Louisville arena bleeding even more public money than before, could go bankrupt

When we checked in on Louisville’s KFC Yum! Center three years ago, the University of Louisville was turning an annual $26.9 million profit on the arena, while the city of Louisville was losing $9.8 million a year. According to two researchers who testified before a state legislative committee last week, that’s changed now — in that the city is doing much, much worse:

Louisville entrepreneur Denis Frankenberger and J. Bruce Miller, senior partner in J. Bruce Miller Law Group of Louisville, told the Kentucky General Assembly’s joint Capital Projects and Bond Oversight Committee on Tuesday that the center lost more than $17 million in 2015 and is losing $1.4 million a month…

[Frankenberger] cited an initial [tax increment financing] revenue stream projected at about $4.5 million the facility opened actually came in at about $615,000. A second-year TIF revenue projection of $6.6 million came in at about $2.1 million…

“The University of Louisville makes $20 million a year on events,” Frankenberger told the committee. “It’s a taxpayer scam.”

A bit of context here: When the city built the arena for the state university for $339 million in 2010, the bonds were supposed to be paid off roughly evenly from city general fund money, luxury suites and arena advertising, and cash from that TIF district (i.e., any increased property taxes collected in the area right around the arena). The university, meanwhile, would collect almost all other revenues from the arena. With the TIF revenue falling short, the city now needs to come up with another way to pay off its share of the bonds (about $13 million a year) plus operating costs, or else let the place go bankrupt.

The good news is that this is mostly just a bookkeeping problem: The city vastly overestimated its future TIF revenue, so now needs to dip into one of its other pockets if it wants to keep up with its arena bond payments. The bad news is that this was going to be city money either way — since even according to the city’s own figures the TIF district was just cannibalizing property taxes that otherwise would have been paid elsewhere in the city, taxpayers were going to be on the hook for more than $200 million worth of bonds regardless. So now it’s just a question of how else to pay off the debt.

State legislators are now demanding that the city renegotiate its lease with the U of L, which sounds great except it’s not clear the city has any leverage to do so, which could result in the university saying, “Yeah, tough break about those TIFs, but we have a contract.” This was a horrible, horrible deal for Louisville residents in the first place, and the TIF shortfall is making that more obvious. But unless the threat of arena bankruptcy somehow gets the U of L to the bargaining table, it’s hard to see how this is much more than posturing.

Chicago’s $250 million arena for DePaul universally decried as dumb idea, getting built anyway

Meant to report on this yesterday: On Friday, the Chicago Tribune ran a long article on the state-run Metropolitan Pier and Exposition Authority — aka McPier — and its $450 million convention center hotel and $250 million DePaul University arena projects, and determined that, well:

The Tribune found that McPier’s formula for success is based on a series of optimistic and risky predictions.

The $250 million figure [for annual economic impact] comes from a McPier-funded study that assumes DePaul fans will fill almost all of the arena’s 10,000 seats for games — nearly tripling the team’s recent average attendance. The Blue Demons, who now play in suburban Rosemont, haven’t had a winning record since 2007.

McPier officials also are hoping that, between basketball games, the arena will host convention meetings, concerts and other events, bringing new guests to the planned hotel, a 1,200-room, $450 million Marriott Marquis. But a recent study commissioned in New York found that sports facilities are unattractive to conventions because of their fixed seating, a sentiment some convention officials also expressed to the Tribune.

The arena is mostly being paid for out of McPier’s budget, which is already stretched to the breaking point and heavily subsidized by state taxes; the city of Chicago is kicking in $55 million in tax-increment financing money, while DePaul is putting in $82 million, almost half of which it will get back from naming rights and sponsorship deals. (The arena’s price tag, you may recall, was originally $140 million, but ballooned to $250 million when it was determined that it was being built in dirt that was too soft.)

There’s much more to the Tribune story, including a note that more than half of the projected economic benefits would be from money that’s already being spent in Chicago by local residents — though given that it’s already been reported that DePaul’s economic study included counting tickets that the university buys from itself and never uses, really all of its numbers should be treated as apocryphal. Perhaps best of all is the quote that the Trib managed to get from Chicago sports consultant Marc Ganis, who almost never sees a stadium deal he doesn’t like, but who said of the DePaul arena, “It was a dumb idea when it was proposed, it was a dumb idea when they approved it and it will be a dumb idea in the future.” Convention authorities really will throw money at just about anything regardless of past results, won’t they?

