Amid rancor, U of L trustees OK new KFC Yum! Center deal
The board’s decision came after a spirited discussion in which some members defended U of L’s deal at the downtown arena, where city and state officials convinced the university to move its basketball games more than a decade ago.
LOUISVILLE, Ky. (WDRB) – The University of Louisville board of trustees approved changes to the school’s lease for the KFC Yum! Center on Thursday, agreeing to pay $2.4 million more annually toward arena debt and cede control over some dates.
But the vote came only after several trustees -- including pizza magnate John Schnatter -- questioned the wisdom of the deal.
Seven board members voted in favor of the deal; two were against; and four abstained.
The board nearly put off voting on the arena deal, which is months in the making.
But the trustees decided to move forward after interim U of L President Greg Postel said it was in the school's best interest and trustees chairman J. David Grissom added that U of L would face "substantial and significant political consequences" if it did not go along.
That didn't stop trustees from grousing about the situation.
"This thing was set up to be doomed from Day One," Schnatter said of the original, 2008 plan to pay for the arena.
U of L's increased contribution is part of a plan to shore up the arena's finances and avoid a potential default on about $350 million in construction debt.
U of L's basketball program is the main tenant of the arena, which was built in 2010.
Earlier this year, state lawmakers agreed to extend the life of a special program that earmarks city and state tax revenue generated from activity around the arena for the facility's debt payments.
That move, along with increased contributions from Louisville Metro and U of L, will alllow the Louisville Arena Authority to refinance its debt and lower its annual payments to a sustainable amount, U of L's bond lawyer told the trustees.
But trustee Nitin Sahney, the former CEO of Cincinnati-based Omnicare, said the university could end up putting "more money after bad" with no guarantee the arena's finances will be fixed.
"I think this is a bad deal," Sahney said. "... I am very disappointed."
Following the meeting, Grissom said he agrees with Sahney, but there was no alternative than to agree to the deal.
"This doesn't fix the problem. It puts a band-aid on it. And we hope it's going to work," he said.
U of L athletics director Tom Jurich, who resigned himself to deal, finally spoke out about it at the trustees meeting at the prompting of Schnatter.
Jurich said the university negotiated its original deal in "good faith" and the revised deal is "tough to swallow."
He suggested selling the arena -- a move that is not possible considering its construction debt -- and said U of L would have built an arena on campus but for "the sentiment of the community" that it be downtown.
Also Thursday, the Arena Authority agreed to a new lease at a special meeting. With the U of L trustees approval, the arena agency can now move forward on securing approval from the Metro Council -- the final step needed before refinancing the bonds.
The series of meetings included a spirited discussion at an athletics association meeting in which some members defended U of L’s deal at the downtown arena, which has elevated athletic department revenues since city and state officials convinced the university to move its basketball games more than a decade ago.
That meeting also appeared to publicly expose friction between the athletics department and the administration, which led the negotiations on behalf of the university.
“I keep hearing from everybody that the university – we’re one family. I hope that’s true. I hope I can come to see that … because this is tough,” Jurich told athletics board members.
Jurich said “everything is on the table,” including higher ticket fees for basketball fans and charging for sports that have had free admission, to come up with the additional money.
The arena authority, a board appointed by Kentucky’s governor and Louisville’s mayor, expects it won’t be able to make debt payments on the Yum! Center’s construction bonds by 2020.
The looming crisis is a result of a subsidy crafted by Kentucky state government that has failed to meet expectations, resulting in city and state officials scrambling to generate more money to meet escalating debt payments.
That includes asking U of L to contribute more to arena costs.
“U of L athletics has lived up to every aspect of a good-faith agreement, exceeded all of its commitments and promises in that agreement and what are we guilty of? Success,” said Larry Benz, an athletics association member and former chairman of the university’s board of trustees.
He claimed U of L was “strong-armed” into the new deal and called the Yum! Center an “absolutely failed economic initiative.”
Postel, who led the lease negotiations with the Louisville Arena Authority, disputed that characterization. Speaking to reporters after the athletics meeting, Postel said, “I wouldn’t use that term. I think that all parties felt pressure to get something done because it was a real problem.”
As part of a plan to refinance the bonds, the arena board successfully lobbied to Kentucky General Assembly this year to give it 25 more years to collect sales, property and other tax revenue from a tax increment financing, or TIF, district near the arena.
It also asked U of L to amend its lease to provide more than the annual amount the university gives the arena authority under a revenue sharing agreement that has generated more than $1.3 million per year in recent years.
Under the deal approved by the athletics board, U of L would pay the arena authority an additional $2.42 million per year and cede control of arena dates in October. That would give arena management the ability to fill those dates with concerts or other events.
Other dates also will come open as a result of the school’s volleyball team leaving the Yum! Center for an on-campus venue – resulting in an $80,000 annual credit. All told, the value of U of L’s concessions total $2.5 million per year.
Jurich said he supported the changes, telling a board member who asked if he was in favor of the new deal: “The answer is yes.”
But he acknowledged that “everything is on the table” as the athletics department determines how to ante up the additional annual payment. The new lease allows for U of L to enact a ticket surcharge of up to $8 for men’s basketball games; that fee is now $2 and goes to the arena authority.
Any revenue from the additional surcharges would stay with the university.
Asked after the meeting if he believed he had an adequate say in the negotiations, Jurich would only say: “We’re good.”
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