LOUISVILLE, Ky. (WDRB) — The new naming rights agreement for the KFC Yum! Center could bring in more than $16 million for the building’s debt payments over the next 11 years. It could also result in much less.
The deal announced earlier this month lets Louisville-based Yum! Brands lower its annual payments – as much as 30 percent -- if the University of Louisville men’s basketball team is sanctioned by the NCAA.
It also requires no guaranteed payments from Yum! Brands for the first two years of the contract that started retroactively in October and ends in September 2031. But Yum! has agreed to pay up to $450,000 this year and up to $1.5 million next year if certain home game and television goals are met.
The full agreement, obtained under an open records request, sheds light on the finer points of the pact between the Louisville Arena Authority and the fast-food conglomerate that keeps the building’s name and provides funds for paying off the project’s construction bonds.
The arena authority, an agency appointed by Louisville’s mayor and Kentucky’s governor, voted unanimously to approve the deal at a meeting December 9. Board chair Leslie Geoghegan said at the time it was worth $16.3 million over 11 years, or slightly more than the expiring 10-year agreement.
Those terms, however, assume U of L won’t be sanctioned, and factor in the maximum allowable 2% increase in the U.S Bureau of Labor Statistics’ consumer price index for urban consumers in Louisville. The average increase for American cities was 1.2% during the 12 months ending in October.
And the $16.3 million figure assumes that U of L will play at least 10 regular season, nationally televised games this season at home. Against the backdrop of the COVID-19 pandemic, U of L and other teams have regularly cancelled games due to illness.
The U of L men’s program is under scrutiny for its role in the 2017 cash-for-recruits scandal involving adidas. In response to a NCAA notice of allegations, Louisville has argued that the shoe company wasn’t working for the school during alleged efforts to pay players to attend affiliated programs like U of L.
But NCAA enforcement officials rebuffed that argument in its counter response this month. U of L could face stiff penalties because it was already on probation for a sex parties scandal when the adidas scandal’s violations allegedly occurred.
The naming rights agreement reflects that possibility. It calls for:
-a 5% reduction in naming rights if U of L loses two or more scholarships, for two or more seasons
-a 10% reduction if a post-season ban occurs
-a decrease of 30% if the program is banned from television for a season
Those adjustments would occur regardless of whether the sanctions are self-imposed or handed down by the NCAA.
However, Yum! has agreed to add 10% in additional fees during years in which U of L makes a men’s basketball Final Four.
The U of L men’s and women’s teams are the main tenants of the arena, which also hosts concerts, family shows and other events.
The COVID-19 pandemic forced arena officials to cancel public events starting in March. But some basketball games have resumed, including three men’s games this season that have been broadcast on the ACC Network or ESPN2.
That’s allowed the arena authority to trigger a provision in the naming rights contract under which Yum! Brands will pay $150,000 if the team plays between one and nine nationally televised games at the arena. It agreed to pay $300,000 if more than nine such home games are played.
Another $150,000 would be owed if the 2021 Division 1 men’s college basketball tournament plays televised games, regardless of whether U of L participates.
Similar benchmarks also are in place for the contract’s second year starting in 2021, but with higher fees – up to $1.5 million.
The contract requires the arena authority to rebate a portion of naming rights payments if the Yum! Center isn’t open to public events starting in the third year under “force majeure,” or unforeseen circumstances such as a pandemic or epidemic, according to the new deal.
During the arena’s first decade, from 2010 until this year, naming rights brought in about $1.4 million per year. Other funds contribute more to debt obligations, including a tax increment financing district around the building.
Arena officials receive a portion of sales and property tax revenues from a two-square-mile area around the arena for the project’s debt. In 2019, the TIF district generated about $13.4 million for arena debt payments.
But because the rebates are based on all taxes meeting a minimum threshold, it’s likely that the payment received next year for 2020 will be $0 because of the stagnant downtown in activity caused by COVID-19 restrictions and downtown employees working from home.
Louisville Metro government also puts $10.8 million toward arena costs, with U of L contributing a $2.42 million annual lease payment. Other sources include naming rights; sponsorship revenues; and some revenues from arena events, such as premium seating and concession sales.
Wall Street analysts say there is about $54 million in cash reserves that can be tapped for debt payments, in addition to a debt service account of $31.2 million. They expect, in a worse-case scenario, that arena officials could go five years before having to use the latter debt fund.
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