The debate surrounding Catalan independence has swirled with varying degrees of fervor for hundreds of years. Back in the 1600’s Catalans fought for freedom from the Spanish crown in the Reaper’s War which they ultimately lost. Since then the region has remained in a strained relationship with the Spanish Central government. Whether that government was a monarchy, democracy or fascist dictatorship the Catalans have always felt a distinctly separate cultural and ethnic identity from the rest of Spain. Similar sentiments exist in other Spanish regions such as the Basque Country and Navarre, as well as other European regions such as Scotland, in the UK, and the Umbria region of Northern Italy.

In more recent years, the arguments from separatist groups have taken a decidedly more economic bend. They have been fueled by the European debt crisis and other major economic issues facing Spain, and signal a bit of a change from the arguments from yesteryear. Even during the Spanish Civil War, which was largely fought between German and Italy-backed Nationalists and Soviet-backed Communists, the Catalans were largely in league with the anarchists whose economic policies you can probably guess weren’t too fully formed based on the fact that, you know, they were anarchists.

So this new approach is a stark change of tact for independistas, but don’t let the new paint job fool you. Despite the difference in content the underlying message is the same. They are still leveraging the historic trend of Catalan mistrust of the Madrista government and deeply felt regional pride to push for an independent Catalonia. Only now their arguments center on unfair taxation and mounting regional debt, instead of language and literature.

But does this rhetoric hold up to objective economic scrutiny?

If we look at raw numbers we can see that Catalonia comprises a significant portion of the overall Spanish GDP. In 2014, Spain’s total GDP was about $1.1 Trillion, according to World Bank, with Catalonia consistently accounting for around 20% of that figure, or just over 200 Billion euros, despite only comprising 16% of the nation’s population at 7.5 million people. Catalan GDP per capita was just over 28,000 euros in 2014, just behind the Euro-zone figure of just under 30,000 euros. But it was over 20% higher than the average Spaniard, thus making it one of the wealthiest regions in the country.

Source: Statista

Two major drivers of the region’s economy are both the export and transport of goods. Catalonia accounted for 25.5% of Spain’s total exports in 2015. Barcelona, the regional capital, is the third largest port in Spain, and Catalonia handles 70% of exports from the rest of Spain. Based on these strengths it would certainly hurt Spain to lose the one of its most economically powerful regions. It would hinder trade, and levy a sharp blow on the overall country’s overall economic output. Conversely, it could put Catalonia in danger of facing tariffs and boycotts on its goods which would harm its trade-dependent economy. Dangers loom for both sides in the event of a separation.

Catalonia Region Economic Data (Source: World Bank)

So what’s driving the Catalan’s push for economic separation? Two things: a major debt crisis and the perception of unfair taxation. But what do we find when we look at these issues more closely? Let’s look at the debt issue first.

Despite the region’s economic strength it is still the holder of the largest regional debt in Spain. The meteoric rise of Spanish debt as a result of the European debt crisis was felt by the entire country, but it’s an issue that has become a particular flash point for Catalans.

Catalonian GDP per capita compared to Spain and the Eurozone (Source: Statista)

After a brutal recession in 2008, and a second recession hit in 2012 and debt in greater Spain soared from 65.9% of GDP in 2011 to 85.4% in 2012. This reality led the Spanish central government to levy harsh austerity measures in an attempt to get the debt situation under control. They froze public sector wages and cut government spending by 12%. Combined with a regional unemployment rate of 22% in 2012, Catalans came face to face with a daunting combination of economic issues.

In attempting to service the debt the Spanish government made it more difficult for regions, like Catalonia, to jump start their economy through classic Keynesian stimulus plans. This is also a consequence of the Euro currency system which does not allow individual country to create their own monetary policy in order to ease the blow of recessions.  Perhaps that fact forces Madrid’s hand to austerity measures, but not many Catalans want to hear excuses for the Madridistas. The economic results, or lack thereof, of these actions certainly does not help matters. Despite severe austerity measures Spanish national debt debt rose to 99.3% of its total GDP in 2014, and then shrunk slightly to 1.1 trillion euros, in 2015.

Source: Trading Economics

The question of how the two sides will allocate this debt is essential to understanding the possible economic consequences of Catalonian Secession. If the two nations agree that the Catalans should take 19% of the debt with them, or the same amount of money they contribute to Spanish GDP, then the effects on Spanish national debt after losing the region would be marginal, because they would lose the same share of debt, as they lose in total GDP.

However, if the central government allows the Catalans to leave with 16% of the debt, which matches their population size, or even 11% which would equate to government expenditures in the region then, according to economist Xavier Sala-i-Martin, Spain’s national debt could rapidly approach unsustainable levels. Even worse, If the Spanish central government comes to no debt transfer agreement with the Catalans it could mean that they leave without taking on their share of the Spanish national debt. This would be legally dubious, but possible,  and it would cause Spanish debt to explode. It’s estimated that debt levels would rise to nearly 125% of total Spanish GDP due the multiplying effect of losing the Catalan contribution to the national GDP while also taking on more debt. This eventuality could lead to a Spanish default. However, if the Catalans attempt to leave with no economic agreement they could surely expect to face harsh economic sanctions from Spain. Possibly even Spain blocking Catalonia’s entry into the EU because countries need unanimous approval for entry.

With both sides facing dangerous outcomes from secession, it can be difficult to understand why this independence movement has gained so much traction. But by investigating Spanish taxation practices we can see why so many Catalans, who are already predisposed to mistrust the central government, feel independence is their only option to receive fair treatment.

In response to central government austerity and rising debts, the Catalan regional government requested a payment of around 5.57 billion euros from Madrid, and not in the form of a loan. They wanted this as repayment for what they see as unfair taxation policies by the Central government.

According to a survey taken by the Catalan regional government in 2014, 80% of the Catalan population felt the central government taxed them at an unfairly high rate. In the populace’s view, too much money was taken without reinvesting enough of it back into Catalan infrastructure and social programs. These concerns led to the slogan, “España nos roba,” (Spain is robbing us), and fueled the pro-independence parties that were elected throughout the region in September 2015.

The question of whether Spain is truly “robbing” the Catalan people quickly becomes more complicated than it initially appears, and certainly more complex than the independentistas of Catalonia want their supporters to believe.

If we use the figures given by the Catalan government, they lose 8.5% of its GDP to the central government every year. Independentistas argue that if they left Spain then this money would simply stay in the region for the people to use at their own discretion and help curtail their rising debt. Those on the remain side respond that if you take into account the amount of public spending on services and infrastructure paid for by the national government then this number of “saved” GDP would shrink to around 4-5%.

