The University of Louisville Athletic Association board voted on Thursday morning to authorize an amendment to its lease with the KFC Yum! Center in which the athletics department would kick in an extra $2.42 million annually to the Louisville Arena Authority so it can refinance its construction bond debt and avoid a default.
The amended lease was later approved by a unanimous vote of the arena authority’s board, but the agreement faced intense criticism minutes later within the UofL board of trustees, where several members said it would not fix the arena’s financial trouble despite the university’s increased commitments.
Though it appeared at one point that none of the trustees would even call the motion to vote on the approval of the lease, it was eventually put up to a vote and passed with seven yes votes, two no votes and four abstentions. The motion was finally called after trustees chairman J. David Grissom warned of “very substantial and significant political ramifications” for UofL if it did not approve the amended lease, as other political actors in state and local government had already made commitments to save the arena from looming default on its debt payments.
The ULAA board approved a resolution authorizing the lease amendment earlier that morning by a unanimous vote, but not before several members strongly criticized the fact that the school was being forced to do so, with one saying UofL was being “punished for our success.” When asked, athletics director Tom Jurich said he approved of the amendment, but later suggested his department was being singled out for a painful hit.
Though UofL athletics — particularly its men’s basketball program — has made extraordinary profits since moving their games into the world-class Yum! Center facility in late 2010, the arena authority has struggled to make its debt payments due to its woefully underperforming Tax Increment Financing (TIF) district that was supposed to deliver most of its revenue. Forecasting a likely default by 2020 if no changes were made, arena authority chairman Scott C. Cox initiated an effort in 2016 for the state, city and university to pitch in more funds a prevent such a default.
Both the university and Jurich had long dismissed calls for UofL to pitch in more funds — with Jurich even threatening to move the team to a new arena on campus — but began negotiations to do so with Cox last year, as pressure grew from state legislators, state Auditor Mike Harmon and the administration of Gov. Matt Bevin. Legislators considered a bill forcing UofL to pitch in an additional $3.5 million to the arena each year, but that provision was scrapped when the Bevin administration claimed the university had agreed in principle to pay $2.5 million. The trustees voted in May for UofL interim President Greg Postel to take over negotiations with Cox — previously assumed to be primarily handled by Jurich and the athletics department — and on Wednesday all sides announced an agreement finally had been reached.
Under the terms of the amended lease, ULAA would pay the arena authority an extra $2.42 million annually, plus an $80,000 credit to account for the loss of women’s volleyball games in its new campus facility — together reaching the $2.5 million that was cited as early as March in Frankfort. Also in the amended lease, the beginning of ULAA’s priority use period for dates at the Yum! Center would be pushed back to Nov. 1, running through the end of basketball season. During that period, ULAA is also to use “commercially reasonable efforts” in considering, approving or disapproving the arena authority’s requests to hold certain dates for events.
Asked in the Thursday morning meeting by a ULAA board member if he supported the lease amendment, Jurich briefly answered in the affirmative. When later asked if athletics programs would have to start increasing fees and charges, Jurich said that would be likely, as “everything is on the table now,” calling the extra $2.42 million payment “a big hit for us.”
Responding to a board member asking whether the university’s budget would have to kick in funds to help ULAA, Postel said the athletics department has historically not asked for financial support from the university, adding “I think I would say that we’re all one family and it will be important for us to work closely together to make sure our budgets are coordinated. The budget for ULAA is considered by the board of trustees, so it’s not in isolation.”
Shortly after Postel’s comment, Jurich weighed in on the matter by saying he hoped the athletics department is not singled out and that UofL is indeed “one family.”
“I sure hope we’re not, as an athletics department, stuck kind of hanging,” said Jurich. “Because that ain’t fair. I keep hearing from everybody that the university, we’re one family. I hope that is true. I hope I can come to see that… Because this is tough.”
During the meeting, board member Larry Benz — formerly chair of the trustees — said he would only vote for the resolution “very, very begrudgingly,” as he believed the university had done nothing wrong in its involvement with the arena and found it “extremely disheartening” that UofL was “getting punished for success.”
“UofL athletics has lived up to every aspect of good faith agreement, exceeded all of its commitments and promises on that agreement,” said Benz. “And what are we guilty of? Success. Putting a marketable and highly competitive team on the court… We understand the community needs to step up, they do. But I think it sets a really bad precedent.”
Benz said the athletics department is losing valuable revenue that it needs for its non-revenue programs, as its rent at the Yum! Center will substantially increase, adding, “If we were an NBA team, we would have left town. But we’re not an NBA team. We’re a team player and we’ll be a community player.” Benz added that he hopes people acknowledge UofL was being “strong armed” into the amended lease agreement to bail out the arena’s financing, which turned out to be “an absolutely failed economic initiative” despite UofL keeping up its part of the deal.
Speaking with reporters after the meeting, Postel dismissed any suggestion that Jurich was kept out of the loop in negotiations and did not know the terms of the lease agreement as late as yesterday, saying “Tom and I have been talking about this since January… we’ve shared many conversations about this topic. There’s nothing unusual about what we decided today that Tom is not aware of.” Postel added that when Jurich got back in town Wednesday night from vacation he updated him on the final version of the agreement, “but there were no surprises.”
