LOUISVILLE, Ky (WHAS11)_ -- The Louisville Arena Authority took the first steps Monday to replace the management of the KFC Yum! Center. The authority voted to begin negotiations to dissolve its contract with the Kentucky State Fair Board while executing an operations management agreement with a private company.
It's a move aimed at lowering operating costs and increasing revenue for the 20 month old downtown arena.
The new Arena Authority Chairman says the Fair Board was instrumental in getting the KFC Yum Center on its feet, but the arena's reputation for great service was coming at too steep of a price.
"It's a new arena so there are some initial start-up costs that one might expect, some inefficiencies," said Larry Hayes, Arena Authority Chairman. "But nevertheless, our costs are way too high."
"At the same time they are focusing on the arena, the Fair Board has its own issues out (at the Kentucky Exposition Center). Its a distraction for them," Hayes said.
"We looked at what was working and what wasn't working," said Hayes, who also serves as Kentucky's Economic Development Secretary.
Fair Board Chairman Ron Carmicle stands by the work of the current employees and staff.
"Our position is this has never been a business opportunity that the fair board would pursue," Carmicle said. "We were asked to do this. I think we've done a good job."
But Carmicle says the fair board won't stand in the way of a new operator.
"We've had discussions about the dissolution of our management agreement going forward and we're mutually agreeable to do that, I think our board will be if the arena authority thinks that it's in the best interest for them to go to a private operator," " Carmicle said. "So we're waiting to see what their conclusion is .. and we want what's best for the community and the state. That's our job."
A consultant's report in April concluded that the fair board's public employee salaries are too high at the arena, that some arena events are overstaffed and that some smaller events cost too much to justify opening the doors.
The management change became more urgent two weeks ago when the KFC Yum Center's bonds were downgraded to junk status, primarily because the tax district around the arena is not generating enough debt service but also amid concerns about the arena's profitability.
The deal with a new operator could include sharing profits and risk.
"If we can offload some of the risk and give us more guarantees on the revenue side, the arena authority is looking for someone that's going to help us be able to save tax dollars," Hayes explained, a public-private partnership.
"It's certainly our goal that we're going to bring some private equity, if you will, into that equation," Hayes said.
The resolution approved by the Arena Authority authorizes negotiations with three private entities, SMG, AEG and Global Spectrum.
Hayes said a conference call with bond holders in July will address the major concerns and inform them about the negotiations He said the change in management does not affect the University of Louisville's lease with the KFC Yum! Center.
Fair Board employees, however, face an uncertain future once the arena is under new management.
"There will be some concern from our employees about what's next for them," Carmicle said. "But we truly expect that all of the employees will have opportunities to continue to work here. We hope that they do."