Subsidizing Failure: Lessons from Carnival Cruise Lines

Gwynn Guilford’s article yesterday on about Carnival Cruise Lines’ business model has some interesting parallels to recent “economic vitality” efforts here in Scottsdale.

Like Carnival, the Scottsdale Tournament Players Club (a division of the Professional Golf Association) has received massive indirect government subsidies to keep them afloat (pardon the pun) and in the black. For the TPC, these average over a million dollars a year in subsidies and negotiated alleviation from lease requirements relative to the TPC’s management of the Waste Management Open tournament venue.

Supposedly, the requirements of the TPC’s lease of city-controlled property require both that they pay rent and maintain sufficient contributions to a property maintenance and improvement fund.

However, late last year city staff and the city council began publicly discussing an abatement of the latter, and “investing” $15 million or so of taxpayer money in golf course improvement and a new clubhouse. Those improvements now appear to be in the pipeline, with initial design efforts funded and another “pre-construction services” increment on Tuesday night’s city council agenda.

In addition to Carnival’s free rescue business model, Guilford points out an outrageous foreign-flagging tax loophole (they are incorporated in Panama) exploited by Carnival. This allows them to avoid all kinds of taxes and other regulations.

“It is subject to no US labor wage laws. [Carnival has] also escaped US safety occupational hazard safety laws,” James Walker, a maritime lawyer who represents clients seeking legal action against the cruise line industry, told Quartz. “This gives it tremendous advantage over any other form of transportation or hospitality or entertainment business here, all of which have the labor, wage or tax consequences of being a US business.”

Some of this is clearly not applicable to our situation, but there are a lot of golf courses in Scottsdale that do not receive subsidies from the City of Scottsdale. I don’t understand how our 100% Republican city council and Mayor Jim Lane can square this clear governmental favoritism of one private business over many others.

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  1. We really need a cost analysis if the residents gain anything for this investments. $300 a round seems a bit excessive for a municipal course, and just how many Scottsdale residents are using this facility. What is the increase in sales tax revenues during the open, what is the increase in occupancy at the local hotels? The TV coverage does little to promote Scottsdale. Is it worth millions a year for our residents to rub shoulders with pro players and party in a tent? I remember Worth saying that they didn’t make any of their obligations to the City on the original lease.

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