Betty Joyce Nash

David A. Price

Jessica Sackett

English

Research Papers in Economics

2 Region Focus | Third Quarter | 2010 
UPFRONT
Regional News at a Glance
Start Your Engines
Racing Teams in Virginia, North Carolina Win X Prizes
Both have roots in racing. Edison2 of Lynchburg, Va., won 
$5 million for its entry in the mainstream class; Li-ion
Motors of Mooresville, N.C., won $2.5 million for its Wave
II electric car. The remaining $2.5 million went to the Swiss
X-Tracer Team in the motorcycle-style two-seater class. The
competition drew 111 teams from 15 countries; winners were
announced in September.
Edison2’s “Very Light Car #98” was required to seat four
people, travel 200 miles on a tank or charge, and meet per-
formance, handling, safety, and emissions standards; all
entries were required to get more than 100 miles per gallon
or its energy equivalent.
The team of racing engineers and designers was already
exploring the idea of light-weighting parts for racing,
according to spokesman Scott Brown. They formed the
company officially as Edison2 to go for the prize, and
entered all three categories. The team’s racing backgrounds
together total more than 19 victories at Le Mans, Sebring,
and Daytona. “Our engineers feel the innovations you see in
racing that allow a car to crash at 200 miles per hour are the
same ones that allow a car with low mass to still be a safe car
on the highway.” Innovations include a diamond-shaped
chassis that deflects impact and a lightweight, sturdy steel
frame.
The Edison2 vehicle weighed in at 830 pounds. The inter-
nal combustion-powered vehicle gets 102.5 miles per gallon
of 85-percent ethanol fuel. The team designed and built the
car from the ground up. “We would design on the computer,
make the parts in-house or send to a machine shop in
Rustburg (Va.), and have it back the next day.” The Edison2
team works in a 360,000 square-foot former textile factory
owned by founder Oliver Kuttner, a Charlottesville develop-
er. The company is located in downtown Lynchburg. The
presence of the machine-tool industry led to quick turn-
around in component redesign. The vehicle’s lug nut, for
example, weighs 0.1 ounce rather than the typical one ounce.
The prize money will accelerate the company’s next gen-
eration vehicle, an electric version of the Very Light Car.
“We view the XPrize as the beginning of something, not the
end,” Brown said.
Li-ion Motor Corp. beat out competitors in the “alterna-
tive” category. Despite its heavy lithium-ion battery, the
Wave II still weighed only 2,176 pounds, and achieved a 187
mile-per-gallon equivalent. The company intends not only to
manufacture vehicles but also to license its technology to
manufacturers worldwide, according to team leader Ron
Cerven, a former racer. Li-ion Motors’ team includes fabri-
cators who formerly worked in NASCAR.
The prizes capped 30 months of car and business plan
development. The idea was to jump-start the next genera-
tion of efficient, clean, affordable, safe cars. Entries were
judged, in part, on whether business plans proved that
10,000 of the models could conceivably be produced, 
annually, by 2014.
The X Prize concept is modeled after the 1919 purse of
$25,000 to inspire the nonstop flight between New York 
and Paris. In 1927, Charles Lindbergh won. These privately
funded, performance-based prizes encourage innovation,
with competitors typically spending 10 to 40 times the
amount of the purse to achieve a goal. The foundation is also
sponsoring the $10 million Archon Minerals X Prize for
genomics, the largest prize in medical history. To win, a team
must sequence 100 human genomes within 10 days for less
than $10,000 per genome. The foundation has also launched
the $30 million Google Lunar X Prize for the first team to
send a robot to the moon, travel 500 meters, and send
images and data to earth. — BETTY JOYCE NASH
Edison2 of Lynchburg, V a., won $5 million for its entry 
in the mainstream class of the Progressive Automotive 
X Prize with its Very Light Car #98.
Two car companies in the Fifth District won a total of $7.5 million in the Progressive Insurance
Automotive X Prize for Super Fuel-Efficient Vehicles contest.  
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2Region Focus | Third Quarter | 2010  3
Supersizing College Sports
16-Team Conference Put on Hold
F
ans may loyally follow their favorite college sports teams, but
the teams follow the money — and there is a lot of money in
