This has to be the most dramatic case of redistribution of wealth in Louisville history.

A glowing Forbes Magazine post about the University of Louisville’s basketball team notes that U of L’s men’s program now is valued at $38.5 million, up almost 10 percent from 36.1 million in 2012 – America’s most valuable college basketball team.

Why?

Because of KFC Yum! Center.

From the Forbes post:

The team’s financial success is largely tied to the KFC Yum! Center, the waterfront arena that opened in 2010. The new arena had an immediate impact, driving ticket sales up 28% to $14.2 million and generating over $20 million in contributions to the team, an 84% increase from the prior year. Income from program sales, concessions, parking and other sources also increased by more than $2 million. And the financial impact is a lasting one. Contributions to the team are still up, reaching $20.4 million last year, as is revenue from concessions and parking. Ticket revenue was down slightly, but Louisville played one fewer home game and has little reason to worry about the future – the Cardinals have ranked third in average home game attendance every year since the arena opened.

The financial impact is a lasting one, alright.

For 2012, the Louisville-Jefferson County Metro government picked up a $9.8 million tab for the shortfall between what we collectively owe on the $349 million debt maintenance on the arena, and the revenue from arena operations and the taxing district.

Arena operations and the Tax Incremental Funding District were supposed to finance the arena, but have not.

Under the terms of its lease, U of L got somewhere in the neighborhood of $16.8 million not counting contributions by fans vying for the most expensive tickets.

In turn, U of L pays about 10 percent of all admission receipts less taxes, or a minimum of $10,000 per game, according to the version of the lease we were able to get.

The typical ticket revenue not including luxury suites would be a minimum of $500,000, so we calculate U of L kept at least $450,000, or 90 percent per game times 24 dates for the 2011/2012 men’s season.

U of L gets about 90 percent of arena revenue as a tenant while the city is legally obligated to pick up the debt servicing shortfall.

We don’t know exact numbers because no officials will agree to explain what happens when the deficit on the arena exceeds the $9.8 million maximum the city is contractually required to pay each year.

Forbes staff writer Chris Smith goes on to say the U of L program stands to only grow in value and revenue as the basketball Cards move into the Atlantic Coast Conference with Duke University and the University of North Carolina.

That won’t alleviate the taxpayer’s burden.

What happens to U of L only matters in the arena debt calculus if the program stops attracting fans and generating revenue.

Same with big concerts and events.

Because of the way the debt servicing was structured, with TIF revenues always projected to be at least three time what they’ve turned out to be, the only thing that truly matters is what happens to our city inside that 6-square-mile taxing district.

Two bad things already have happened.

First, Louisville’s downtown office vacancy rate is skyrocketing, with at least two office towers – Meidinger Tower and the Kentucky Home Life Building – in foreclosure.

Second, there are too many taxing districts.

Metro Mayor Greg Fischer told WHAS Radio talk show host Mandy Connell that all the concerns about the arena debt are unfounded because Beam, the giant Chicago-based spirits company, is moving a significant part of its operations to Fourth Street Live.

Wrong.

What Fischer seems to have forgotten is that Fourth Street Live has its own TIF, as do 21C Museum Hotel, the Kentucky International Convention Center, Nucleus and almost every big downtown project of the last decade.

Meanwhile, the amount due each year on the arena bill will increase dramatically as we go from interest-only on the arena bonds to paying the principal and interest.

Click to see full size.

If you want to see something to temper your March Madness, check out the arena debt schedule at right.

Note that the annual debt payment obligation almost doubles from about $21 million this year to a peak of $37 million by 2029.

To be fair, good things related to KFC Yum! Arena are happening. Los Angeles-based AEG has dramatically exceeded the booking performance of Harold Workman and the Kentucky Fair Board crew since AEG took over managing the arena last July.

One great act after another. One sellout concert after another.

But here’s reality: AEG officials have acknowledged repeatedly during Louisville Arena Authority meetings that after basketball season ends, the concert business also goes into the summer doldrums.

There’s little we can do about the TIF district. It is what it is. State officials refuse to even discuss revenue projections.

So the key to KFC Yum! Center not turning into a black hole for taxpayers is getting U of L officials to acknowledge they need to pay at least a slightly larger percentage of their annual windfall to service the debt on an arena that makes the university’s athletic association so flush … and the city so poor.

 

 

Terry Boyd has seven years experience as a business/finance journalist, and eight years a military reporter with European Stars and Stripes. As a banking and finance reporter at Business First, Boyd dealt directly with the most influential executives and financiers in Louisville.


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