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Positive outlook on KFC Yum! Center finances but not NBA

by Joe Arnold

WHAS11.com

Posted on August 13, 2012 at 12:44 PM

Updated Monday, Aug 13 at 11:08 PM

LOUISVILLE, Ky (WHAS11) -- Despite lower than projected operating and tax revenues, the Chairman of the Louisville Arena Authority, Larry Hayes, expressed confidence in the finances of the KFC Yum! Center on Monday.  Hayes also discouraged suggestions that an NBA team at the arena would be an antidote for the flagging revenues.

"I'm excited about the future," Hayes told members of the Louisville Arena Authority, later telling reporters that he has "every reason to believe" that proceeds from the six square mile Tax Increment Financing district which supports the arena's financing will be substantially better when updated in September.

Hayes defended as "prudent," the authority nearly emptying a $3 million renovation reserve fund to fund debt service on the arena.

"Many new arenas have not had the opportunity to be able to build up maintenance funds yet," Hayes said.  "We, in fact, utilized those maintenance funds rather than going and borrowing and paying interest back to meet a debt service payment that we had at the time."

"The maintenance fund is just an arbitrary number that was picked and no one ever did the math and said, 'This is what we're going to need to do and this is what we're going to need to repair.'" added Metro Council President Jim King (D).  "It was just a nice round number that was picked."

Hayes said his goal is to restock the renovation fund "sooner rather than later."

A finance report showed the number of KFC Yum! Center events year-to-date are about the same as one year ago, but falling short of growth projections.

"The net income is a loss, a deficit for the first six months compared to the budget," explained Gary Stewart, the arena's interim Chief Financial Officer and a CPA with Crowe Horwath, LLP in Louisville.  "About a $1.1 million swing with most of that, virtually all of that, being in the direct income being $1.1 million under budget."

AEG Facilities, which recently replaced the Kentucky State Fair Board as manager of the arena, is guaranteeing $1.1 million in profits each year for the next ten years.

"I don't think there is any question that there will be more events and more concerts and more dates here" said King, a non-voting board member, "because we have set up an economic model where the operator of the arena has incentive to accomplish that.  They make more money if we make more money and that's the way it should have been set up to begin with."

And the way the arena was set up to begin with leaves little if any room for an NBA team. 

Two weeks after Mayor Greg Fischer suggested an NBA team would be a perfect fit to fill empty dates on the KFC Yum! Center calendar, Hayes expressed doubt that the calendar has enough room for an NBA team's games.

"I don't know exactly what that number is," Hayes said.  "but I suspect it's not enough to be able to support a 50-60 game or whatever it would schedule for an NBA team."

Hayes reiterated that the University of Louisville's control of both arena scheduling and much of its suite revenue is because the arena owes its existence to U of L.

"Would an NBA team be great to have in Louisville, Kentucky?" Hayes asked, "Sure.  Could we have built this arena based upon an NBA contract being here? I can tell you the answer to that is 'No,' because when we dealt with the finance people at the time - Goldman, Citibank, JP Morgan, they all said the same thing.  If your anchor tenant is an NBA team, you have a situation where if the people don't come to support it, if the owners aren't happy with how the arrangement is working out for them, they have mobility and they can leave."

"We happen to have an anchor tenant that has sold every ticket for every ballgame since the early 70's," Hayes continued.  "Its called the University of Louisville, which is going to stay in this arena for as long as any of us are here. And that credibility and that ability to be able to say, these tickets will be bought, they will take 'x' number of nights a year, fit into the plan of finance and gave us a way to be able to borrow the money to build this facility."

"It would not have been able to do that with an NBA team at that point," Hayes said.

Yet Hayes did not close the door to an NBA team playing in Louisville.

"We've got Freedom Hall that is absolutely vacant now," Hayes said.  "So the state needs to look at that.  They need to look at what the potential is for future programming."

 

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