The city could generate a profit from its $30 million purchase of land for a local soccer stadium, thanks to lease/purchase payments from the soccer club, property and payroll taxes.
A Louisville City FC leader, meanwhile, said that without cooperation from the city and state, the venue would not be possible. As it is, club leaders merely hope to not lose money on the deal — and if they do earn a profit, the city will receive a share.
City Councilwoman Barbara Sexton Smith, D-4, told Insider that she was proposing that the city issue a bond of $30 million, of which $25 million would pay for the purchase of 40 acres of land in Butchertown, with the remainder to pay for public infrastructure, including roads.
Over the life of the 20-year bond, the city will end up paying about $42 million, including interest.
Mayor Greg Fischer announced the plan last Friday and said that the city’s investment would spur developments worth about $200 million. The Metro Council could approve the deal as early as Oct. 12.
The soccer club will pay the city $14.5 million over 20 years — and own the land if the payment is made in full — and the city predicts that developments on the site, including hotels, restaurants and the $50 million soccer stadium, will generate property taxes of at least $12 million over that period. While the development is expected to involve a state tax increment financing district, no local TIF would divert any property taxes from local taxing units. TIFs require that some of the taxes levied on new developments within the district’s borders are reinvested within the district — and not distributed to the taxing units.
Including the property tax gain and lease payments from the club, the city would invest a net of $15.5 million to generate private investments of about $185 million.
However, that calculation excludes payroll taxes on the project’s estimated 2,000 jobs. The city’s occupational tax would, over 20 years, generate at least $8.75 million — and that’s if all the workers made minimum wage and lived outside of the metro area — though, that assumes all of the jobs would available from the start and be filled 100 percent of the time. Also, the figures exclude any impact from inflation.
If the employees made the city’s average wage, $44,300, and all lived within the metro area, occupational taxes during that period could reach $39 million. At the low end of the estimate, the city would be in the red about $7 million, and at the high end, it would be in the black by about $24 million.
The 65-page General Obligation Bond document the city filed Monday did not provide financial details about the proposed land purchase, as many dates and dollar figures were left blank. Sexton Smith said the terms “will not be known until the bonds are put out for competitive sale, which occurs after the council authorizes the issuance.”
The club’s financial calculation
The soccer club, which is gearing up for its third-season playoff run in the second-division United Soccer League, hopes to play in its $50 million venue in the 2020 season.
The team is playing its home games at Slugger Field, home of the Louisville Bats, and club leaders have said that without owning a stadium, generating a profit will be difficult. The club rents Slugger for $5,000 a match, incurs costs to convert the baseball field to a soccer pitch and loses out on revenue streams including concessions and advertising.
The club’s owners expect to pay at least $10 million to obtain a bank loan of $40 million to pay for stadium construction. They’ll also have to pay, over 20 years, the $14.5 million to the city for the land.
Brad Estes, the club’s executive vice president, told Insider that revenue to pay for the club’s operation, the land purchase and stadium construction will come from sources including:
- Ticket sales from Louisville City FC home games
- Ticket/lease revenue from other events, including sports tournaments and concerts
- Stadium naming rights
- Pitch naming rights
- Other advertising
- The state TIF. Estes has said the owners expect that a state TIF would allow for them to receive about 15 percent of the state taxes generated by the project.
In addition, Estes said, the stadium will occupy about 15 acres, and the club’s owners will be involved in development of the remaining 25 acres, including hotels, restaurants and office space. Profits from those developments also will help defray costs related to club operations, land purchase and stadium construction, he said.
Without those three elements — the city’s land purchase, the state TIF, profits generated by other developments on the site — the project would not be feasible, Estes said.
The deal makes a lot of sense for the city, he said, because it invests about $15 million to generate private investments of about $185 million. The club’s owner’s, meanwhile, hope to merely not lose money on the deal, because they’re not primarily looking to generate a return, they want to build a stadium for Louisville City FC to eventually compete for a Major League Soccer franchise.
And if the club generates a profit, Estes said, the city gets to take a share.
While the club has lost money in each of its first two seasons and is expected to incur another loss this year, board member Mike Mountjoy has told Insider that the owners do not regret their roughly $7 million investment, in part because of the rising value of the franchise. A USL franchise was available for $250,000 in 2012 but costs $5 million this year. And in the private sector, USL franchises are changing hands for tens of millions of dollars.