How Celebrities Doing Jail Time Impact The Economy [Editorial]
Celebrities are often held to a different standard than the average person. Be it because of the role model status bestowed upon them or their larger than life personalities, a great number of people are placing a lot of expectations on them.
In the recent case of T.I. going back to jail, those expectations were shattered not only for his family but also for communities near and far due to the cancellation of his tour and the economic impact it could have.
The planned T.I. tour was allegedly sponsored by AXE for a total of 50 dates. A tour of this caliber requires tremendous logistical and financial resources that may have already been contractually engaged at the time of T.I’s arrest.
From a direct standpoint, the 50-60 people employed by the tour just lost potential income: tour managers, staff members, crew members, etc. all missed out as they cannot easily jump onto another project. At an average of $2,000 a week each, weekly payroll would stand at $100,000; therefore we are talking about $1.2 million for a 12 weeks tour.
In terms of production, vendors providing services such as light, sound, staging, video screens and catering lost contracts worth tens if not hundreds of thousands. For a small business, these contracts constitute a matter or survival or even the difference between profitability and loss for that year. A ballpark production figure for such a tour could easily amount to $2 million.
Creative consultants and design services providers may or may not have to be scrapped but the cancellation costs barely replace the income they were anticipating. Furthermore, transportation via airfare and/or tour buses would have been needed as well for the tour.
At about $7,000 a week, a 12 week tour comprised of 7 buses would cost $588,000. If we factor in 7 equipment trucks as well at a rate of $10,000 a week, another $840,000 needs to be added to the list of lost opportunities.
Unfortunately, however massive those costs may prove to be, losses are not only limited to the artist and his touring team. The promoter in charge of such a tour, typically clears $50-75,000 a night or so. Using $60,000 per show as a benchmark, those 50 dates represent about $3 million in missed revenues. The venues hosting the shows also expected to make money through parking, concessions, venue rental, outsourced labor (load-in and load out), etc.
All these income streams combined easily top $200,000 per show, for a total of $10 million for all 50 concerts. However, the single biggest hit may have been to the alleged sponsor partner, AXE. According to online reports, the company signed a $10 million deal with the rapper for the tour as well as various other marketing initiatives. The deal was rescinded right after the verdict, but AXE more than likely had initiated certain expenses in connection with the tour: photoshoots, graphic design, creative input, marketing materials, etc.
All that work will have to be scrapped with no immediate celebrity replacement in sight. Teams will have to be re-assigned and the vendors AXE would have used also forfeited some potential revenue. Based on the sponsorship amount, we can estimate that AXE expected at least twice as much in terms of marketing impact, or about $20 million. AXE is now in the position of having to figure out a way to replace this amount of exposure.
Finally, another indirect but no less significant economic impact is the effect on each of the local communities the show would have visited. Local hotels that would have been booked by all the parties on the road (artist, promoter and sponsors) are missing out on that revenue.
A typical tour of this size blocks out dozens of rooms in various hotels, for an average of $20,000 a show, even on off days. Let’s add to that the hundreds of visitors from surrounding cities who would have flocked to local area hotels the night of the show. Even at a conservative estimate of 1000 visitors, 500 hotel nights would bring in about $50,000 in additional hotel revenues.
All these individuals would have pumped some money into the local economy via eating out, shopping, buying gas, etc. The local governments also miss out on local taxes generated by these visitors. Over 50 dates, the aggregate loss to those local economies could top $200,000 per show or another $10 million.
Impact Summary:
* Lost salaries $1,200,000
* Productions vendors missed revenue $ 2,000,000
* Busses and Trucks $1,600,000
* Promoters missed revenue $3,000,000
* Venues missed revenue $10,000,000
* Sponsors marketing loss $10,000,000
* Local communities unrealized income $10,0000,000
* Total $37,800,000
As demonstrated above, the economic impact (direct or indirect) of T.I.’s tour cancellation amounts to almost $40 million or about twice what T.I. stood to make. It affects communities across the country: from lost income to families, reduced profitability for small businesses and unrealized tax revenue. Unfortunately, one entertainer’s bad judgment can have repercussions that go deeper than what the casual observer can surmise.
T.I.’s recent imprisonment is just one example among many, as stories like his abound in the sports world (Michael Vick), film (Mel Gibson) and even politics. Hopefully, the perspective put forward in this opinion piece will make entertainers think twice before they act, as their actions potentially impact thousands of people and their livelihoods.
Editorial BY Jean-Luc Tahou
About Jean-Luc Tahou:
Jean-Luc Tahou is a financial wealth management consultant. His responsibilities include the development of strategic initiatives for the company as a whole and the supervision of the business development process on the West Coast. He also coordinates the Financial Planning process in conjunction with internal and external partners on behalf of the firm’s clients.
