 percent false to say negotiations were ever contentious or tense.” Sources close to the negotiation said there was a take-it-or-leave-it discussion over the tax exemption going away and the city thought C3 might walk away.

But a C3 representative said, too, that’s “100 percent false to say C3 was forced into any agreement or ever considered leaving Chicago.

In fact, “C3 came to the park district six months ago suggesting a re-working of the agreement to pay taxes,” the organizer’s representative said.

Park District spokeswoman Jessica Maxey-Faulkner said negotiations were “amicable.”

Asked what C3 got in return for giving up the tax exemptions, a terse Charlie Jones, one of the heads of C3, said: “We get to operate in one of the greatest concert venues in the world.”

Jones said he didn’t think public pressure about the sweetheart exemptions led to the revised deal.

“I don’t think it was necessarily public pressure,” Jones said, noting that the growth of the event – which started with questions about its moneymaking potential and has now proven lucrative – signaled “it was time to look at a new agreement.”

Ticket prices to the festival – which ranged from $90 for a day pass to $215 for all three days – will go up, company officials said.

The Chicago Sun-Times reported last year that, for the seventh straight year, the city and county exempted Lollapalooza from paying Chicago’s five percent amusement tax.

In 2011 alone that saved the promoters more than $1 million in taxes on the 270,000 tickets sold at the festival that year.

The previous deal was negotiated by Mark Vanecko, a nephew of former Mayor Richard M. Daley. As a lobbyist and lawyer for the festival’s promoters, Vanecko helped negotiate a 10-year contract that prohibits all artists performing at Lollapalooza from appearing within 300 miles of the city for six months before and three months after the festival.

Under the old policy, Lollapalooza qualified for the city amusement tax exemption – which had to be renewed every year – because the Chicago Park District didn’t contract directly with the festival’s promoter. Instead, the contract was done through the Parkways Foundation, the Park District’s not-for-profit fund-raising arm.

The Foundation served as a conduit between C3 and the district, even though C3 booked the acts, hired the vendors and oversaw the entire operation.

For that, Parkways was getting a cut – a maximum of 10.25 percent of Lollapalooza’s gross revenue. That amounted to $11 million since 2005, officials said.

In 2010, the festival paid the foundation $2.17 million, money spent on park district projects – such as a new playground at Washington Park and an artificial soccer field for McKinley Park, according to Parkways.

But this week the foundation signed off on removing the exemption and the park board voted Wednesday to cement the deal.

Lollapalooza obtained last year’s waiver from the city’s 5 percent amusement tax in the waning days of the Daley administration.

Likewise the county’s revenue department signed off on a waiver of the county’s 1.5 percent amusement tax for Lollapalooza in 2011 – costing the county an estimated $350,000 in tax revenues.

But earlier this year, county commissioners OK’d a measure that requires a board vote on future amusement tax exemptions costing the county $150,000 or more in revenues.

The rest of the money that Lollapalooza brings in – more than $19 million in 2010 – goes to C3. C3 paid all the bills through a bank account set up by the Parkways Foundation.

Lollapalooza was the biggest entertainment event in Chicago that was exempted from paying amusement taxes, government officials say. The Dave Matthews Band Caravan – another big music festival, held for three days last year on the former site of U.S. Steel on the south lakefront – didn’t get the tax break.

This year’s Lollapalooza is scheduled for Aug. 3 to 5.

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