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.
We shall see, but I don’t think Sacramento’s arena will do any better. The two funding mechanisms are very similar; the City was supposed to get payed from the lease, increased sales tax revenue, and parking revenues. But as far as I can tell, people have done exactly what I expected; they’re eating before they come downtown, and they’ve figured out how not to spend $15 to park. Both were very easy to accomplish.
Neil, you have my email address. I’ve been to one show so far. I think the acoustics in this new arena are much worse than the old. I was also simply shocked at the price of food; people are going to stop eating there. It was easily the most expensive meal of my life. Easily. I’m not kidding at all. If you want details, email me.
It was so expensive, SBH should be embarrassed.
But these new arenas always look great on TV.
Here’s the controversy about Golden 1 Center.
http://www.sacbee.com/news/local/city-arena/article109474102.html
I’ve already been to a show there, and the sound system needs work. They’ll get there, I’m sure, but right now, the echo is discouraging. A couple performers were visibly upset during their performance.
I’m also unsure how they get to 15,000 per event when they’ve already had a couple shows with less than 10,000 in attendance. Also, SBH’s parking revenues HAVE to be down. People are figuring out how to park for $5 or less, and SBH isn’t even getting that $5.
The structure of Yum’s deal is very similar. They did a TIF handwave, we did a parking handwave. In both cases, it was easy to see the problem.
I imagine the deal is working exactly as planned. Local pols in Louisville want a “winner” from the Cardinals so they figured out how to help UofL make an extra few million.
GDub, the University of Louisville had an exceptional tradition of winning basketball long before the arena was built.
And now they’ll win financially.
Las Vegas take note. This is you in about 5 years but ten times worse. Better pray the NFLPA doesn’t cave into the owners’ desire of extracting more flesh from them in funding the G-5 Fund because you know the owners aren’t doing it themselves.
As the University of Louisville is a public university, couldn’t the city of Louisville and the state of Kentucky work together to keep the city of Louisville from taking a bath?
This is just how Goldman Sachs works. They put together a local committee, and steer it towards a particular conclusion. They convince everyone the numbers work.
Then, when it doesn’t work, they give a “Hey, we didn’t create the plan; we only executed the plan you said would work. We have a signed contract. Thanks for asking, but no.”
That’s their history. You’d think it’d be simple to renegotiate, but it never is. They always have the smartest guys in the room.
What an awful deal for the city. Yet another reason why the public should not be financing arenas.
The arena was not build for University of Louisville. The school preferred an on campus arena. The contract was a result of a desire to have them play in a downtown arena. The fact that the TIF has not performed should not be laid at the foot of the university
Neil,
Thank you for your comments of 24 Oct 2016. I greatly appreciated you taking the time to address this important matter. To clarify a few points you and others have made I’d like to point out that the TIF involves not just property taxes but also income and sales taxes. Please see http://wfpl.org/louisville-metro-council-shrinks-kfc-yum-centers-taxing-district/
In light of RTH’s comments I’d like to say that he is correct. The Yum Center was not built for UofL. Actually the athletic department at UofL was very much against it. The Yum Center was built because the Charlotte Hornets did move to Louisville. Please see http://www.bizjournals.com/charlotte/stories/2001/09/24/daily7.html All Kentucky taxpayers really need to know about the Yum Center is in this very short article. There are people in Louisville who really want Louisville to have an NBA team. Supporters of UofL basketball are not among these people. There are just so many basketball fans to go around and UofL doesn’t want to compete with an MBA team. I can hardly blame them. UofL never wanted the Yum Center and it said so on many occasions. Nevertheless, the Yum Center was built — in the hopes of getting an NBA team — and now we are all stuck with it. That’s not UofL’s fault.
Sorry for the typo. I mean of course that the Hornets did NOT move to Louisville.