television. 
How much? The Atlantic Coast Conference (ACC) just signed a new
deal with ESPN worth $1.85 billion over 12 years. Each of the 12 schools
(eight are in the Fifth District) will receive nearly $13 million per year.
That’s twice the previous contract, but less than the $17 million 
annually that schools in the Southeastern Conference (SEC) get from its
TV deals. It’s also less than the $17 million payout to schools in the Big
10, which also operates its own regional television network. That’s a lot
of money for athletic departments, which typically operate at a loss. In
2009, only 14 of the 120 schools in the top-tier division made money on
athletics, and the median loss was $10.2 million. (When schools do
make money, it’s generally only on football and men’s basketball.)
The lure of those revenues nearly broke up the Big 12 Conference
last spring. Six teams, including perennial powerhouses the University
of Texas and the University of Oklahoma, were expected to depart the
Big 12 and join the existing Pac-10 Conference to form a new 16-team
“super-conference.” The Pac-10’s current television contract is up for bid
this year, and Texas would have been a huge new market for both the
major networks and a potential new Pac-10 channel (following the Big
10’s lucrative example). Plus, more schools would mean more high-
stakes intra-conference and championship games, which are worth
millions of dollars each year. 
The breakup of the Big 12 would have been a huge change, but also
one that was part of a larger trend. Just seven years ago, 19 teams
switched conferences, and even the Big 12 has only existed in its current
form since 1996, after attracting some schools from the old Southwest
Conference. The conference shuffle can be traced to a 1984 Supreme
Court decision, which found that the National Collegiate Athletic
Association had violated the Sherman Antitrust Act by restricting the
number of games that could be broadcast each week. This decision
freed schools to negotiate television contracts. Within a decade, 
conference alignments seemed determined largely by the potential
viewing audience.  
In the end, Colorado and Nebraska were the only teams to leave
the Big 12. Conference commissioner Dan Beebe convinced his mem-
bers that the conference’s next TV contract would be worth at least as
much as they could earn in the Pac-10, and announced a generous 
revenue-sharing agreement. For now, the idea of a “superconference”
has been put on hold. But as long as the TV contracts keep getting 
bigger, the conferences surely will. —  JESSIE SACKETT
Franchise Fight
GM, Chrysler Dealers Must Leave the Fold
J
ohn Bell, owner of a Chevrolet dealership in rural
Sistersville, W.Va., breathed a sigh of relief in
September: An arbitrator ruled against General
Motors’ effort to terminate his franchise. The decision
was based on an array of factors, including the arbitra-
tor’s findings that Bell’s dealership is “economically
viable,” and that its closure would require customers to
travel great distances for sales and service at another
dealership and would create a hardship for the dealer-
ship’s employees.
GM had given Bell notice in June of 2009 of its
intention to end his status as a GM dealer as part of an
effort to shrink its dealer network. At the time, GM
notified a total of 1,454 dealers, and Chrysler did the
same with 789 of its dealers — nearly a quarter of each
company’s network. Within the Fifth District, some
218 GM and Chrysler dealers were slated for termina-
tion (out of 2,024 new-car dealers in the region
representing all automakers).
Hundreds of the dealerships targeted by GM and
Chrysler were not as fortunate as Bell’s. GM prevailed
in all but four of its 62 arbitration cases that were liti-
gated to completion, and Chrysler won all but 32 of the
108 completed cases against it. In addition, GM
offered 702 dealers the opportunity to stay on if they
met various conditions. 
The terminations have the potential to be econom-
ically significant to the affected communities. New-car
dealerships generate significant state sales taxes and
employment. In 2007, new-car dealers employed an
average of 54 people each, with an average payroll of
$2.6 million. To be sure, some of the terminated 
dealers may be able to continue doing business in the
used-car market or as dealers for other brands.
U.S. automakers have long desired to reduce their