Source: Statista

Around the world, it is not uncommon for a wealthy region, such as Catalonia, to pay a higher share of taxes that are then redistributed to less wealthy regions. A 2014 study by Wallet Hub illustrates how this very principle exists here in the US. For example, a state like New Jersey received only $0.88 for every dollar they put into federal income tax. Meanwhile Mississippi, a relatively poor state, gets $3.07 back for every dollar they put into the system.

So if this happens regularly elsewhere are the Catalans just being unreasonably greedy? Maybe, but maybe not.

In a 2012 study published by Barcelona’s Pompeu Fabra University, researchers found that Catalonia accounted for 118.6%, of national taxes per capita which placed it third out of the 15 regions in Spain. After the redistribution of taxes its per capita distribution of tax money fell to 99.5% of the national average, placing it 11^th. Conversely, Extremadura, a remote, mountainous region along the Spanish border with Portugal, which ranked 14^th in national taxes per capita at 76.6%, rose to third place in per capita tax revenues after redistribution by receiving 111.8% of average government resources per capita.

Taking a step back, it’s clear that a combination of austerity tactics to cut down debt and improper tax redistribution created an environment ripe for separatism, though some analysts hold out hope that the situation can be rectified. “We continue to believe that the secessionist fervor is a response to fiscal austerity,” analysts at Credit Suisse say. “Much of it would calm down if the Madrid government re-negotiates intra-regional transfers with Catalonia and the region is allowed to have more tax autonomy.”

Catalans can point to the Basque Country and Navarre regions of Spain, as examples of fiscal policy that, if granted to Catalonia, may help settle talks of secession. Both of those regions have agreements with the central government allowing them to keep most of their tax revenues without sending them to the Spanish government. Perhaps if the central government institutes smart changes, or merely weathers the storm, then the winds of secession will die down.

Born and raised in Boyle Heights, Robert Campos, 69, has seen the unpaved dirt street in front of his house transformed into solid concrete and then asphalt. But the neighborhood where he knows every corner and turn has never been so costly and unfamiliar to him as it is now.

Rising property values and increased cost of living are reshaping many aspects of life in Boyle Heights, a community that is situated a few miles east of downtown Los Angeles. The neighborhood represents an ongoing change of demographic and economic forces in Los Angeles. While the community has become more attractive and still affordable for many young professionals, old residents inevitably face a choice: either to sell their houses and take the cash, or to stay and stand up to ever increasing living expenses.

Gentrification has undoubtedly become a controversial topic in Boyle Heights in the past few years. As home values recovered from the 2008 financial crisis, an increasing number of home owners, mostly those who have lived in the area for more than 15 years, are leaving the neighborhood and selling their properties.

“It’s getting more expensive [to live here]. The taxes have gone up a lot. And utilities have gone up a lot,” said Campos, a retiree who inherited his four-bedroom house from his mother and doesn’t have any child. “I might have to go into a small one-bedroom apartment because I can’t even afford to live here in this neighborhood.”

Campos has been seriously considering the option of putting his house up for sale, taking the cash, and renting a single-bedroom apartment for himself. A former technician of a telecommunication company, Campos fell off the pole during his routine shift in 1990, injuring both of his legs. For the past 15 years, he has been relying solely on pensions and past savings for a living.

If someone, like Campos, puts all his money in a savings account and makes no other investments, the balance would have probably looked the same since the Federal Reserve set the Federal funds rate at near-zero level in 2008.

(Robert Campos sits beside the door, reading newspaper. By Zihao Yang)

“Somebody is paying the price for low interest rates. It’s you and me who have money-market accounts which are earning 0.27 per cent,” said Raghuram Rajan, a former IMF chief economist, in an interview of the documentary Money for Nothing, “[The super-low rate] punishes the elderly and people on a fixed salary. They worked to save that money but get nothing for it.”

Strange enough, when food, property tax and utility bills stack up, getting rid of your own house and renting one instead suddenly become a realistic option for older generations with no children to bestow their properties on.

“If it gets above $350,000, I’m going to insist we sell the property,” said Campos. The struggle of old residents in Boyle Heights shows not only a case of mini urban migration in Los Angeles, but also a broader conflict of shrinking affordable housing and climbing cost of living in California.

The ongoing gentrification process has made living cost higher than ever before, and at the same time, there is a constant demand for housing, also pushing up prices.

Due to its Latino culture and vicinity to the downtown L.A., Boyle Heights has attracted a lot of young Mexican-Americans who work in downtown L.A. and Arts District. Most of them are first-time home buyers and working-class, according to Luis Negrete, the manager of a real estate agency located close to the Indiana Metro station.

The demand for housing in Boyle Heights has largely increased after the Metro Gold line was put in use in 2003, even if home prices have fluctuated tremendously during the past decade. The influx of new immigrants implicitly stimulated the cost of living to increase. New theme restaurants, bars, and fancy coffee shops opened recently and scattered in the neighborhood.

A newly-opened Starbucks in 2013 was big news for many community residents. Some old residents saw it as a sign of ongoing gentrification or even an intrusion of the well-preserved historic community, while others hailed the coffee shop because it helped boost the value of their properties.

It has been seven years since the bust of housing bubble, and home prices almost climbed back to its pre-2008 level. As of October 2015, the average home price of Boyle Heights is $340,000, which is still significantly lower than the average price of Los Angeles County, $505,700. The prices were $347,000 and $504,000 for Boyle Heights and L.A. County, respectively.

When Sergio Ramos, a real estate broker, opened his business in 1992 on the E. First St., he would have never imagined a monthly sales total of 60 to 70 residential houses. Before the housing bubble burst, some houses were selling at $500,000, the highest in Boyle Heights’ history. “After that everything just died down,” said Ramos, “but prices have gone up recently in 2015. Compared to last year, they increased about 10 to 15 percent. That’s a lot.”

Campos described a Korean investor canvassing the neighborhood, eager to buy houses with $400,000 cash in hand, just before the housing collapse in 2008. Whether there is any bubble in this round of housing boom is still open to debate, potential home buyers and investors are keeping a close eye on the market trend.

(Boyle Heights has become a new destination for people working in downtown Los Angeles. By Zihao Yang)

“It’s still affordable and location is one thing that’s undeniable,” said Ramos, as he compared the median home selling and leasing prices of Boyle Heights to those of downtown Los Angeles. Downtown L.A. has gone through a considerable increase in property value and rent prices after major revitalization plans were put into effect.

As the Federal Funds rate around 0.25 per cent, getting a mortgage and borrowing from banks come with fairly low costs, making it easier for home buyers to obtain loans.

“As years has gone by, there has been more old owners moving out. It’s little by little, but increasing,” said Ofelia Zamora, a small business owner who emigrated from Mexico to Los Angeles and has settled in Boyle Heights since 1987.

Zamora owns a shop that sells birthday and party supplies on the E. Third. St. Filled with balloons, ribbons, and handmade Mexican piñata fiesta drums, her tiny business has seen a noticeable shift of consumers in the past few years.