Louisville Yum! Center to allow bringing guns to shows, will still ban pointy umbrellas

If you’ve been jonesing to see Kid Rock’s New Year’s Eve Bash at Louisville’s Yum! Center but didn’t know what to do with your handgun during the show, there’s good news for you:

The Louisville Arena Authority ended its total ban on firearms and agreed Monday to give promoters and booking agents of events at the KFC Yum! Center the right to decide whether ticketed visitors can carry firearms into the downtown arena.

The new policy is in line with a new Kentucky law that bans public and “quasi-public” entities from restricting people with weapons permits from bringing their guns into venues. Since promoters aren’t quasi-public, the public authority that runs the Yum! Center has decided to kick the decision over to them, which means you’ll have to ask Kid Rock for permission to come packing to his show — something he’ll probably be okay with.

You will still be prohibited from bringing cameras with detachable lenses or umbrellas “with pointed tips” into the Yum! Center, because somebody could get hurt with those.

DePaul arena hits $110 million in cost overruns, thanks to too-soft dirt

When last we heard from Chicago Mayor Rahm Emanuel’s plan to spend $125 million on a complex of buildings that would include a new arena for private DePaul University, it had just gotten final approval. Except that “final” is always a dangerous notion in the arena biz, something Chicago is finding out now that the price tag on the arena has soared by $110 million:

A sticking point is the “dug-in” design of the 10,000-seat arena, which places its playing floor well below ground level. That feature has pushed construction costs above the $140 million that McPier and city officials optimistically projected when they announced the project in May 2013, sources said.

Although a final price has not been set, the cost of that design, by New Haven, Conn.-based Pelli Clark Pelli, could be as much as $250 million, sources said.

Yeah, that’s not good. Apparently the problem is that nobody noticed they were going to be building the arena in soft glacial soil, which tends to cave in if you don’t shore it up with retaining walls, which is pricey. From the sound of it, McPier (the totally awesome nickname for Chicago’s Metropolitan Pier and Exposition Authority) will look to redesign the arena to bring down the price tag; if that doesn’t work, Crain’s Chicago Business gives precisely zero information on how the cost overruns would be covered. This was just the bestest idea ever!

[UPDATE: At least one Crain’s Chicago Business columnist does not think it was the bestest idea ever.]

Akron spending tax hike on police, not arena, because public has spoken (no, really)

If you’ve been wondering what’s up with Summit County, Ohio’s plans to raise sales taxes to build a $79 million basketball arena for the University of Akron, it is no longer considering raising sales taxes to, you know, do that thing.

Summit County officials plan to ask County Council to approve a measure that would prevent a proposed sales tax increase from funding a University of Akron arena.

Instead, at an Aug. 4 County Council meeting, these officials will ask Council to adopt resolutions that will eliminate funding for the arena and instead put the increase on the ballot for public safety, criminal justice and capital needs. The new resolutions would also limit the length of the tax to 10 years, rather than the previously proposed permanent tax.

“Since the adoption of the previous resolutions, the public has informed us that there is not sufficient support among the voters to pass a sales tax issue that includes the arena,” said Pry on July 31. “As a result, we feel it is best to remove the arena project from this issue and instead focus solely on the county’s public safety and capital needs.”

Read that again. While there’s no doubt some spin going on here, the upshot is that voters didn’t want their tax money spent on sports venues when it could be spent on police and infrastructure, and the county said: Okay, whatever you guys want. I think Ohio is still in America, but maybe I missed some news…

UK abandons arena renovation plan when it realizes it might have to pay for it

For more than two years now, Lexington, Kentucky has been working on a $350 million renovation of the University of Kentucky’s Rupp Arena, because the university’s basketball team said it needed new luxury seating and concession stands and bells and whistles and cupholders and whatever. Anyway, the whole plan is off, because the university says it doesn’t want any of those things now:

In meetings with Gov. Steve Beshear and [Lexington Mayor Jim] Gray over the past two weeks, university officials said they no longer were interested in those amenities. The university had agreed in principle to contribute $10.7 million annually to the project for the next 30 years. That agreement, according to letters between university and city officials, was agreed to in October.

