Updated: Denis Frankenberger: 'KFC Yum! Center ultimately will default under the current U of L/Arena Authority lease'
(Editor’s note: This story was updated at 1 p.m. on January 31 with additional reporting at the end of the post.)
Denis Frankenberger doesn’t have an issue with KFC Yum! Center per se.
“I’m all for it,” said Frankenberger, a Louisville businessman. “I love it. I think Louisville deserves it.
“But it doesn’t have to be a financial albatross.”
Which is what his numbers tell him it is, said Frankenberger, the former president and CEO of Advance Machinery Co.
Frankenberger as become one of the highest-profile critics of the Louisville Arena Authority and its deal with the University of Louisville to lease KFC Yum! Center.
A deal he argues ultimately will result in a default as losses grow too large to be covered by state and local governments.
The seeds of financial destruction were planted during the beginning of the project, he said. Overly optimistic projections that were part of the bond prospectus, along with what he sees as an overly generous lease terms for U of L, precludes any chance of the arena generating sufficient revenue to help pay the debt obligation, Frankenberger said.
In that initial bond prospectus, revenue projections for the Tax Incremental Financing district created to help service arena debt, forecast an aggregate increase of 297 percent between 2010 and 2018, Frankenberger said.
Instead, TIF revenue has not reached 50 percent of 2008 projections. (See accompanying chart.)
“What it appears to me happened is that in Frankfort, they calculated what they needed to get to that (debt service) number, then just worked backward.”
In a 38-page “white paper” Frankenberger just authored and will present at a news conference this morning, he uses somewhat unorthodox accounting methods to prove his points.
For example, in his research, Frankenberger estimates that KFC Yum! Center costs $92,000 per day to operate.
Obviously that’s far more than salaries and the light bill.
Frankenberger builds into his calculation the negative amortization of servicing the debt on the downtown arena, which wouldn’t be the case in actual accounting practices.
But Frankenberger insists that’s the real cost of doing business there: “Listen, I ran a business for 33 years, and I had to figure in interest as an expense.”
He sold Advance Machinery Co. in 1997 to G.E. Capital, the financial services subsidiary of General Electric Co. He has since been involved in public issues, including the sale of the Drummond Estate and the East End Bridge project.
Frankenberger says he brings a business owner’s sensibility to trying to figure out how the finances for the 22,000-seat arena turn out for taxpayers, who have covered revenue shortfalls since 2010.
Except using Frankenberger’s research, the total bill over 40 years comes to $839 million, a figure he quotes from the original bond prospectus for the arena. (See the data from all the bond tranches above.)
Much of the white paper cites earlier reporting from the Courier-Journal and Insider Louisville as sources.
Frankenberger says his somewhat unorthodox layout of the arena’s financial picture is an effort to put it in “now I get it” terms that the public has yet to see.
Some key numbers (which aren’t calculated in the same fashion as others we have reported earlier) in his report include his findings on the arena:
• Lost more than $50,000 per day during 2011
• Lost more than $37,000 per day during 2012
• For each U of L men’s game the Arena Authority incurred a $33,235 loss
• For each women’s game the Arena Authority incurred a $87,624 loss
• For each “Other U of L sponsored event” the Arena Authority incurred a $ 87,624 loss
• For 2011, Frankenberger calculates an $18 million loss.
For the record, we scanned Frakenberger’s math and found some of his calculations hard to follow, particularly in how actual TIF revenues factor into his projections. But as I wrote earlier this month, I find most of the accountancy around the arena issue muddled at best.
In his paper, Frankenberger’s recommendations include Kentucky and Metro Louisville governments requiring the lease be renegotiated by a reconstituted Arena Authority board and University of Louisville Athletic Association.
At his press conference this morning at the Marriott Hotel Downtown, Denis Frankenberger presented findings from his White Paper including his conclusion that the KFC Yum! Center and the surrounding taxing district are unlikely to service the bonds issued to finance it. Frankenberger elaborated on the origins of his concerns about arena finances, saying it started when Moody’s downgraded the arena debt to junk status in May, 2012 despite the optimistic reports from the mainstream media. When he began his own research, he said, he had difficulty getting access to Louisville Arena Authority financial documents, documents he believes should be public domain. But Frankenberger quickly found that arena officials believe the authority and the arena are private business entities. “I sent a letter to (Metro Council President) Jim King asking the city mandate the arena have more transparency. He replied that would have no lawful effect on the board. That it is a private company.”