According to Zamora, some owners sold their houses and moved to Texas in pursuit of comparatively better living standard. Others with immigrant backgrounds moved back to either Guatemala or Colombia as their children settled well in the U.S.

But for Manuel Honorato, owner of a car repair company, whose parents currently own a house in Boyle Heights and are thinking of moving to Mexico after retirement, increasing cost of living doesn’t seem to be the only reason why his parents might consider selling the property. Gentrification has not only brought higher prices, but also many newcomers to the neighborhood.

“That forces people to move out because new immigrants don’t have that sense of community norm,” said Honorato, “The neighborhood is becoming broken down because of the prices. All of a sudden you don’t have friends because all your friends are moving out.”

The economic gap, along with the generation gap, has made Boyle Heights more divided than ever before. “On this block alone, there are probably only ten property owners,” said Campos, “my mother was the oldest person of the original owners on the block. The rest of people have just bought property in the last 20 years. I’m probably the last person who has been here for as long as I’ve lived.”

Why pay excessive prices for goods and services when you can rent it more cheaply from a stranger online? That is the principle behind a range of online services that make it possible for people to share accommodation, household appliances, cars, bikes and other items, connecting owners of underused assets with others who are willing to pay for them. A growing number of businesses, such as Uber, where people use their car to provide a taxi service to paying passengers, or Airbnb, which lets people rent out their spare rooms, act as matchmakers, allocating resources to where they are needed and taking a small percentage in profits in return.

Such peer-to-peer rental business is beneficial for several reasons. Owners make money from underused assets. Airbnb says hosts in San Francisco who rent out their homes average a profit of $440 (after rent) some neighborhoods snagging upwards of $1900 a month. Car owners who rent their vehicles to others using RelayRides make an average profit of $250 a month; some make more than $1,000. Borrowers, meanwhile, benefit from the convenience and pay less than they would if they bought the item themselves, or turned to a traditional provider such as a hotel or car-hire firm. And there are environmental benefits, too: Renting a car when you need it, rather than owning one, means fewer cars are required and fewer resources must be devoted to making them.

The internet plays a vital role in this business. It makes it cheaper and easier than ever to provide accurate supply and demand information. Smart phones with global tracking services can find a nearby room to rent or car to borrow. Online social networks and review systems help develop trust; internet payment systems can handle the billing. All this lets millions of total strangers rent things to each other. The result is known variously as “collaborative consumption,” the “collaborative economy,” “peer economy,” “access economy” or “sharing economy”.

The model of the sharing economy works for items that are expensive to buy and are widely owned by people who do not make full use of them. Bedrooms and cars are obvious examples, but you can also rent fields in Australia, washing machines in France and camping spots in Sweden. As proponents of the sharing economy like to put it, access trumps ownership.

How Did We Get Here and Why Now?

The world is at a turning point. The urbanization of populations continues to rise, and Millennials, are beginning to impact the economy as they enter the work force and start making economic decisions. These changes are most prevalent in big cities and new business have already begun to adapt.

The consumer is changing. The Millennials generation, born in the 1980s to early 2000s, experienced incredible uncertainty, having lived through the 2008 – 2009 financial crisis and struggles with increasing student debt. These financial pressures lead to demand for a more efficient allocation of resources – and that, means they want to own less, be more connected with others and be a part of something bigger than their individual selves.

Social media and social connection is an important aspect of the new lifestyle. A significant percent of modern day free time is spent browsing the social media accounts of our friends, family, celebrities, etc. Now, instead of seeking advice from our personal networks, we have access to the world. Trust and dependency in strangers and technology is a crucial aspect in the success of the shared economy, without the two, we would be stuck in the past

While the classic American dream is to own everything, the millennial’s version is to move to an “asset light” lifestyle. These trends have sparked massive innovation, created new marketplaces and potentially holding the keys to the future.

Premium on Ownership Disappears

Let’s travel back to 1999, when the millennials were still children exploring the internet. Many children took advantage of Napster, a website that enabled users to download songs for free. Illegal? Sure. But no one, except record companies, really cared. There are profound differences between the millennial peer-to-peer downloading and that of their parents or even people five years their senior. From the very beginning the experience of acquiring and consuming media content was based on the premise that access to content should be easy and free.

Now, back to 2015, access to media content is essentially free. Want on-demand access to whatever music you want? Spotify has got you covered. On-demand access to movies and TV shows? Netflix. On-demand access to videos of anything you want to watch? Lose a few hours on YouTube. Of course some of these services require a subscription fee so they are not truly free.

But this is what happens in the shared economy. It emerges when the access to goods and services, such as media streaming, becomes cheap, satisfactory and reliable enough that the premium on physical ownership has disappeared. There is hardly any reason to purchase these goods and services aside from personal habits (for example collecting vinyl) or peculiar requirements.

Ten years ago, to watch a movie released on DVD, there were two options: purchasing or renting.

Of those options, renting was the inferior. Even though it was more expensive to own these DVDs, it was preferred since people had the freedom to watch movies whenever they wanted and prized their DVD collections.

Today, that premium has disappeared. Streaming a movie on Netflix isn’t inferior to owning a DVD the same way that renting was. And ever since then, the extensive access to cheap and easy media content, has lead to new kinds of behaviors have emerged like binge-watching. Similarly, the rise of music streaming services has enabled behaviors such as sharing playlists, a process that used to be time-consuming and effort-intensive. When nobody buys music but still has access to it, social sharing of music emerges as a natural and human behavior.

Obstacles on the road to Success

To truly grasp the scale and greatness of the sharing economy, consider the following data. Airbnb averages 425,000 guests per night, totaling to more than 155 million guest stays annually – nearly 22% more than Hilton Worldwide, which serves 127 million guests in 2014. Five-year old Uber operates in more than 250 cities worldwide and as of February 2015 was valued at $41 billion – a figure that exceeds the market capitalization of companies such as American Airlines and United Continental. According to PwC’s projections, the sharing economy (including travel, car sharing, finance, staffing and music streaming) has the ability to increase global revenues from $15 billion today to around $335 billion by 2025.

It is not hard to find evidence of successful sharing economy but not everyone is as delighted by the rise as its participants and investors. Taxi drivers in America and now Europe have complained loudly (and in the case of Paris, violently) about the intruders who, they say not only are unqualified but also under insured.

Uber has always been plagued with problems with regulation and taxi unions around the world. In 2014, a court in Brussels prohibited drivers from from accepting passengers through UberPOP or face a €10,000 fine.

