The Kentucky Economic Development Finance Authority (KEDFA) gave final approval Thursday morning for the Louisville Arena Authority to issue refinanced bonds for the KFC Yum! Center, the culmination of a yearlong effort to save the arena from defaulting on its debt payments in the near future.
However, arena authority chairman Scott C. Cox told IL Wednesday evening that the bombshell scandal rocking the University of Louisville’s men’s basketball program this week — which led to Hall of Fame Coach Rick Pitino and athletics director Tom Jurich being placed on administrative leave — could make the refinancing and marketing of those bonds more difficult, especially with the threat that attendance for their games might significantly drop.
“We are planning on getting these bonds refinanced and to market this year,” said Cox. “I hope that nothing has happened in the last two days with the university will change that.”
Several different actors played a role in helping the arena refinance its bonds, with UofL agreeing to pay an extra $2.4 million annually, Louisville Metro Government increasing its potential financial obligation, and the state government expanding the length of the arena’s Tax Increment Financing plan that collects sales and property taxes. While the arena authority expected these changes to allow it to successfully refinance its bond debt — replacing the current junk bond status with investment grade bonds — the prospect of the arena’s main tenant facing significant penalties attached unexpected challenges to this effort.
“It is a serious matter and it presents a challenge to us and the university because a component of our income used to service the debt is a percentage of ticket sales,” said Cox. “We get 10 percent of the ticket sales, essentially for rent payments. And we’re hopeful that attendance is not affected by this.”
Cox added that this threat to attendance “is considered a material matter by our investment banks, and it’s something that will be disclosed and discussed. It’s something that we’re going to need to work through when it comes to even getting an appropriate rating for the bonds.” Despite this serious challenge, Cox still believes the arena authority has “a decent shot to get them issued and get them sold and get a good rating.”
While attendance could take a dive if the quality of UofL’s basketball team declines — which is certainly a possibility if the coaching staff changes, the NCAA lays down heavy new penalties, top recruits decommit and players transfer — commentators have also discussed the possibility of the NCAA handing down the dreaded “death penalty.” While the NCAA hasn’t handed down such a penalty in over three decades, the fact that UofL’s current scandal took place just on the heels of its escort scandal that placed it on probation leaves open the possibility that the entire program could be suspended from playing games for multiple years.
Asked about the possibility of a devastating death penalty, Cox said he’s “certainly hopeful that nothing like that would ever occur. I don’t think that’s happened in 30 years. There would be tremendous collateral damage to totally innocent parties if it did happen.”
Cox added that he has great faith in the ability of UofL board of trustees chairman J. David Grissom and interim President Greg Postel to right the ship at UofL, stating that “we’re married to the university. When they do well, we do well, and vice versa. So we’re just hopeful that this all works out.”
The KEDFA board on Thursday unanimously gave authority for the arena to go forward with refinancing its bonds, which Cox told IL was absolutely the right move for all of the parties involved, despite the uncertainty at UofL.
“Not acting right now, taking a wait-and-see attitude is a huge mistake because the interest rates are historically low,” said Cox. “We definitely believe the prudent thing to do is move forward at the same clip that we’re on and get this done this year, if at all possible.”
Asked how the UofL scandal could affect the arena’s finances, Louisville Mayor Greg Fischer told WLKY Thursday that “everything should work out in the end.” Gov. Matt Bevin’s chief of staff told WDRB’s Marcus Green at the KEDFA meeting that the governor still supports the refinancing of the arena bonds.
The Louisville Arena Authority board is made up of appointees of Gov. Bevin and Mayor Fischer.
This story has been updated.