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?

U of Louisville turns $26.9m annual profit on basketball, as city takes $9.8m a year loss

If you like infographics, you’re just going to love this one from ESPN the magazine! Giant blue Rick Pitino monster! Brightly colored geometric shapes! The number “$25,800,000″ in really big type! It’s the perfect simulacrum of actual information, equally comprehensible for ages 5 to 55!

There is one interesting tidbit in there, actually, which is that the University of Louisville makes a whole lot of money on basketball, bringing in $42.4 million a year in revenue, and spending $15.5 million on expenses. (None of which, needless to say, go toward paying the athletes that people are actually paying to see.) That’s an annual profit of $26.9 million, or $1.35 million per home game, as portrayed by a giant red circle that brings to mind the diameter of Jupiter.

For the missing piece of the puzzle, we need to turn to Insider Louisville, which notes that the university’s basketball players aren’t the only ones getting the short end of the stick here:

If you’re taxpayer in Jefferson County, you need to keep one thing in mind while you’re looking at the stunning numbers the University of Louisville basketball program puts up on the P&L sheet … you’re subsidizing the program out of your pocket with at least $9.8 million annually, or almost $20 million during the last two years.

It’s actually worse than that, because Louisville’s tax increment financing district — property and sales tax revenues that are being kicked back to pay for the arena — is costing taxpayers an additional $3.5 million last year. (It was actually supposed to be more than that, but tax revenues fell woefully short, leaving the city to make up the difference.) Even if you count that as new revenue the city wouldn’t have gotten without the arena, though, which is arguable (some of it is likely cannibalized from elsewhere in the city), that’s still almost $10 million a year that Louisville residents are handing over to the university so that it can rake in record sports profits. At least it’s a public university, so I guess you can look at this as a back-door way of fighting the trend of reduced higher-education funding? Um, maybe?

Emanuel on DePaul arena: Hire architect first, ask questions later

How badly does Chicago Mayor Rahm Emanuel want to get his $300 million DePaul University basketball arena (which would use $125 million in public funds) built in a hurry? He’s only giving design firms a few weeks to submit proposals for the project, and isn’t letting them talk to community residents until after he’s picked a winner:

Community leaders want to know how the arena, also planned as a venue for concerts and convention meetings, would work, not just how it would look. Would it be a blank-walled urban fortress (think the United Center) on days when no events are scheduled? How will cars be routed through the historic district’s narrow streets? Where will loading docks go? Will there be enough transit to handle the crowds for concerts and DePaul men’s and women’s basketball games?

“We’ve been purposely kept out,” Tina Feldstein, president of the Prairie District Neighborhood Alliance, said Wednesday. Ideally, added the group’s co-vice president, Jeff Ayersman, the six architectural firms working on the arena should be “listening to the community.”

The project has already gotten state approval, and we’ve seen how Emanuel gets his way with the city council, so it looks pretty likely to go forward. Which, if nothing else, will give the rest of the world a good test case of whether building a 12,000-seat college basketball arena attached to a convention center is crazy stupid or a great idea waiting to happen. I know where I’d put my money, but thanks as always, Chicago, for being the nation’s wacky urban redevelopment guinea pig!

Illinois Gov signs bill to add Emanuel’s DePaul arena subsidy plan

Fresh from his win on Wrigley Field renovations, Chicago Mayor Rahm Emanuel got good news on one of his other pet projects yesterday, as Gov. Pat Quinn signed a bill that would help allow him to use public funds for a new arena for private DePaul University. Exactly what it does to help isn’t something that any Chicago-area news outlet seems to have reported, because Quinn mostly talked about building a third airport in Chicago, and what kind of modern journalist writes about things other than what the person giving the press conference wants them to write about? That’s just crazy talk.

Quinn’s bill-signing came one day after Chicago teachers protested 2,000 school layoffs that were announced last Friday, calling on the governor not to approve the DePaul project while the school system is “being decimated by massive budget cuts.” Maybe they should have tried mailing the governor a dead fish.

Kentucky diverting coal-recovery cash to pay for arena plans

There was a story last week in SI about how a renovation has been proposed for the University of Kentucky’s Rupp Arena from 2014 through 2016, and blah blah blah we knew this already, right? So I stopped reading, and my bad, because it turns out that to pay for $2.5 million in planning and design costs, reports ThinkProgress’s Travis Waldron, Kentucky will divert money that’s supposed to help mining communities weather the end of the coal economy:

The so-called coal severance tax generates more than $200 million a year in revenues for Kentucky. Half of that revenue goes immediately into the state’s general fund. The other half is split between two separate accounts for reinvestment into coal-producing counties, with those investments aimed at funding economic development projects that aren’t related to coal, and to foster economic development partnerships between eastern Kentucky counties. In the past, it has funded the creation of industrial parks, road, water, and other infrastructure projects, and scholarship programs for students from coal country. It is meant to address a reality that is staring Kentucky in the face: coal won’t be there forever, and the counties whose mountains have produced it for more than a century need something to turn to when the coal either runs out or is no longer worth mining.

What it isn’t meant to do is build arenas in Lexington. “That’s not what this money is for,” Carrie Ray, a research associate at the Mountain Association for Community Economic Development, an organziation based in Berea, Kentucky, told me. “It’s not intended to build a basketball arena that’s nowhere close to the coalfields.”

As Waldron notes, $2.5 million is a small amount of the $100 million set aside from this fund, but still, $2.5 million. Plus, given that the official source of the $300 million in state funds needed to pay for the actual renovation is “we’ll get back to you,” $2.5 milliion could be just the tip of the coal seam.

DePaul faculty, students protest Emanuel’s proposed arena deal

The list of people in Chicago who think Mayor Rahm Emanuel’s plan to spend $125 million on a new basketball arena for private DePaul University — which already includes pretty much everyone in Chicago, especially those who are already outraged by Emanuel’s plan to close 50 city schools to save money — can now add some new members: 24 DePaul professors who say that spending $70 million in university money on the arena is “wildly out of line with other university priorities.” According to DNAinfo:

The letter focuses on DePaul’s fiscal situation, specifically a cap and temporary postponement of annual raises and the “unprecedented” levels of student debt faced by students.

“2013 is for a lot of reasons, not the right time to get into this,” said Craig Sirles, an associate professor and chair of DePaul’s English Department.

A campus petition to oppose the arena plan, meanwhile, now has more than 1,000 signatures, including DePaul basketball player Cleveland Melvin.