“We designed this arena based on what UK said they needed,” Gray said. “But I understand timing and pacing are everything, especially with major projects like this. So we’ll adjust and adapt.”

What changed the university’s mind? Reading between the lines of a May 20 letter to the Lexington Convention Center from university president Eli Capilouto, it’s that “there is not sufficient public support” for the project’s funding plan. Specifically, public support from the Kentucky legislature, which Capilouto was concerned might cut off funding for new academic buildings if it had to contribute $80 million toward the arena project. Capilouto also worried about a piece of the funding plan that would raise money by selling “Team Rupp” memberships to the public for $300 each, which would earn buyers absolutely nothing, and which for some reason weren’t proving very popular.

That said, the mayor still wants to renovate Rupp Arena, the governor still wants to renovation Rupp Arena, and you can bet the university still wants to renovate Rupp Arena, so long as they’re not stuck paying most of the load. But it is a case where a sports team asked for a pile of renovation money, legislators said no, and the team backed down, so we know that can work — though admittedly, the University of Kentucky wasn’t going to threaten to move to Seattle.

Chicago is still building that $125m arena for DePaul, in case you were wondering

Heather McCoy of KUCI, whose show I’ll be making my weekly appearance on at 8 am Pacific today, asked me yesterday what was up with Chicago Mayor Rahm Emanuel’s much-ridiculed plan to build a $125 million basketball arena for private DePaul University. The answer, it turns out: Damn the ridicule, full speed ahead.

The Metropolitan Pier and Exposition Authority board has approved the purchase of the final land for a planned entertainment district in the South Loop around McCormick Place. … The city is contributing $55 million in tax increment financing to McPier for the project, of which $26 million will go for hotel and ABC building land and $29 million toward hotel construction. McPier paid $14 million for the remaining land needed for the DePaul arena.

The state legislature approved the plan last spring, then the city council followed suit with a “very quiet” vote in favor last July. Now that the land has been acquired, construction can begin, and Chicago will at last have the 10,000-seat arena that it’s been lacking for all those concerts by bands that are too big for 5,000-seat venues but can’t fill 20,000-seat venues. In other words: Nickelback, please never retire.

Lincoln arena doing gangbusters business, still losing money

Today in How’s It Going For New Arenas’ Bottom Lines?:

Lincoln’s brand-new Pinnacle Bank Arena’s operating deficit has widened to nearly $376,000 in its first seven months of operation.

As Nebraska Watchdog was the first to report in March, although the $186 million arena has attracted a dazzling lineup of big-name concerts and a sold-out season of Husker men’s basketball games, it has been posting operational losses. In its first five months, it posted a nearly $172,000 loss…

The overriding problem is the way the city structured the deal so the University of Nebraska-Lincoln gets most of the revenue off basketball games and the joint public agency that oversees the arena and surrounding West Haymarket development gets most of the revenue generated by the arena. Why? The city needed UNL to be the arena’s major tenant; UNL didn’t need the city. So guess who got the better deal?

This isn’t actually as bad as it sounds: As Nebraska Watchdog goes on to explain, the main reason the arena is losing money is because revenue from ad boards, naming rights, suite sales, and club seats is going to pay off the arena debt, which means it’s not available for turning a profit. That’s the opposite of, say, the Sprint Center in Kansas City, where revenue is siphoned off to pay the arena operator’s profits, and so isn’t available to pay off construction debt.

But either way it comes to the same thing: Even crazy-successful arenas generally lose money once the cost of building the damn things is factored in. But then, you knew that already.

Akron proposes spending $7m a year on college arena, getting less than nothing in return

Summit County, Ohio is considering raising sales taxes by 0.25% to build a 9,000-seat arena for the University of Akron. That in itself isn’t all that unusual — at least the University of Akron is a public university (unlike, say, Syracuse), though traditionally that would mean the state would be paying for such things, not the county the school happens to be located in.