number of dealerships. Supporters of scaling back the
dealer networks believe that smaller networks would
allow the remaining dealers to become more profitable4 Region Focus | Third Quarter | 2010 
and to invest in upgrading their facilities. Foreign auto
brands such as Honda and Toyota have far smaller networks
than Detroit.
For decades, the discretion of automakers to terminate
dealer franchises has been highly limited. Auto dealers, as
major employers, have significant influence within state
legislatures. The states have thus enacted dealer-friendly
laws that limit an auto manufacturer’s ability to terminate a
franchise. 
Economists have criticized these laws. For example,
economists Francine Lafontaine of the University of
Michigan and Fiona Scott Morton of Yale argue in a recent
paper in the Journal of Economic Perspectives that the laws
have been “to the detriment not only of manufacturers, but
also of consumers, resulting in higher cost of retailing and
higher prices for cars, inflexibility of the dealer network,
and a lack of innovation in car distribution.”
What made the terminations by GM and Chrysler 
possible is that the federal government required the compa-
nies to submit restructuring plans last year to support their
quests for federal assistance — including plans to cut back
their dealer networks. The group from the Department of
the Treasury responsible for assessing the restructuring
plan and negotiating federal assistance to the companies,
known as the Auto Team, pressed the companies to shrink
the networks quickly. The bankruptcy courts approved the
programs to terminate dealerships, overriding the protec-
tive state laws.
The auto dealers showed that they can also exercise
clout at the federal level, however. Congress enacted the
legislation to allow dealers to go to arbitration to attempt to
save their franchises, known as the LaTourette
Amendment, at the urging of the National Automobile
Dealers Association and state and local dealer associations
in response to the termination notices from GM and
Chrysler. — DAVID A. PRICE
Sweet Drinks
D.C. Extends Sales Tax to Beverages
T
he District of Columbia has approved a 6 percent tax
on retail sales of sodas, sports drinks like Gatorade,
and other sweetened nonalcoholic beverages except 
coffee/tea and carbonated fruit drinks. 
The tax differs from the penny-per-ounce excise tax
originally proposed, a move that soft drink makers, local
stores, and restaurants fought through advertising.
Retailers oppose the sales tax as well. Neighboring Virginia
charges 2.5 percent in state sales taxes and Maryland, 6 per-
cent. Washington, D.C., currently does not tax food
purchases except in restaurants.
The estimated $8 million from the tax will go, in part, to
pay for physical education programs and more fruits and
vegetables in school lunches. 
It’s unclear whether a tax as low as 6 percent will help
curb soft drink consumption, thought to be a culprit in ris-
ing obesity levels, especially among children. But there is
evidence that soda consumers are price-sensitive. A recent
study published in the American Journal of Public Health
found that sales of regular (not diet) soft drinks declined by
26 percent at the hospital cafeteria at Brigham and
Women’s Hospital in Boston when it raised its prices. The
decline persisted not only during the price-increase phase,
but also through several other periods, including one in
which the cafeteria returned to baseline prices. The add-on,
however, was a hefty 35 percent. 
In a separate study, from the Economic Research Service
of the U.S. Department of Agriculture, economists ana-
lyzed a hypothetical tax on sweetened sodas, fruit drinks,
sports and energy drinks, and powdered mixes. The authors
used national data sets that included actual consumer 
purchases of beverages. One data set came from the longi-
tudinal consumer panel of the firm Nielsen Homescan.
Authors also used daily beverage intake data from the
Centers for Disease Control’s National Health and
Nutrition Examination Survey, designed to assess the
health and nutritional status of children and adults. 
Results suggested that a 20 percent increase in the price
of sweetened drinks could cut net calorie intake from all
beverages by 37 calories a day for the average adult, with
effects for children estimated at 43 calories a day. But that
tax was much larger than the D.C. sales tax, leaving open
the question of whether the sales tax will affect soda 