It is not just car-sharing services that have run into legal problems. Apartment-sharing services have also fallen victims of regulations and other rules governing temporary rentals. Many American cities ban rentals of less than 30 days in properties that have not been licensed and inspected. Some Airbnb renters have been served with eviction notices by landlords for renting their apartments in violation of their leases. In Amsterdam, city officials point out that anyone letting a room or apartment is required to have a permit and to obey other rules. They have used Airbnb’s website to track down illegal rentals.

On top of legal regulations, issues with customers have also become obstacles for sharing businesses. In 2011, Airbnb suffered a rash of bad publicity when a host found her apartment trashed and her valuables stolen after a rental. After some public relations, Airbnb eventually covered her expenses and included a $50,000 guarantee for hosts against property and furniture damage.

Peering into the Future

The sharing economy can be compared to online shopping, which began in America 15 years ago. In the beginning, people were not too sure about the vendors and didn’t trust the services. However with time and perhaps a successful purchase on amazon or two, people felt safe buying from other vendors too. Now consider Ebay, a company started as a peer-to-peer platform, now is now dominated by professional “power sellers” (many of whom started as ordinary Ebay users).

Big corporate companies dominating the market are getting involved too. Avis, a car rental firm has shares in Zipcar, its car sharing rival. So do GM and Daimler, two car manufacturers. In the future, companies may follow a hybrid business model, listing excess capacity on Peer-to-Peer websites. In the past, new ways of doing things online have put the old ways out of business. But they have often changed them.

We will have to wait and see which on-demand services start to gain traction with mainstream markets and which wont’t. It is not likely that in thirty years time our whole lives will be on demand and we won’t hold ownership. But a major possibility is products and industries most likely to be disrupted by the sharing economy would be things that we possess but not necessarily own. An example would be Airbnb. It has disrupted the demand for owning vacation homes (something you possess) and tourist hotels (something you don’t possess but is still “yours” in a way that an Airbnb isn’t).

College sports are an important component of most universities. Football and, to an extent, men’s basketball are the two sports that are responsible for generating about 90% of the revenues for an entire athletic program. Universities receive millions of dollars in revenue from television broadcast deals and merchandise sales from these two sports. Without those powerhouse athletics, other less popular teams like soccer, tennis, and volleyball would have no chance in succeeding financially. However, the extraordinary amount of money universities and the National College Athletic Association receive from these television and marketing deals have current and former athletes concerned about the use of their names, images, and likenesses. These athletes want to be compensated for their success.

One man who stepped up and voiced an opinion is former UCLA basketball star and NBA player, Ed O’Bannon. In July of 2009, O’Bannon filed a lawsuit against the National College Athletic Association, arguing the organization violates antitrust laws by using former and current players’ images, names, and likenesses for commercial purposes. What sparked O’Bannon’s file suit was seeing his image in an Electronic Arts video game that he was not compensated for. The O’Bannon v. NCAA case insists players should be compensated a fraction of the millions of dollars college athletics generates from its huge television contracts. After six years the case has caused much controversy for the NCAA and universities. But just recently, some court decisions have impacted the case.

According to the NCAA website, it is a membership-driven organization dedicated to safeguarding the well-being of student-athletes and equipping them with the skills to succeed on the playing field, in the classroom and throughout life. With this in mind, the NCAA has created multiple rules to keep college athletics as amateur sports and control the eligibility standards for athletes. The division of a school determines the rules that follow the overarching principles of the NCAA. In this case, as an amateur sport, athletes are not allowed to be compensated for the use of their name, image, and likeness while attending the university. Punishments for infractions can be anywhere from losing playing time to being kicked off the team. For instance, during the 2014 football season, University of Georgia player Todd Gurley was suspended from the team for four games because he made money off his own autograph.

The NCAA believes college athletes should not receive compensation beyond their scholarship because it would ruin the amateurism status of athletes and goes against “eligibility” rules. The Ed O’Bannon case is fighting against this notion. One major concern among those who want to keep the current system in place is whether or not universities could generate enough money to pay athletes while also supporting them and contribute to other less popular sports. To run an entire athletic program for a competitive Division one school is over a 100 million dollars annually. Though universities may receive millions from conferences and television contracts, it does not all go to football, but to salaries, game expenses and facilities.

Recently some major decisions have been ruled in the O’Bannon v NCAA case. In June of 2014, a federal judge ruled that the NCAA cannot stop players from selling the rights to their names, images, and likenesses. This conclusion hit hard on the NCAA regulations, which prohibit student-athletes from receiving anything more than a scholarship. The court mandated that money generated from television contracts be put into a trust fund that college football and basketball athletes would receive after eligibility. The cap for the money would be up to $5,000 a year, and the most a player could make is $20,000 after four years. The NCAA of course disagreed with the ruling and fought against it.

On September 30^th, 2015, The Ninth Circuit of Appeals confirmed the district court’s decision that the NCAA amateur rules violated antitrust laws. This of course was a big gain for O’Bannon but was not a complete victory. The court went against the injunction that would have forced universities to pay athletes up to $5,000 dollars a year. However, schools now must cover full cost of attendance, which is food, rent, books, etc., on top of scholarship. Which means universities must add anywhere from a $5,000-$20,000 addition to scholarship which will cover student-athletes attendance. An article from Sports Illustrated claimed that Judge Jay Bybee, one of three judges out of the panel, expressed concerns that cash sums beyond educational expenses would transform NCAA sports into “Minor League” status. However, many still believe the cost of attendance is not enough for college athletes whose universities negotiate million-dollar TV contracts.

The situation does not end there. Even though O’Bannon did not win the trust fund debate, the lawsuit is far from over and he is not the only one striking down on the NCAA. Shawne Alston, Martin Jenkins, and two dozen other former and current college and professional basketball and football players argue that the cap of athletic scholarships and cost of attendance are not enough and violate antitrust laws. They are fighting for a different compensation to go towards student-athletes. If the cap was demolished, universities may be forced to pay student-athletes market hyphen price scholarships, which could extend up to seven figures. This litigation will be heard in the U.S. District Court for the Northern District of California soon. That being said, let’s look at the possible financial decisions college athletics and universities would be forced to consider if athletes were required to receive money.

To help understand the current situation better, I sat down with USC Sports Information Director Jeremy Wu to discuss the conditions that have athletic departments in dismay.

According to Jeremy, the new ruling that declares that universities must pay full cost of attendance, food, rent, books, and more, is the first strain on schools financially. Some schools already provide this for football, such as USC, because they can afford it, but now are required for all sports. Other major and smaller universities are in the process of making this transition.

The money for funding full attendance does come from the ‘millions of dollars’ schools receive from television contracts. But what a lot of people have a hard time understanding is the money received from these contracts are not just supporting football, but an entire athletic program. “A lot of schools even with TV contracts don’t make more money than they lose,” Wu said, adding, “Even though contracts are huge, such as millions of dollars, funding a full athletic department is a lot and it is covering more than just football, but all the sports.” Wu also mentioned the money generated from TV contracts pays coaching staffs for all teams and buys necessities for the sports.