As for where the $2.42 million would come from, Postel said that would have to be decided in the future, but an additional fee could be added to tickets.
“We have to decide if we are going to add additional facility fees to the tickets,” said Postel. “And the way it’s structured, we could add as much as $6 more. Now there’s been no decision to do that, but we could. Alternatively, we would have to pay for it from other revenue, which is an option as well, and those will be subsequent discussions as we look at next year’s budget.”
Asked if that other revenue could come from a university source outside of athletics, Postel said “it’s all UofL, that’s what I tell people. ULAA is part of UofL. Their budget wraps into ours, so I don’t see it as us versus them.”
Postel repeatedly stressed that UofL agreed the the lease amendment in order to be “a good partner in the community,” as it already had a long-term lease that it was under no obligation to change. Asked if the university was “strong armed” into doing so, Postel decline to use that term, but said he thought that “all parties felt pressure to get something done, because it was a real problem… I think there were persuasive conversations and the need to do something, and to do something soon.”
Trustees nearly table vote
Shortly after the Louisville Arena Authority board approved the lease amendment with no dissension or discussion, most observers believed the agreement would also face an easy fate before the trustees — which did not turn out to be the case.
After Stites & Harbison attorney Mike Harrington gave trustees the same detailed explanation of the new lease amendment that he had given to the ULAA board that morning, he was peppered with criticism by trustees Nitin Sahney and John Schnatter, who thought it was a bad deal.
Sahney stated that with this amendment UofL would be “throwing good money after bad money,” adding “I think we’re being put into a very bad situation. I think there’s no assurance that this will be solved in the future… I am extremely disappointed.”
Trustee James Rogers said he was not entirely happy about the deal, but added that “at the end of the day we have to do something. We have to have a place to play basketball.” Trustee Brian Cromer also said it was not ideal, but “I just don’t know what our other alternatives are at this point.”
When Sahney asked Jurich directly what he thought about this lease amendment, the athletics director replied “I’m probably not the right one to ask.” Told by Sahney that he will be the one managing it, Jurich cryptically replied “Well, I don’t think I am.”
“It’s difficult… it’s a big number for us to have to swallow,” said Jurich. “I understand that we want to be a team player. But it’s very difficult. It’s going to put a big tax on our department.”
Later, Schnatter asked Jurich how he would handle the matter if all options were on the table, to which he replied, “If it was my world, I’d build it on campus.” When trustee Grissom asked a similar question, Jurich answered “I’d sell it.”
After a brief silence fell upon the trustees, Grissom asked for a motion to vote on the lease amendment, which elicited an even longer silence. That was only interrupted by Grissom, who warned “Just so we all understand what’s going to happen here if we don’t approve this, is that this is going through the ringer, it’s going to go through bankruptcy. And maybe that’s the right thing to do, but that will be the outcome of our failure to approve this today.”
When it was suggested the trustees should consider postponing the vote, Postel spoke up to say that several actors in the state legislature and the governor’s office who are responsible for state appropriations to UofL were invested in this agreement being reached, and he thought it was necessary to “work with them to solve what I think is a collective crisis.” Postel also noted that the arena authority believed this action was time sensitive, as they needed to refinance the bonds this fall while interest rates are still low.
At that point, new trustee Raymond Burse finally made a motion to approve the lease amendment, which was seconded by Sandra Frazier. Before the voting took place, Grissom very deliberately noted: “I think we all need to understand that if we don’t approve it there are very substantial and significant political ramifications. I’m just going to stop right there.”
Seven trustees voted to approve the resolution approving the lease, with Sahney and Ronald Wright being the only no votes. Bonita Black and Rogers announced at the outset of the meeting that they would abstain from the vote because they were both involved in its original financing — with Rogers adding that he is a bondholder — but faculty representative Enid Trucios-Haynes and Schnatter also abstained during the roll call.
Asked after the trustees meeting if he was worried during the discussion that the measure would fail, Postel said the board is typically inquisitive and asks probing questions before making big decisions.
“This is a very bright, engaged board that Mr. Grissom leads,” said Postel. “I think the fact that there was conversation as extensive as there was is reflective of the fact that this is a difficult issue, and this board likes to debate difficult issues and get everything out on the table before they make decisions. So I think it’s typical of the really engaged thought processes that we see with this group.”
Grissom said he wasn’t surprised by the amendment’s near failure, as “it’s a complicated issue, and there is no assurance that won’t be back at this table addressing this issue five, six, seven, eight years down the road. This doesn’t fix the problem, but it puts a band-aid on it, and we hope that it’s going to work and hope that the patient does well from here on.”
Asked what he thought of the trustees’ heated discussion over the arena lease amendment, authority chairman Scott C. Cox told IL he “thought it was interesting” and is “grateful that it passed.” Cox added that UofL’s board of trustees “has a lot of accomplished people on it with strong opinions, and they have every right to give their honest views on it”
Cox says the next step will be the approval of Metro Council and Mayor Greg Fischer of their portion of the deal, in which the city will be locked into its maximum annual payments of roughly $10 million, as opposed to the current situation in which the city could pay roughly $6.5 million if the arena authority is on good financial footing — which has never happened, to date.
This story has been updated.