I find it amazing that people are amazed that what is essentially a lease of a venue is priced based on the capacity of the venue.
Suppose you have a private prison that is designed to reasonably hold up to 450 prisoners, and could be pushed up to 500. There is no real difference between the following two contracts:
1. The state pays $10.8m/year, plus $24k/year for each prisoner over 450.
2. The state pays $24k/year per prisoner, with a minimum payment based on 90% occupancy.
In both cases the state pays $10.8m/year if it puts 0-450 prisoners in the prison, and in both cases it pays ($10.8m + $24k (N-450))/year if it puts N prisoners, where N > 450, in the prison.
Suppose you have a private prison that is designed to reasonably hold up to 450 prisoners, and could be pushed up to 500. There is no real difference between the following two contracts:
1. The state pays $10.8m/year, plus $24k/year for each prisoner over 450.
2. The state pays $24k/year per prisoner, with a minimum payment based on 90% occupancy.
In both cases the state pays $10.8m/year if it puts 0-450 prisoners in the prison, and in both cases it pays ($10.8m + $24k (N-450))/year if it puts N prisoners, where N > 450, in the prison.