To help understand Wu’s argument better, here are some athletic financial examples. According to U.S.A Today, the University of Texas athletic program’s total expenses are $154,128,877. The Longhorns have the highest athletic expenses in public universities. It also receives $161,035,187 in total revenue which means the program generates over 6 million in revenue. Then there are universities like Coppin State whose athletic program’s total expenses are $3,953,265 but only receive $3,304,284 in total revenue. The university also receives $2,467,870 in subsidies, which illustrates that smaller programs lose money in athletics.

An article called Cracking The Cartel, discusses where the money for football is going. $156,647 is the median amount a division one school spends on a scholarship football player each year as of 2013. It is this high because of food, travel expenses, gear, education, exc. It also states that in 40 States, football and basketball head coaches are the highest-paid public employees. Alabama having the highest paid coach at 7 million.

If college athletes were to receive payments from universities, here are some of the worst case scenarios.

In order for the majority of universities to provide payment for athletes they would have to make some changes. The process would start with cutting smaller sports from athletic programs, such as golf or tennis. This leads to job losses not only for the people who coach the sport, but maybe a couple of strength coaches, a nutritionist, and perhaps academic advisers.

Colleges could decide not to try and cut athletic programs all together. The programs which are most likely able to perform this financial strain are the so-called Power Five conferences (the ACC, Big Ten, Big 12, Pac-12, and SEC), but even some say it may be too much and schools slowly would drop down to Division II. Jeremy discussed how small schools like South Dakota State, that don’t generate enough money off their athletic programs, would have no choice but give up its sports teams.

Even Title IX plays a heavy role and universities must still obey the rules that are enforced by it. If one women’s sports team is cut, then three men’s teams are cut as well. Title IX provides a unique experience for young female athletes to receive an education and achieve an athletic career. Financial struggles to pay athletes would not only take this opportunity away from women, but men as well.

As a student-athlete myself, this situation has me concerned. Though it is apparent that the NCAA needs to make some rule changes, paying college athletes certainly would revolutionize intercollegiate athletics. If universities were to act on the most dramatic possibilities from this event, college athletics as we know it, would cease to exist.

“It all started during my semester study abroad in France”, recalled by Lai, when asked what made her choose to pursue a career as an overseas purchase agent.

Jasmine Lai is a 24 year old, recent college graduate from a prominent university in Shanghai. While studying abroad in France, during her junior year of college, she constantly found herself purchasing luxury products for her mom and shipping them back to China. It was in doing so that Lai took notice of the pricing discrepancies between these products in France and the identical ones sold back home in Shanghai. Lai clearly saw this as an opportunity for her to start her business.

“Before this trip, I was not aware that the price for the same luxury product in Europe and in China could vary so much.” Lai saw a chance for her to step in. The vast price discrepancy between the luxury product in Europe and the same luxury product in China served as the foundation to propel her career forward. “I started to ask myself. If I was able to purchase the luxury products in Europe and bring those products back with to China, even if a service fee was added, the price for the product from Europe was still lower than its retail price in China.”

“In 2012, Chinese shoppers became the largest group of luxury shoppers in the world and now account for 25% of the global revenue for luxury retailers, ahead of the Americans who account for 20%”, according to an article from Albatross global solutions. However, even though Chinese shoppers are recognized as the major source of revenue for luxury brands, more than half of their purchases are made in other countries such as France, Italy, and the United States instead of Mainland China. The price gap is the most commonly referenced reason for this phenomenon. Mainland China imposed high level of tax on imported luxury goods, which has served to further widen the price gap between other countries and its own.

According to HSBC China Luxury Tax Report, in 2010, the Chinese government raised RMB¥1.2 trillion, equivalent to US$187.9 billion, in luxury taxes. Many have argued that in order to create incentives and increase domestic spending, the Chinese government must lower the luxury tax, which consists of import duties, VAT, and consumption tax. Although the Chinese government has expressed its intent to lower the level of tax on imported luxury goods, and agreed that more domestic consumption will create several benefits to the country’s economy, it casts doubt on the direct relationship between lowering luxury tax and the decrease of the retail price of luxury goods. “Officials at the Ministry of Finance take the view that tax reductions would not translate to reduced prices for luxury goods, but would instead merely allow foreign manufacturers to increase profits”, according to the article “Luxury Tax in China” in China Briefing.

In addition to this staggering price gap, the increasing number of personal wealth in China has accounted for the increased amount of overseas purchasing. According to Credit Suisse, the wealth per adult in China more than tripled between 2000 and 2011. With more disposable income, people in China tend to spend their money on leisure activities such as traveling and shopping, especially shopping for luxury goods. In China, luxury goods are often used and purchased as a way to express a person’s social status due to its price and premium image.

For Lai, having more customers wanting to purchase luxury products is a plus to her business. When asked how to survive in a competitive environment, Lai answered, “Everyday, I am constantly thinking of ways to reinvent my business and approach it from a more financially savvy perspective. Specifically, I have worked on reducing my costs, learning how to better serve my customers, and striving to reach a more varied demographic with my target audience.”

With the advancement of technology, instead of setting up online website, Lai’s business relies entirely on two of the most used mobile applications in China, namely Sina Weibo and Wechat. Sina Weibo is a social media application that combines the functions of Facebook and Twitter. Users are able to comment, share posts from friends, and upload photos and videos. Different than Weibo, Wechat offers free messaging and focuses on interactions between the user and his or her friends. “Wechat serves as a great way for me to interact directly with my client. When my clients saw a product that they are interested in buying, they would send me the picture of the product directly through Wechat.”

Take the iconic handbag from Saint Laurent, one of the world’s best-known luxury brands, as an example. The price for the bag is £1590, which is ¥9540. The same bag in China, is £2190, which is ¥14322.6. When Lai received a photo of the bag from a customer, she asked her buyers in Europe to confirm the price. As soon as she had the Paris price nailed down, she tacked on a 30% service fee and sent it to her client via Wechat. The client agreed and so Lai dispatched her agent in Paris to purchase the bag and ship it to China.

Although it might seem to be fun and glamorous to be an overseas purchase agent, there are many underlying difficulties and uncertainties jeopardizing Lai’s daily work. “The most challenging part of my job is going through the customs” said Jasmine, an overseas purchase agent based in China.

A big part of Lai’s career as an overseas purchase agent is to travel to Europe twice a year, during its sale season. It was easy and quick for Lai and her employees to buy the desired products for the clients. Nevertheless, bringing all the products back safely to China without custom’s suspicion is the hardest part.

