The property adjacent to the northeast intersection of South Prairie Avenue and Century Boulevard, in Inglewood, California, has undergone a staggering facelift over the last three years. The former Hollywood Park Racetrack was demolished and regraded. SoFi Stadium, at a price tag of $5 billion, is being constructed in its place.
The new home of the Los Angeles Rams and Los Angeles Chargers is scheduled to open in late-July 2020. That’s when an initial christening will be performed by Taylor Swift. Then it will be time for the 2020 NFL season.
Obviously, there are big plans for this property. Per the Sofi Stadium website:
“The state-of-the-art stadium re-imagines the fan experience and will host a variety of events year round including Super Bowl LVI in 2022, the College Football Championship Game in 2023, and the Opening and Closing Ceremonies of the Olympic Games in 2028. Located on the site of the former Hollywood Park racetrack, the stadium is the centerpiece of a 298-acre mixed-use development featuring retail, commercial office space, a hotel, residential units, and outdoor park spaces.”
On Wednesday (April 8), the LA Times reported that a second construction worker at the SoFi Stadium development tested positive for COVID-19. Still, construction goes on. SoFi’s considered a major construction project and is exempt from Governor Gavin Newsom’s stay at home order.
But what’s the point of continuing construction?
How can people go see Taylor Swift if they’re under orders to stay at home? Will there even be a 2020 NFL season? And in the coronavirus era, where a third of the population’s unemployed and on the dole, what’s the purpose of 298-acres of mixed-use retail, commercial, and office space?
Alas, for SoFi Stadium, and many other endeavors that were planned pre-coronavirus, the numbers no longer pencil out. We’ll have more on this in a moment. But first some added context…
$3 Trillion Deficit
Something both unwanted and unexpected has tormented western economies in the 21st century. Gross domestic product (GDP) has moderated onward while government debt has spiked upward. Orthodox economists are seemingly confounded by what has transpired.
Here is the United States, since the turn of the new millennium, real GDP has increased from roughly $10 trillion to $21.7 trillion, or 117 percent. Over this same time government debt has spiked nearly 317 percent from about $5.7 trillion to $23.8 trillion. Obviously, some sort of reckoning was in order to bring the books back into balance.
Throughout this extended episode of economic and financial discontinuity, the government’s solution to jumpstarting the economy has been to borrow money and spend it. Thus far, these efforts have succeeded in digging a massive hole that the economy will somehow have to climb out of. We’re doubtful such a feat will ever be attained.
In short, additions of government debt over this time have been at a diminishing return. Specifically, at the start of the new millennium the debt to GDP ratio was about 57 percent. Today, it’s over 109 percent.
The idea that the government could spend borrowed money to grow the economy out of debt has become patently ridiculous. Nonetheless, central planners continue to advocate these policies. At the same time, the politics of coronavirus now conspire to push the U.S. government into a hyperinflationary default.
The forced shutdown of the economy to control coronavirus has several critical consequences: It crashes the economy – and tax receipts – and explodes government debt. Second quarter GDP will likely decline by over 30 percent. At the same time, the U.S. deficit in 2020 could push above $3 trillion. That’s more than double the prior record deficit of $1.4 trillion reached in 2009.
About $2 trillion of the $3 trillion 2020 deficit comes from the CARES Act. Of this, $456 billion was gifted by the Treasury to the Fed for the Fed to lever up 10-to-1 and use to bailout big businesses and bankrupt municipalities.
Yesterday (Thursday) the Fed uncorked a $2.3 trillion program that will direct this mass credit creation into municipal bonds and junk bonds. The Fed’s essentially taken over the bond market and debased the dollar in the process. Gold spiked up to $1,685 per ounce.
Will Everything be Awesome for SoFi Stadium?
The SoFi Stadium numbers were already suspicious before the scourge of Wuhan was released upon the world. As construction of SoFi Stadium has progressed, the debt hook has pulled deeper. Even without coronavirus, there may have been no way to dislodge it.
The cost was originally estimated at roughly $2.66 billion. But that was before NFL team owners voted in March 2018 to raise the project’s debt ceiling to a total of $4.963 billion. This makes SoFi Stadium the most expensive sports venue ever built.
The silly name’s credited to a company called Social Finance Inc. (commonly known as SoFi). The financial technology startup’s paying more than $30 million annually over 20 years to put its name on the new stadium. This marks a record for naming rights, and one of the more mindless ways to flush bundles of cash down the toilet for years on end. Leave it to a finance company to sign up for this.
Who knows? Maybe it will all work out. Maybe Bill Gates will sell us all a mandatory vaccine, along with the nirvana of a new digital ID to track our compliance. Maybe Dr. Anthony Fauci will stop mongering fear. Maybe Newsom will sound the “all’s clear” signal and it’ll be back to work.
Maybe the economy will boom…the DJIA will rocket past 30,000…the Taylor Swift concert will go on to a full house…and everything will be awesome. Or maybe not…
Maybe the state-of-the-art SoFi Stadium development will go belly up as the Fed vaporizes the dollar and the global economy sinks into a lengthy depression. Under this scenario, SoFi’s redeeming value would be as a lasting monument to the prevailing debt madness of the early 21st century.
The coronavirus crackup may be what cements SoFi’s fate. But the realities of the country’s debt and economic health were already stacked against the state-of-the-art development long before it ever opened. Perhaps 900 years from now goats will graze in the midst of its ruins.
for Economic Prism