The University of Louisville men’s basketball program has consistently led every other NCAA basketball program in revenue and net income over the past decade, but UofL has vaulted to roughly 50 percent higher than its closest competitor since the 2010-2011 fiscal year — the same year the team moved its games from Freedom Hall to the new KFC Yum! Center.
Despite this leap in revenue for the UofL Athletic Association, concerned legislators in Frankfort voted last week to ask state Auditor Mike Harmon to examine the finances of the Louisville Arena Authority, which manages debt payments on the construction bonds of the Yum! Center. Several legislators and individuals testifying before the Capital Projects and Bond Oversight Committee said this measure was necessary because of its rapidly increasing annual debt payments in coming years and their fears that the Arena Authority will not have enough funds to avoid default or a taxpayer bailout.
While the long-documented financial difficulties of the Arena Authority stem largely from the drastically underperforming revenue generated from the Yum! Center’s tax increment financing (TIF) district, some also point to the favorable lease conditions of the arena’s anchor tenant — the UofL Athletic Association (ULAA) — which steers a large majority of revenue from men’s basketball games back to the program. However, the Arena Authority has resisted past suggestions that the terms of UofL’s lease should be renegotiated to allow more ticket, suite, concession and advertising sales proceeds to go toward debt service and lessen the city’s tax burden, as Metro Government has had to kick in the annual maximum of $10 million in recent years for its debt service.
Yum! Center provides financial windfall for UofL athletics
IL examined Equity in Athletics Disclosure Act (EADA) reports that UofL, ACC schools and other top men’s basketball schools submitted to the U.S. Department of Education over the past decade. The takeaway from the reports, which reveal total revenue and expenses for each sport: UofL’s men’s basketball program has long been the most profitable in the country and is now leaving its competitors in the dust.
In the fiscal year ending in the middle of 2008, UofL’s men’s basketball program already had a considerable lead over other top programs in the sport with total revenues of $23.5 million, nearly $6 million above second place North Carolina and other schools like Duke, Kentucky and Syracuse close behind. Subtracting each program’s total expenses, UofL still led the field with a net income of $16 million, followed by Arizona with $12 million. Both total revenue and net income for UofL remained relatively stable through 2010, as Duke just surpassed it in revenue and trailed it by $2.5 million in net income.
This all changed in the 2010-2011 fiscal year, the first year UofL played in the Yum! Center with a new lease that directed the bulk of arena proceeds to its athletic department.
Total revenues for UofL men’s basketball spiked upward by 58 percent to $40.9 million that year, surpassing second place Duke by $12 million and nearly doubling the third place program. The same trend occurred with net income when subtracting total expenses, as UofL’s $27.5 million approached double that of Duke’s $15 million and was over four times higher than the University of Kentucky.
This dominance over other top men’s basketball programs continued through the middle of 2015, with UofL’s total revenue and net income routinely in the range of 50 percent higher than the closest school. Both figures reached an all-time high for UofL by 2015, with total revenue surpassing $45 million and net income nearly reaching $30 million.
In 2014, UofL joined the Atlantic Coast Conference (ACC), home of other consistent top five revenue generators Duke, Syracuse and North Carolina. UofL’s dominance in this power conference is highlighted by the fact that a majority of its men’s basketball programs have net income under $2.5 million, a speck compared to UofL’s $29 million. Syracuse was in second last year with net income of $16 million, 81 percent below UofL.
This excess revenue generated by UofL’s men’s basketball team presumably goes toward the majority of the athletic department’s sports programs that spend far more money than they produce in income. While UofL’s football team had net income of nearly $18 million in the 2015 fiscal year, all of its other sports programs brought in total revenue of $2.4 million and spent $23.7 million, adding up to a loss of of roughly $21.3 million. Total revenues unattributed to any particular sport in 2015 was nearly $20 million, while unattributed expenses surpassed $42 million — adding up to total expenses by the UofL Athletic Association of $101.6 million.
Though the revenue and net income of UofL’s men’s basketball team for exceeds even its closest competitors, it is still far below that of many schools’ football programs, which is easily the biggest revenue generator among NCAA sports. Despite the recent success of its football program, UofL basketball still brought in nearly $10 million more in revenue in 2015, a rarity among any schools.
UofL has not yet turned in it’s EADA report detailing the revenues and expenses of each program for the 2016 fiscal year, but a budget document submitted to the ULAA board last week stated that its total athletics expenditures exceeded $111 million.
Frankfort renews focus on Yum! Center debt financing troubles
On Oct. 18, the Capital Projects and Bond Oversight Committee in Frankfort continued its scrutiny of the Yum! Center’s financial challenges in meeting its debt payments, the amounts of which are scheduled to dramatically escalate in the coming years.
In April 2015, the same committee examined the issue and asked the Legislative Research Commission to hire an auditor to examine the Louisville Arena Authority’s finances, though this never happened. The committee also sought a legal opinion from former state Attorney General Jack Conway on potential conflicts of interest among members of the LAA board — as several have strong ties to UofL — though he only issued an “informal” opinion stating he did not know who or what the question was referring to. Rep. Jim Wayne, D-Louisville — one of the few skeptics of Yum! Center financing before its construction — was critical of Conway’s opinion, which also stated that the LAA did not owe over $7 million to the Kentucky State Fair Board, the state agency that once operated the arena.
At the committee meeting last week, legislators returned to the issue and voted to ask new state Auditor Mike Harmon to finally conduct an examination of the LAA, which they will formally request after their next meeting.
Denis Frankenberger — perhaps Louisville’s largest critic and skeptic of the arena’s financing — testified before the committee and laid out a daunting scenario in the coming years as the LAA’s debt payments begin to increase, claiming the potential for default is not just possible, but likely.
Though the Arena Authority has not yet missed a debt payment on its $349 million in bonds used to construct the Yum! Center, it has been forced to tap into reserves due to TIF revenues — which were supposed to make up most of the debt payments — amounting to just half of their original projections. Frankenberger noted that debt payments required on the bond principal are set to spike by $6 million by 2020, and then by another $8 million by 2029.
Because of the difficulty in meeting debt payments in recent years, Metro Government has repeatedly had to pay the annual maximum of nearly $10 million to the Arena Authority, which far exceeds both TIF revenue and the arena’s operating revenues that go toward the debt. Stating that the bulk of revenues from the Yum! Center go back into the overflowing coffers of the UofL Athletic Association due to its favorable lease conditions — all while state and local subsidies increase to service the $839 million in debt due through 2042 — Frankenberger called this “a taxpayer scam.”
Scott Cox, the board chairman of the Louisville Arena Authority recently appointed by Gov. Matt Bevin, told WDRB after the meeting that the state audit requested on it is “unnecessary,” though he would welcome such a review because its finances going forward are sound.
Rep. Wayne also said the committee might once again pursue a formal legal opinion from the attorney general’s office, as any conflicts of interest among the Louisville Arena Authority’s board members may nullify UofL’s lease. Such a request would now go to Attorney General Andy Beshear, who briefly served on the board a few years ago and whose father — former Gov. Steve Beshear — appointed many of its board members.
IL asked UofL Athletic Association spokesman Kenny Klein in an email on Wednesday if the department would be open to altering its Yum! Center lease, or if that is off the table. Klein replied Thursday that he has been out of the office this week attending ACC meetings and the men’s basketball media day in Charlotte, N.C., and would hope to provide an answer to this question by Friday, in addition to IL’s questions about where the net income of the basketball program and the $42 million in revenue unattributed to any sport is directed within the athletic department.