“Carrying all the products with me didn’t become a problem until recent years. During my first and second year as an overseas purchase agent, I would place all the items into two large suitcases. Aside from having to pay an extra overweight fee, I never encountered problems with Chinese customs; however, the traveling climate is much different nowadays.” With an increasing numbers of overseas purchase agents, Chinese shoppers tend to purchase luxury products overseas, leading to a shrinking economy for the luxury brand market in China. As soon as the Chinese government realizes the overseas purchases are endangering the growth of its luxury brand industry domestically, it immediately enforces stricter custom policies.

“With the new custom policies, instead of leaving the price tag, boxes, and the wrap for the luxury products, we need to remove everything in order to pretend that all the products belong to personal instead of commercial use.” The updated custom policies definitely bring changes to the overseas purchase industry, but it seems that even though the risk of buying luxury products through an overseas purchase agent is higher than simply buying the product in a nearby department store, Chinese shoppers are willing to take the risk instead of paying for the retail price that include stiff taxes imposed by the government.

Aside from needing to pay increasing amounts of attention on custom policies, monitoring the foreign exchange between RMB¥ and Euro£ closely is a daily task for an overseas purchase agent’s as it often poses a potential threat to sales. When the value of the RMB¥ increases relative to that of the Euro£, the price of Chinese exports increases, making it more expensive for European to buy Chinese products and cheaper for Chinese to buy European products. On the other hand, when the value of the RMB¥ decreases comparatively relative to that of the Euro£, the price of Chinese imports increases making it cheaper for Europeans to buy Chinese goods and more expensive for Chinese to buy European products. “When RMB¥ appreciates against Euro£, our sales tend to decrease a little because our clients are more likely to pick Europe as their travel destinations”, recalled Lai.

The luxury brand industry in China is booming. An increased number of Chinese shoppers and an increased interest toward luxury products continue to pave the way for more opportunities. However, just like how happiness is often associated with the purchase of luxury products, the risks, such as custom policies and foreign exchange rate, are closely tie to the success of overseas purchase agents.

 

Since the arrival of Iron Man, Marvel Studios has built a major platform for distributing profitable movies. In the summer of 2015, they introduced a new superhero called Ant-Man. In its opening weekend, the movie earned $177 million at the domestic box office. Forbes Magazine reported the movie actually made more initial money than previous films like Captain America: The First Avenger.

However, the most impressive feat the film pulled off was becoming the cheapest film to date in comparison to previous Marvel Studios productions. One of the biggest blockbusters of the year cost $130 million to make and a majority of the budget was spent in one city: Atlanta, Georgia.

Tax incentives and more job opportunities continue to shift the established economic model of strictly Hollywood filmmaking. The increasing number of runaway productions, or movies filmed in other states for economic reasons, has given other states some advantages and disadvantages in the lucrative film business.

Inexpensive filming locations, like Atlanta, are fast becoming a favored spots to make a movie, but the city also has the potential to become the new entertainment capital of the United States.

Why did Georgia want a piece of the film industry pie?

Before the earliest introduction of tax incentive programs, films were made in locations outside of Hollywood for creative reasons. Some films and television programs today still follow this procedure, such as the HBO series Game of Thrones, which films in Ireland and Spain to reflect the locations in the original novels.

In 1997, everything changed when Canada introduced the Production Services Tax Credit program. According to the Department of Canadian Heritage, the program was designed to promote Canada as a less expensive place for film productions to take up shop. The Canadian government created a 16 percent tax credit to alleviate the expenses productions usually incur in Hollywood. Tax credits are tax incentives created by states and countries to remove a small amount of the income tax productions companies owe the state or country. As a result, Canada started looking like a cheaper place to invest in both television and film.

In the last several years, Canada has built a large repertoire of foreign film productions, with many coming from the United States. Between 2010 and 2011, about 33 percent of film and television production in Canada was through foreign production
companies. Once the Canadian government started their program, runaway productions began to affect the United States.

A 1998 study conducted by the management-consulting firm Monitor Deloitte revealed 285 of the 1,075 films recorded for the study were economic runaways. Due to almost a third of productions moving out of state, the U.S. lost $10.3 billion, which combines the loss in direct production spending and the loss in spending and tax revenues.

Today, 37 states including Georgia have similar tax incentive programs because of the growing fear of runaway productions in places like Canada. More states now compete to counter the massive success of their neighbor to the north. In a sense, Georgia began its own program about fifteen years ago because every other state had the same mentality: If Canada can have the same economic benefits of Hollywood in California, why can’t I?

(Courtesy: California Legislative Analyst’s Office)

A Brief History of the Georgia Film Tax Credit

Since the 1970s, Georgia has been the location for several movies, television shows and music videos. Famous films like Deliverance, Fried Green Tomatoes, Forrest Gump, and Remember The Titans all found their home in and around the state capital Atlanta. Although Georgia had a steady amount of film production for a number of years, it was not until 2001 when the state government became more interested in capitalizing on the filmmakers interested in heading south for cheaper production opportunities.

The Georgia General Assembly passed legislation in 2001 exempting the television and film companies from sales and use taxes on production expenses. This meant productions did not have to pay taxes on the film equipment they needed and bought in the state. In 2005, the creation of the Entertainment Industry Investment Act allowed out-of-state production companies to apply for a 9 percent base tax credit for productions over $500,000. The state income tax in 2005 was set at 35 percent, but with the 9 percent tax credit it meant larger productions only had to pay 26 percent. In addition, the law gave another 3 percent tax credit to filmmakers who spent money in poor and rural counties or on income paid to Georgia residents.

As film production declined in 2006 and more states like Louisiana and North Carolina began constructing their own incentives, then Georgia governor Sonny Perdue was quick to revise the law in 2008. He expanded the tax credit from 9 percent to 20 percent. Additional incentives included another 10 percent for placing a Georgia logo in the finished film. The potential to receive a 30 percent tax credit for working in Atlanta instead of Los Angeles started to become more lucrative for production companies.

Three Reasons Georgia has (arguably) the Best Tax Credits in the U.S.

1. Transferable Tax Credit – Georgia is one of 14 states who offer transferable tax credits, which allows production companies with tax credits exceeding their tax liability to sell the credits to other taxpayers. Since most productions companies coming from out of state do not have tax liability, tax credits in Georgia have a greater value.

2. Multi-Year Tax Credit – Georgia has a carry-forward period of up to five years for tax credits. This means production companies have up to five years to claim the tax credit against tax liability.

3. No Production Caps – Production companies can request unlimited tax off-set liability. This means Georgia has a better chance of attracting big-budget movies capable of bringing in large amounts of revenue.

Criticisms of the Georgia Film Tax Credit

This past summer, Georgia governor Nathan Deal announced film and television productions made $6 billion for the state during the fiscal year 2015. Some critics argue this number is inaccurate because the direct spending in Georgia this past year was $1.7 billion. The Atlanta-Journal Constitution reported in August the state economic development department uses a specific multiplier, 3.57, to estimate the economic impact of film production. Officials from the department said they were unsure of the credibility of the multiplier, even if it did supposedly quantify the revenue generated by production companies.

