Chicago forces city, state taxpayers to shell out tens of millions of dollars for DePaul basketball arena

Chicago government officials are scrambling to justify spending millions in city- and state-backed dollars to construct a brand-new DePaul University basketball arena and accompanying hotel in the South Loop.

The latest news on the controversial project came when Chicago City Council last month waived $2.6 million in construction fees after Metropolitan Pier and Exposition Authority, or McPier, leadership complained of a “tight budget.” McPier is the public-private hybrid managing the DePaul project in addition to controlling Navy Pier and McCormick Place.

It’s also served as a patronage haven with a poor record of transparency.

City taxpayers will pony up $55 million in tax increment financing dollars for the project and have already spent $2 million on a public park near McCormick Place and $57 million to build a new Cermak-McCormick Place stop on the CTA’s Green Line. McPier is financing most of the project with hundreds of millions of dollars in borrowing – maxing out its debt limit – and kicking the can on interest payments. Illinois taxpayers have contributed $50 million in sales taxes to fund McPier debt since 2008, according to the Chicago Tribune.

But according to McPier administrators, it’ll all be worth it.

For years, they have tried to sell Chicagoans on the prediction that the 10,000-seat arena and hotel will generate $250 million in new spending for the South Loop area annually. But a review of how McPier arrived at this number reveals two major, risky assumptions, and raises even more questions about why a junk-rated city would dare spend millions on an entertainment gamble.

McPier funded the study that came up with the $250 million number. Authored by New York-based HVS Global Hospitality Services, it assumes the following:

  • DePaul will practically sell out the 10,000-seat arena for every men’s basketball game of the season, even though the team hasn’t had a winning record for nearly a decade and drew an average crowd of 2,200 people in suburban Rosemont last season.
  • Event organizers will flock to the new arena in the off-season, driving a majority of annual attendance, projected at 370,000 people. But the Tribune cites a recent HVS study prepared for a New York City convention center that notes convention organizers aren’t keen to use arena space to host events, due to a large amount of fixed seating. The 9,500-seat UIC Pavilion on Chicago’s Near West Side, also a multipurpose arena, is proof of this. Students have picked up the tab for millions of dollars in losses there over the last six years.

Even though DePaul is putting $82 million toward the $200 million arena, the deal is structured as a very low-risk move for the private university.

“If there’s a winner here, it’s DePaul,” Allen Sanderson, a University of Chicago sports economist, told the Tribune. Even if attendance is a bust, the school can recover a hefty share of its investment.

While DePaul will pay $445,000 in annual rent for the next 50 years, it won’t contribute to maintenance costs, it will collect 100 percent of ticket revenues, and it’s projected to earn $34 million from sales of naming rights, sponsorships and other revenue streams, according to the school’s agreement with McPier.

So as McPier uses state taxpayer money to gamble on its financial future, and city taxpayers get soaked for millions of dollars while shouldering a record-breaking property-tax hike, a private university with an endowment approaching half a billion dollars gets the deal of a lifetime.

If Chicago officials truly cared about local investment, they would blow the whistle on the entire DePaul deal.

Shifting resources from essential government services in a gamble to save McPier simply isn’t worth it – and it’s a slap in the face to residents struggling to bail out a fiscally irresponsible city.

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Tags: cronyism, DePaul, McPier, taxes

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