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When It Comes to Debt, Cities Are a Lot Like Kanye West

Being $53 million in debt is nothing compared to say, financing a sports stadium.

Yeezy (REUTERS/Andrew Kelly)

Ever since The Artist Kanye West announced on Twitter that he was $53 million in personal debt, his financial affairs have been scrutinized and ridiculed to the point where fans have set up a GoFundMe page for him. How could this be? Isn’t West one of Forbes’ richest celebrities?

Apparently Yeezy’s financial woes are tied to efforts to launch his own fashion and sneaker lines. Vanity Fair helps clear up some of the confusion:

On one level, his exorbitant debt does not appear cause for real financial concern. Instead of financing his creative side projects through his main money-making artery—each concert on his 2013-2014 Yeezus tour reportedly grossed $1 million, according to Forbes, which, along with a spate of successful albums, helped him bring in a total of $72 million pre-tax over the last three years—West is presumably seeking funding through bank loans or venture partners. Most of the world's sophisticated investors separate their personal assets and savings from their venture funds.

So, no, Kanye West is not broke. He just understands that the best way to keep his businesses afloat is to find committed investors. Sure, he could keep using his own Yeezy money to fund his ventures, collecting marginal returns over the next few years with the hopes that his projects don’t go belly up, as is the case with most, if not all, start-up businesses. Or, he could push a bunch of that financial risk to investors so he can still feed and fur-coat his family. As Ye put it in one of his (many) tweets on the subject, “If I spent my money on my ideas I could not afford to take care of my family. I am in a place that so many artists end up.”

It’s also a place that many cities end up, especially when it comes to big projects like, say, sports stadiums.

Modern professional sports facilities, like Kanye West, are massively expensive operations, typically set in motion without all the money to pay for them in place. When committing to building something as expensive as a new stadium, city governments who agree to subsidize them are knowingly enlisting themselves into long-term debt, via loans or bonds.

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One way to pay off these big debts a bit faster is to allow a major corporation to purchase naming rights to the facility. This is why the Superdome is dressed in Mercedes Benz signage, and why Lebron James’s basketball home in Cleveland is named after a lending company. Kanye may not want some bank or car company’s logos on his fashion line (or maybe he does), but he’s reaching out to the moguls of high-profile companies like Facebook and Google for the same reason sports stadiums do: To help cover costs.

We don’t know what financial terms Kanye has in mind for his would-be investors (who don’t appear to be taking him seriously) but whatever they are, they almost certainly won’t involve Kanye paying them back personally. He’d likely pay them through the sales of his fashion merchandise—meaning you, if those styles are your cup of tea.

It’s the same with sports stadiums. When cities sign up to go millions in debt for new, grandiose football fortresses, they guarantee the bonds and loans will be paid back by you. Cities enter into these deals telling bond authorities and other investors that the projects will be purchased through some municipal fee, ticket sales, taxes on food and merchandise sold in the stadiums, or some blend of all of these revenue streams, along with additional creative financing. If for some reason your city’s sports team has a string of bum seasons and people stop attending the games, you will still be on the hook. The city may just raise other taxes to cover the costs.

This doesn’t just apply to sports stadiums. In Harrisburg, the capital of Pennsylvania, the city almost went broke trying to pay for a waste incinerator that was supposed to convert trash into energy and other promised doohickies. The mayor at the time, Stephen Reed, said the incinerator would pay for itself over time, but instead it went bust, drowning the city in hundreds of millions of dollars in debt and nearly into bankruptcy. Harrisburg’s city council doubled residents’ earned income tax rates in 2012 to take care of it.

So while we may balk at Kanye’s debt load, it’s actually business as usual. The same can be said for cities: Debt is just how shit gets built, whether a new basketball stadium or a new water sewage system, as Flint is realizing. Rarely does a city have enough resources and cash-on-hand to pay all the upfront costs for new buildings. If it does have that kind of surplus funding, it would likely be put into a rainy day fund, or applied to a more pressing need.

It could be, after all, that Kanye exposed his debt issues to his 20 million-plus followers to provoke this exact discussion: How major projects get financed, and what role you and I play in that process. You should recall his debt transparency the next time your city decides it wants to build a futuristic new convention center or casino.    

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