College sports subsidies are usually outside the scope of this site, but I want to call attention to this one because of the Cleveland Plain Dealer article reporting on the plan. It dutifully reports on the size of the proposed arena, how much luxury suites would cost, how a feasibility study determined that an arena would be “economically viable,” blah blah blah. What’s missing: Does this viability mean that the county would actually get repaid its money over time from arena revenues?

As it turns out, no, it would not. Buried deep in an article from the Akron Beacon Journal:

UA would be financially responsible if the arena lost money “up to a maximum annual amount” that still needs to be set. The university also would receive the profit if the arena made money.

So the county would pay the entire construction cost and be responsible for any major losses, but get none of the operating profits on the building. Sounds fair to me! Or as one university trustee put it:

“It is a win-win for all of the parties,” said Trustee Roland Bauer, who was in the group that put together the arena plan.

Look, I understand that daily newspaper reporters are not economists, and that they’re on deadline, and the first draft of history and all that, but is really shouldn’t be that hard to remember one simple concept: Figure out what each party in a deal is getting, not just what they’re each spending. Actual journalism — try it, you’ll like it!

Louisville mayor insists arena is doing just fine despite junk-bond status

Standard & Poor’s lowered its bond rating for the Louisville’s KFC Yum! Center to junk grade on Friday, which I thought about mentioning at the time but didn’t because this isn’t Field of Bondholders. (Inasmuch as I do like typing “KFC Yum! Center.”) Things are getting more interesting now, though, as Louisville Mayor Greg Fischer is having to fight off charges that the city might end up having to actually default on the arena debt:

“The payment of the bonds is not in question, and it’s not in jeopardy,” Fischer said in an interview Monday.

Moody’s Investors Service and Standard & Poor’s Ratings Services have both downgraded the status of the bonds that are paying off the arena’s construction costs, contending that the arena’s financing plan may not be able to cover the $340 million bond debt…

The downgrade prompted Louisville Metro Councilman Dan Johnson, D-21, to call for a renegotiation of the lease agreement between the Yum! Center’s oversight board, Louisville Arena Authority, and its main tenant, the University of Louisville, which Johnson said would make the arena more profitable and the bonds more stable.

“This report … gives the impression that the arena could default because it may be unable to pay bond debt,” Johnson said.

It’s important to remember here that the KFC Yum! Center itself has been fairly successful, in terms of arena operations: It may not have an anchor sports tenant other than the University of Louisville basketball team, but it’s been a relatively successful concert facility. As we’ve seen before, though, arenas generally have a tough time paying off their construction costs out of operating profits; in Louisville’s case, the bulk of the cost was supposed to be paid off via a tax increment financing district around the arena that diverts new tax revenue to pay for the building’s construction debt, but that money has fallen woefully short, with the city having to kick in an extra $9.8 million last year to make up the difference.

Johnson has called for renegotiating the city’s lease with the U of L to get the city more money — if only by ending the provision that allows the university to black out arena dates before and after its own games — which makes sense seeing the windfall the school gets from its lease. Fischer retorts that the problem isn’t the lease, it’s the TIF district — which also makes sense, albeit in a “we were dumb not to have an actual idea for paying for this” way.

In an indication of just how screwy TIF financing can be, Fischer says that all should be well now that the city approved shrinking the TIF district back in September, which is expected to bring in more money:

The TIF allows the arena to keep a portion of increased tax revenue generated by business the facility helps bring in to the taxing district. But the district boundaries were drawn so large that too little additional tax revenue was generated to pay off the arena debt.

Arena authorities, according to a previous Courier-Journal report, see the downsizing of the TIF district as a move that ultimately will increase revenues from businesses opening in the district, funneling more tax revenue to the arena.

In other words, businesses immediately adjacent to the arena are paying more taxes, but businesses a few blocks away are moving out, making the overall TIF impact closer to a net zero. By ignoring the arena’s impact on the broader area, then, and just focusing on the couple of blocks next to the arena, the city can only count the pluses and not the minuses, and everybody’s happy! Right?