Another big issue in the film tax credit world is whether tax credits are a form of corporate welfare. Corporate welfare refers to a disproportionate amount of tax breaks given to corporations rather than groups in need of the money. The Tax Foundation, a non-partisan research group from Washington D.C., released a report in April 2015 saying state tax incentives actually cost states revenue and can increase taxes in other areas of their budgets.

Runaway production has also had huge impact on the people working in the film industry. As more production companies are making places like Georgia their home, more workers based in Los Angeles get hurt by the constant maneuvering of out-of-state production. However, the workers are trying to fight back. Last year, Variety reported Los Angeles-based visual effects artists launched a campaign to get the U.S. government to place a tax on countries taking away business by subsidizing labor costs. These actions indicate the constant traveling of film production workers has taken a toll. In the race to have the best tax incentives of any state, Georgia is also alienating some members of the industry with their lucrative tax credits.

Goodbye Hollywood, Hello Y’allywood

The film industry in Georgia continues to flourish today as more production companies decide to not only shoot movies, but also take up shop in Atlanta. Pinewood Studios Group, a multinational film facility company based out of the United Kingdom, opened Pinewood Atlanta Studios in 2014. It was the primary filming location for Ant-Man and, according to its website, will now serve as the filming location for the upcoming Captain America sequel.

The sharp rise in the tax incentives has also had an equally dramatic effect on the number of productions. The chart above shows, between approximately 2003 and 2005, there were less than 5 film productions in the state. In a statement released by the commissioner of the Georgia Department of Economic Development in July 2015, the state had 42 productions filming at the same time. He argued more than 100 new businesses flocked to Georgia since the expansion of the tax credit in order to support the industry. Although the economic impact of film and television production appears to be heading in the right direction with greater job opportunities for multiple businesses, there are still major issues Georgia faces as it builds its identity as an entertainment powerhouse.

Issues Facing The Georgia Film Industry Part 1: Suitable Workforce

In June 2015, the Motion Picture Association of America reported the state film industry provides over 24,000 jobs and pays local workers over $1.68 billion in wages. In addition, the MPAA said the average salary for a worker in the industry is $84,000.

Well-paying jobs are bringing in a greater number of local people seeking employment, but the industry lacks the proper workforce to keep film production at a high standard. In the earlier days of the Georgia film incentive, the major challenge for the state was how to keep people within the industry to build their careers in Atlanta. Production companies would import people in from Los Angeles to do the work needed because Georgia did not have enough local citizens who had the skills needed to be successful in the industry. Today, Georgia continues to struggle with this problem. An NBC News article published in September revealed industry executives in Atlanta wanted to hire people from within the state, but instead were forced to look everywhere else to get the necessary workers.

However, recent events indicate Georgia may have found a solution: The Georgia Film Academy. The academy reflects a growing need for film industry training and education. According to the Atlanta Business Chronicle, Kennesaw State University professor Jeffrey Stepakoff was chosen to head the program, which will work in conjunction with university and technical college systems in the state. The academy will offer certification for entry level positions in the film industry in order to give people an opportunity to land a job with specialized skills. In addition, production and studio companies are taking notice of the new initiative. Pinewood Studios is the first major partner of the academy, which will give students the chance to get hands-on experience on real film sets as part of their classes.

How can Georgia measure job success in the film industry?

Georgia is a right-to-work state, which means any workers can work for a living with or without joining a union. However, in the last several years, the number of people joining film worker unions in Atlanta has grown dramatically. (U.S. Department of Labor) These numbers suggest a shifting trend in the industry from imported workers from the west coast to local workers with more expertise in film production.

Issues Facing The Georgia Film Industry Part 2: Competition

Another obstacle for the Georgia film industry remains the stiff competition with different states and Hollywood itself. A year ago, California governor Jerry Brown signed an expansion of the film and television tax credits. The main goal of the legislation was to triple the size of the tax credits to $330 million and reduce the amount of production that was leaving the state. In an interview with the Atlanta NPR station, the communications director for Los Angeles mayor Eric Garcetti explained how the employment gains in states like Georgia puts middle class jobs in California in danger.

Other states, such as New York, New Mexico, and Louisiana, have similar ambitions to Georgia. They want a piece of the $57 billion dollar film production pie in the United States. In the state of New York, the tax incentives were raised to 30 percent in 2008. In New York City, the potential tax credit is now 35 percent, which is much higher than Georgia. In New Mexico, the tax credits sit at 25 percent, but the state established a Film Crew Advancement Program, which reimburses 50 percent of wages of local workers for hands-on training. Georgia will begin its own program, the Georgia Film Academy, in January 2016. Louisiana began offering refundable, permanent and transferable tax credits in 2002. Similar to Georgia, increased film production enabled the state to expand its infrastructure and labor force.  Overall, Georgia faces stiff competition for film production from around the country. However, their goal of trying to become one of the top five film destinations in the country and the distinct perks of the tax credits compared to other states like California does give Georgia an edge over the competition.

The Future of the Georgia Film Industry

Despite various roadblocks, the film industry in Georgia continues to expand to attract more people. There are several reasons why the film industry will remain vibrant in Georgia.

The construction of more film studios brings in more foot traffic to the area. According to the Atlanta Journal Constitution, close to 80 film industry companies relocated or expanded to Atlanta in the last six years. Several production companies and real estate developers have chosen Atlanta as their base of operations, including Jim Jacoby. He plans to build a 5 million square foot production facility catering to film, television, and video game development. The massive Atlanta Media and Campus and Studios would include sound stages, offices, and classrooms.

Financial stability of the state film industry will play a huge role in attracting more people to turn Atlanta into the new Hollywood. Some states, like California, expanded their tax credits, while others are now looking to eliminate incentives all together. In addition, the film industry could succeed because of the mass migration of several other businesses to the area. Service industries, such as tourism or catering, could see a large boost in profitability as the interest in films produced in Atlanta expands further.

State identity could be another reason why the film industry succeeds. Georgia has a variety of shooting locations needed for different films, whether its an urban or rural environment that would be needed. In addition, Atlanta is home to Hartsfield-Jackson International Airport, which holds the title of busiest airport in the world. The airport has direct flights between Los Angeles and Atlanta several times a day, making travel accommodations for the cast and crew of a film fairly easy.

Georgia is in the midst of a major shift in its emphasis on the entertainment industry, but the future looks bright for the state as it embraces more alternative methods to make it the Hollywood of the South.

It was 9:40 on Saturday morning, visiting cars had filled up the parking lot of Huy Fong Foods, Inc., in Irwindale, California.

