Inglewood, California, has seen a remarkable transformation at the site near the northeast corner of South Prairie Avenue and Century Boulevard. The previous Hollywood Park Racetrack has been leveled and redesigned, paving the way for the construction of SoFi Stadium, which carries a staggering price tag of $5 billion.
Set to open in late July 2020, this venue will serve as the new home for both the Los Angeles Rams and the Los Angeles Chargers. The grand opening will feature a performance by Taylor Swift, coinciding with the kickoff of the 2020 NFL season.
The ambitions for this property are significant. As highlighted on the SoFi Stadium website:
“The state-of-the-art stadium reimagines the fan experience and will host a variety of events throughout the year, including Super Bowl LVI in 2022, the College Football Championship Game in 2023, and the Opening and Closing Ceremonies of the 2028 Olympic Games. Located on the former Hollywood Park racetrack site, the stadium will be at the heart of a 298-acre mixed-use development that features retail space, commercial offices, a hotel, residential units, and outdoor parks.”
However, on April 8, it was reported by the LA Times that a second construction worker involved in the SoFi Stadium project tested positive for COVID-19. Despite this setback, construction is proceeding, as SoFi Stadium is classified as a major project and is exempt from Governor Gavin Newsom’s stay-at-home orders.
This raises several questions:
- Is there any point in continuing construction under these circumstances?
- How can people attend Taylor Swift’s concert if they are under a stay-at-home order?
- Will there even be a 2020 NFL season?
- In a time when one-third of the population is unemployed, what’s the rationale for developing 298 acres of mixed-use retail and office space?
Sadly, for SoFi Stadium and numerous projects conceived before the pandemic, the financials may no longer add up. We’ll delve deeper into this topic soon, but first, some context is necessary.
$3 Trillion Deficit
Western economies have been grappling with an unexpected burden in the 21st century. While gross domestic product (GDP) has continued to rise, government debt levels have soared, leaving traditional economists perplexed.
In the United States, real GDP has climbed from approximately $10 trillion at the start of the millennium to $21.7 trillion today, reflecting a growth of 117 percent. In contrast, government debt has surged nearly 317 percent, skyrocketing from about $5.7 trillion to $23.8 trillion. Clearly, some form of reckoning was inevitable to restore financial equilibrium.
During this prolonged economic instability, the standard governmental response to stimulate the economy has been to incur more debt and increase spending. However, this approach has only deepened the economic chasm, leaving us skeptical that a recovery will be feasible.
To illustrate, the debt-to-GDP ratio was about 57 percent at the dawn of the millennium. Today, it exceeds 109 percent.
The notion that borrowing will stimulate economic growth has become increasingly absurd. Yet, central planners persist with these policies at a time when the COVID-19 pandemic exacerbates the situation, driving the U.S. government closer to a potential hyperinflationary scenario.
The economy’s forced shutdown to contain the virus has dire repercussions—crashing economic activity and tax revenue while inflating government debt. Second-quarter GDP is expected to drop by over 30 percent, with the 2020 U.S. deficit possibly surpassing $3 trillion, more than twice the previous record deficit of $1.4 trillion set in 2009.
About $2 trillion of this deficit stems from the CARES Act, which includes $456 billion allocated to the Federal Reserve for leveraging and bailing out large corporations and struggling municipalities.
This Thursday, the Fed announced a $2.3 trillion initiative that will funnel newly created credit into municipal and junk bonds. Essentially, the Fed has taken control of the bond market, leading to currency devaluation; gold prices have surged to $1,685 per ounce.
Will Everything be Awesome for SoFi Stadium?
Concerns surrounding the financial viability of SoFi Stadium predate the COVID-19 outbreak. As construction progressed, the financial burden has continued to grow. Prior to the pandemic, even raising the project’s initial budget of around $2.66 billion to $4.963 billion seemed questionable. This adjustment now secures its status as the most expensive sports venue ever constructed.
The stadium’s name, attributed to the financial technology firm Social Finance Inc. (SoFi), stems from a lucrative naming rights deal worth over $30 million annually for 20 years. This sets a new benchmark for naming rights deals but may be an extravagant waste of financial resources in the long run.
There’s always a chance that things could turn around: perhaps a vaccine will become widely available, fears will subside, and the economy will rebound. The DJIA could soar past 30,000, Taylor Swift’s concert may proceed to a packed audience, and everything might turn out fantastic. Or perhaps the opposite could occur.
It’s possible that the ambitious SoFi Stadium development may falter as the Fed erodes the dollar’s value, plunging the global economy into a prolonged depression. Should this happen, SoFi may become a testament to the debt-driven excesses of the early 21st century.
The coronavirus crisis could very well dictate the future of SoFi Stadium. However, the underlying issues of national debt and economic stability were already problematic long before the stadium opened its doors. In centuries to come, it wouldn’t be surprising if goats were grazing among its ruins.
Sincerely,
MN Gordon
for Economic Prism
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