consumption.   — BETTY JOYCE NASHRegion Focus | Third Quarter | 2010  5
T
he new NASCAR Hall of Fame in Charlotte is
designed to appeal to both casual and hard-core race
fans. Visitors can drive high-tech racing simulators, change
a tire, or see up close Dale Earnhardt’s famous No. 3 Chevy.  
But so far, attendance has been below projections.
Between its opening in May and the beginning of August,
the Hall had 102,000 visitors, well shy of opening expecta-
tions. The NASCARHall of Fame is owned by the City of
Charlotte, licensed by NASCAR, and operated by the
Charlotte Regional Visitors Authority (CRVA).
As the Hall’s spokesperson Kimberly Meesters points
out, though, it’s difficult to extrapolate a full year’s 
performance based on three months’ data, and the Hall
also generates revenue through memberships and special
event rentals. And many of the expenses are variable costs:
Fewer people in the building means buying fewer cleaning
supplies, for example.
The attendance numbers cast doubt on projections
about the Hall’s economic impact on the region. Prior to
construction — and prior to the financial crisis — UNC-
Charlotte economist John Connaughton estimated the
Hall’s annual economic impact at $60 million. Although
he used relatively conservative multipliers to calculate
potential increases in spending and employment, such
projections are uncertain and often overstated. 
“They’re based on the best available information at 
the time,” Connaughton explains. “We would never have
contemplated a recession as bad as it was.” 
The U.S. Travel Association reports modest improve-
ments in the travel outlook, but characterizes the recovery
as “rocky.” Many consumers are looking for the most 
frugal options when they do travel, such as staying with
relatives instead of in hotels. 
Still, there are positive signs. Charlotte’s hotel occu-
pancy is up 12 percent over the same time last year, and 
North Carolina’s gross state product has been increasing
modestly, after a 2.7 percent decline in 2009.
Financing the Hall was “radically complex,” according
to City of Charlotte Treasurer Scott Greer. Totaling 
more than $200 million, the package is a mix of public 
and private debt that also helped fund a 102,000 square-
foot expansion and other upgrades to Charlotte’s
convention center. The site also includes a privately 
developed 19-story office tower.
The majority of the financing is “Certificates of
Participation” (COPs), a type of municipal bond that is
backed by the lease payments from a particular project. 
In Charlotte’s case, the city is making those payments via
the revenues from a 2 percent increase in the hotel/motel
tax. The city also borrowed $41.5 million in bank loans.
Sponsorship revenue and commemorative brick sales are
dedicated to paying back $20 million of those loans, with
the remainder to be repaid from the sale of a parcel of land
donated by the state. To date, the Hall is about 20 percent
of the way to its sponsorship goal, but these are non-
recourse loans without a fixed repayment date. “I don’t
want to say that they’re indefinite. We’ll probably pay
them off in 10 to 12 years,” Meesters says.
The financing structure is designed to limit taxpayer
support. With COPs, bondholders may only repossess the
asset — that is, the Hall of Fame — in the case of default.
If the hotel tax increase can’t cover the debt service, the
Hall could end up being owned by the bondholders. The
attendance revenues are used only for operating expenses,
not debt service. “Cutting expenses is always an option,”
Meesters says.
The people predicting hard times for the Hall, she says,
should withhold judgment. “It’s such a complex business
model to explain in the first year,” says Meesters. “Ask us
five years from now, and we’ll be able to say these are our
peaks, these are our valleys, and this is who we market to.” 
—  JESSIE SACKETT
Editor’s Note: At press time, the CRVA announced that the 
Hall of Fame had a $190,000 deficit as of August 2010, and was
considering $3 million in annual budget cuts.
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A race fan tries his hand at the “Pit Challenge” 
exhibit at Charlotte’s NASCAR Hall of Fame.
NASCAR Hall of Fame Opens in Charlotte
A Slow Start but Hope Remains

Upfront : Regional news at a glance

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Upfront : Regional news at a glance

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