“Good morning, please register here and wear the cap,” a staff person said before handing a red disposable bouffant cap to every visitor in line. Wrapped in the cap are a tour guide and free tickets for a 9-ounce bottle of Sriracha Hot Chili Sauce, a green Sriracha-themed T-shirt and a Sriracha flavor ice cream.

A banner reading “No Tear Gas Made Here” was hanged over the exit gate of Huy Fong Foods, Inc. The same slogan was printed on the T-shirt on David Tran, the founder and CEO of Huy Fong Foods, Inc., and on every other staff workers’.

Almost shut down due to the lawsuit on its sickening odor emission, Huy Fong decides to fight back by opening to the public and proving that the allegation is false. Unexpectedly, this move turns the company into a tourism landmark and harvests more than just support from visitors.

Since August 22, Huy Fong Foods, Inc., has expects over 10,000 visitors to its open house event on every Saturday.

“We didn’t have so many visitors even at the first one,” said David Tran, the CEO and founder of Huy Fong Foods, Inc. On October 4^th, over 1,500 people flooded to the factory. From 10 a.m. till 4 p.m., the 70-year-old millionaire greeted visitors at the building entrance, signed autography, and posed for photos.

Tran used to be very cautious about the secrecy of his processing lines, but now visitors can see the whole procedure of making the iconic Sriracha hot chili sauce. From chili grinding, ingredients mixing, to bottle making, filling and the eventual packaging, visitors can not only stand by the processing line to take selfies, but also talk to the workers and get to know more about the popular rooster sauce.

Tran said opening to the public is his “last resort to run the business” in Irwindale.

Even though the lawsuit has been dropped, Huy Fong is still functioning under a court injunction that bans harmful odor-causing activities. The city can go back to court to enforce its shut down at any time. “So we want to prove ‘No Tear Gas Made Here’,” said Tran.

“I’m standing right here right now. I don’t smell garlic,” said Oanh Mai, a visitor, outside the factory, “My eyes are not burning, my skin is not wrong. Even when I was in the factory when they were doing the chili, it didn’t bother me.”

“I had the tour. I’m not crying. It’s fine. It doesn’t stink. I like the smell,” another visitor agreed.

When all the visitors had left, Tran was told that on Oct.4^th, they earned over $6,000 by selling souvenirs in their gift shop, the Rooster Room. The number hiked to over $9,000 on Oct. 25^th, the last Open House in 2014, when the number of visitors estimated as over 1,800.

“Can you believe that? By selling the T-shirts?” Tran himself had never imagined the tour would be so profitable.

The first several years were very hard. From cleaning, grinding, to mixing, Tran and several family numbers had to do every step manually. He even filled every bottle of Sriracha spoon by spoon. After the whole days of work, both of his arms are full of the pungency of chili peppers. “It hurt my arms,” said Tran. Sometimes, it was so painful that he couldn’t sleep for the whole night. At that time, his kids were still young. Tran didn’t even dare to touch them in fear of the spiciness might get on his kids and hurt them.

Another problem comes from peppers. Tran uses red peppers to make Sriracha, but red peppers take longer to ripe, so farmers usually harvest pepper when it’s still green so that they can grow other vegetables on the same land. “Every morning I went to market to find red peppers. When I had peppers, I made the sauce. When I couldn’t find red peppers, I stop,” Tran said.

Tran’s Sriracha was constantly in shortage and banks noticed its promising future. Several banks reached out to him and offered him loan to open a bigger factory in Rosemead, CA. “I only had $100,000, the bank lent me $2,100,000,” said Tran.

By that time, David had invented machine to replace most of the human labor and signed contract with Underwood Ranches to make it solely provide red jalapeno peppers to Huy Fong Foods, Inc.

In 2010, the signature product, Sriracha hot chili sauce, was named as the “ingredient of the year” by Bon Appetit magazine and the product was sold overseas. While the fan base was grew both nationally and internationally, Tran decided to begin a new chapter of his business.

In February 2013, Huy Fong Foods, Inc., moved to a 650,000 square-foot brand new factory in Irwindale. But the happiness for moving didn’t last long. As early as last September, citizens in Irwindale started to complain that the strong odor from Huy Fong Foods was causing burning eyes and throats.

Last October, Irwindale Council Member H Manuel Ortiz sent an email to other council members that read,” I just received notive that the odor at this place is vert strong. We must proceed with SHUT DOWN immediately. Remember they have another 10 to 12 weeks of full operation, how can the affected residents put up with this health problem.”

Followed were about 60 to 70 complaints, some of which indicated that residents could smell the spicy odor on Sunday morning, when the factory was not working at all.

Later that month, the city filed a lawsuit against Huy Fong Foods trying to shut down its operation. But the chili-grinding season has ended by October, there was no longer any alleged strong odors emitted from the factory.

The city didn’t give up. From February, it holds public hearing to determine if Huy Fong is a public nuisance.

“My business runs smoothly for 34 years, but last year it had a lot of problems. I got great pressure,” the usually calm and smiling businessman sighed. At one of the public hearings, Tran was so furious that he shot at the city council members with his poor English, saying, “ You have no brains. Your noses have problem.”

In May 2014, the city finally decided to drop the lawsuit in closed session and Tran also filed written commitment to fix the smell issue.

“I feel it’s a little extreme. A little overreaction on the city’s part,” said Patrick Sun while putting Sriracha on his Sriracha-flavor ice cream. He visited the whole factory and glad to find “where it’s from and how it’s been made.”

“So it makes it more personal,” Sun said. “I think they have really good PR. (It’s) a really good company.”

Tran said he had never made any commercials for the past 34 years. But now by opening to the public he got inspired that the tour can be turned into a marketing strategy to demonstrate that his product is totally “Made in U.S.”

“Our products are made from fresh chili peppers grown in U.S. and customers can get more confident in our product,” Tran said.

Currently, there are over 50 trucks of peppers been sent from Underwood Ranches to Huy Fong Foods, Inc., every day. Each truck of peppers weighs about 25-30 tons. As the dispute ironically brought Huy Fong Foods, Inc. into spotlight. The demand for Sriracha increased for 20% last year.

“Our only problem is that we don’t have enough peppers,” Tran said. Underwood Ranches has dedicated over 2,000 acres to grow jalapeno peppers for Huy Fong, but it never meets the increasing demand.

“I am looking for more land to grow peppers,” said Tran. “My goal for next year is to produce 60 trucks of peppers per day.”

“And we will do our best to stable the price,” Tran smiled and shook hands with a line of visitors.

“I really love the boss. He’s super nice and super personable,” Oanh Mai, visitor, said. “ Who does that—-Comes out on a Saturday to meet all his fans and take pictures, and sign the autograph. That’s amazing.”