SUNDAY EDITION | Yum! and done? Decision on Louisville arena naming rights coming in 2018
With uncertainty swirling around Louisville basketball, Yum! Brands must decide by October if it wants to enter exclusive talks to extend its sponsorship deal at the KFC Yum! Center.
LOUISVILLE, Ky. (WDRB) – For its first eight years, Louisville’s downtown arena has been called the KFC Yum! Center under a naming rights deal with Yum! Brands, the locally headquartered fast-food giant.
While the arena’s name wouldn’t change until 2020 at the earliest, the company must decide later this year whether it wants to enter exclusive talks to extend an agreement that now sends about $1.3 million a year toward the building’s construction debt.
But the circumstances surrounding the naming rights are much different now than when the original deal was signed in 2010 because of uncertainty looming over the arena’s main tenant, the University of Louisville men’s basketball program.
U of L was linked to an FBI-led, pay-for-play corruption probe last September, prompting the ouster of basketball coach Rick Pitino and athletics director Tom Jurich. Louisville has yet to name Pitino’s permanent replacement, although the school is expected to hire a new coach this spring.
Already on NCAA probation for an unrelated scandal that cost the program its 2013 national championship, the university won’t be investigated by college basketball’s governing body until after the federal criminal case concludes. That may not happen until next year at the earliest.
For Yum! Brands or other companies weighing naming rights for the Louisville arena, the unknown factors at U of L could affect a sponsorship deal. For example, what if the NCAA levies sanctions that keep games off television? Or takes even harsher steps?
Those are key questions, said Daniel Bauer, a finance professor and director of Bellarmine University’s sports administration program.
“Uncertainty leads to risk. Risk leads to changes in value, and until this is all the way cleaned up, it’ll be a difficult proposition,” he said.
At the same time, Bauer said he believes the U of L brand remains “very strong … and the basketball stuff will be in the past very, very quickly.”
Months before the arena opened in 2010, Yum! Brands agreed to pay $13.4 million over the coming decade to have its name on the building at Third and Main streets that overlooks the Ohio River and Interstate 64.
Among other things, the deal gave the restaurant company exposure on arena signs, made Yum! Brands the exclusive vendor for its KFC and other products and gave the company parking passes and the use of two suites.
Since then, the KFC Yum! Center has hosted men’s and women’s basketball games, postseason NCAA games, concerts and other family shows. Los Angeles-based arena operator AEG became the venue’s manager in 2012 and announced a record-breaking year in 2017, selling 386,000 tickets for all events.
Based on ticket sales compiled by Pollstar Magazine, the Yum! Center ranked 24th in the U.S. and 50th worldwide last year. There were a record number of concerts – 29 – but the 118 total events were the lowest since at least 2013 as a result of the Louisville volleyball team leaving to play its games on campus.
As the current naming rights deal nears its end, one of the biggest questions is how much will a new agreement fetch. The Yum! Brands deal, while lauded for its local support, was below the $2 million-per-year figure sought by the Louisville Arena Authority.
Since then, the growth of social media has amplified the importance of naming rights, said Jim Kahler, a former vice president of sales and marketing for the NBA’s Cleveland Cavaliers who now is executive director of the AECOM Center for Sports Administration at Ohio University.
“The world has changed quite a bit since 2010 and what sponsors in general are looking for a way to grow their brand in association with digital and social media,” he said.
Overall, the naming rights environment is “bullish” said Don Muret, senior editor at VenuesNow magazine, which covers sports and entertainment facilities.
While Muret said it’s tough to compare the Yum! Center with other college facilities, he noted that the University of Illinois accepted $60 million over 30 years in 2013 to let the Assembly Hall basketball arena in Champaign, Ill., become the State Farm Center.
Elsewhere, Sprint Corp. is spending $2.5 million annually on naming rights for the Sprint Center in Kansas City – an arena that, like the Yum! Center, can hold large crowds but has no professional NBA or NHL team.
Last year, the University of Kentucky announced that that the Kroger Co. would pay about $1.85 million per year over 12 years for the rights to rename the Commonwealth Stadium football field, part of a broader university sponsorship deal.
Despite the off-court scandals at U of L, Muret said he believes the Cardinals’ national reputation still makes the arena name valuable.
“I think in Louisville you could easily get $2-$3 million a year just depending on who you’re looking at, who your candidates are,” he said. “I think $2 million a year minimum -- I think they’d be able to hit that with no problem.”
The Yum! Brands headquarters remain in Louisville, but the company announced in 2016 that its top executives were moving to offices in Plano, Texas, the home of the KFC and Pizza Hut divisions. Pizza Hut recently became the official pizza of the National Football League, replacing Louisville-based competitor Papa John’s.
Terms of that deal haven’t been made public, but CNN reported it is worth more than the Papa John’s agreement, which also hasn’t been disclosed.
Last year, Woodford Reserve replaced Yum! Brands as the presenting sponsor of the Kentucky Derby, a move that prematurely ended a deal that was supposed to run through the 2020 race.
Yum! Brands reported $1.3 billion in net income on $5.9 billion in total revenues in 2017. The company typically doesn’t mention its naming rights deal for the Yum! Center in public disclosures or other statements, said Sara Senatore, a senior research analyst with AB Bernstein.
“It’s such a big global company, it’s probably the case that any kind of similar deal would be too small to be material,” she said.
Yum! Brands declined to say whether it has decided whether to pursue a renegotiation of its contract. “The KFC Yum! Center is a world-class facility. Our current naming rights agreement continues for over two more years, and we’ll assess our options as we get closer to expiration of the current agreement,” company spokeswoman Virginia Ferguson said in an email.
Arena authority chairman Scott C. Cox expects arena officials will analyze naming rights agreements at comparable venues. He said he hasn’t begun evaluating how much he believes the Yum! Center rights may be worth.
Facing a series of escalating debt payments on the bonds issued to build the Yum! Center, the arena authority refinanced its debt last December and reduced the amount that is owed in the coming years. In 2020, when the arena authority warned of a possible default, it now owes $16.9 million – or more than $12 million less than prior levels.
Asked if the new debt terms change the importance of the naming rights revenue, Cox said: “I haven’t even thought about that. Obviously, we would want fair market value for the naming rights.”
He said “a few” other companies have made informal overtures about the naming rights, but he hopes that Yum! Brands remains the lead sponsor.
“I just feel like this is the Yum! Center,” he said. “That’s how we’re known, and I would love it if that’s how we continue to be known.”