NBA possibility sparks debate about financial future of KFC Yum! Center

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by Joe Arnold

WHAS11.com

Posted on August 2, 2012 at 4:22 PM

Updated Friday, Aug 3 at 12:37 AM

LOUISVILLE, Ky (WHAS11) -- The KFC Yum! Center does not need an NBA team to thrive, the arena's new general manager said on Thursday, dismissing concerns that the facility's calendar has too many empty dates and making it clear that the University of Louisville as primary tenant will decide whether an NBA team is appropriate for the venue.

"We're going to grow the market," said Dennis Petrullo, "but even if it stayed as it is now as long as we grow the TIF district, I mean we have a great anchor tenant that brings in great sponsorship revenue, brings in big food and beverage revenue.  The building's fine, but it's going to grow and will continue to grow."

Petrullo spoke to WHAS11 one month after AEG Facilities replaced the Kentucky State Fair Board as arena management.  The Arena Authority acted after a review showed that the arena's operating expenses were far higher than original projections.

Louisville Mayor Greg Fischer told WHAS11 on Tuesday that an NBA team would fill the empty dates and generate tax revenue needed to pay off arena bonds.  Two months ago, Moody's downgraded arena bonds to "junk" status citing several factors, including tax increment financing revenues falling far short of projections, generating roughly one-third of forecast revenue in the six square mile arena TIF district.

"I think there were two problems with the arena TIF," explained Dr. James Ramsey, U of L President. "Number one, the economy tanked.  Nobody could anticipate that.  And second, I think you have to realize with a TIF, it takes time."

Petrullo echoed the call for patience.

"The TIF District is growing," he said.  "Two or three years from now, its just going to be over the top."

"We're young. We're only two years old," Petrullo continued.  "We've got a long way to grow this thing and we're comfortable that we've got the manpower in (Los Angeles) and locally in the market to grow this."

AEG is guaranteeing the arena authority $1.5 million in annual revenue for ten years.

Petrullo said a new report on the arena bonds from Standard and Poors investor service will be released at the end of September.

For now, the Louisville Arena Authority is paying only the interest and not the principal on the arena's $348 million debt.

"Interest only isn't going to get this job done," said attorney J. Bruce Miller, a proponent of an NBA team moving to Louisville.   A decade ago, Miller negotiated two failed attempts to lure NBA teams to Louisville.  

Miller is hopeful that the University of Louisville would renegotiate the terms of its arena lease if an NBA team becomes available.  U of L controls the arena's scheduling, branding and virtually every revenue stream.  

"You cannot spend $350 million on an arena -- which is what it costs, that's what the bond issue is -- and make it work with 20 nights for a college team which is in fact a charity," Miller said.

"This is Louisville basketball and that's what it probably should be," Petrullo said.  "I don't want to be a naysayer to the NBA. but this is Louisville's basketball and that's their home."

Asked if the KFC Yum! Center would be interested if an NBA team came calling, Petrullo demurred.

"It would really depend on the university," Petrullo said.  "They control the calendar.  They are our anchor tenant.  They are a great tenant.  So that would really be more of their call than ours.  We're comfortable with what we have in the market now."

"I know the market, I know the building," Petrullo said.  "I know how promoters are responding to the market.  Everybody wants to play here.  We're bringing in big, great shows - everything is going to be fine."

But in case it doesn't turn out fine, the lease signed four years ago gives U of L the right to buy the KFC Yum! Center if the Arena Authority defaults on its bonds.

"If things go unbelievably bad somehow way down the road in the unlikely event that that happens, then the University of Louisville will have a seat at the table and will get a chance to buy the arena," said U of L Spokesman Mark Hebert.  "That's all it is says.  And we should get a chance to buy the arena because you know what?  That arena was built for the University of Louisville.  It wasn't built for an NBA team.  It wasn't built for anybody else."

"The University of Louisville in terms of the seat licensing revenue, in terms of the suite revenues that we're giving to the arena, are far exceeding anything that anybody projected when the arena was built," Hebert noted.

Click here to see the lease contract.
 

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