When state legislators voted last month to alter the Tax Increment Financing (TIF) of the KFC Yum! Center so the arena would avoid a potential default, they were reassured by the Bevin administration that the University of Louisville already had agreed to pay an extra $2.5 million annually to pay down the arena’s debt. Three weeks later, however, the university still is negotiating the financial terms of any amendment to its lease with arena officials, and questions remain on how long such negotiations will last.
Faced with years of dramatically underperforming TIF revenue and debt service payments set to escalate sharply, Louisville Arena Authority chairman Scott C. Cox sounded the alarm last year that the Yum! Center was on pace to default by 2020. Cox initiated discussions with state, city and university leaders to craft a compromise that would prevent a default and allow the arena authority to refinance its bond debt, which took the form of House Bill 330 in this year’s Kentucky General Assembly.
The original version of HB 330 intended to ensure all three players had financial skin in the solution, as the state would extend the life of the arena’s TIF by 25 years, while stipulating that Louisville Metro Government must contribute its maximum annual payment of $10.8 million to the arena authority, and the UofL Athletic Association — primary tenant of the Yum! Center — must contribute an extra $3.5 million each year. However, this bill was amended on the last day of the session before it passed, stripping out the payment requirements of the city and UofL, while eliminating the $315 million cap on the amount of state tax revenue from the TIF that could go toward the arena authority.
The elimination of the payment requirement for UofL concerned some legislators — as their men’s basketball program has become the most profitable in the NCAA since moving into the Yum! Center — but Gov. Matt Bevin’s executive cabinet secretary Scott Brinkman stated several times in his testimony before the committee that morning that the university had agreed to pay not less than an extra $2.5 million annually. Brinkman also testified that Louisville Metro had committed to contribute $10.8 million annually over 30 years, or a total of $324 million. The bill passed in the final hours of the last day of the session, and was signed into law by Bevin last week.
Now three weeks later, UofL spokesman John Karman and UofL athletics spokesman Kenny Klein tell IL that the financial details of any arena lease agreement have not yet been finalized, including the previously cited $2.5 million figure.
“To my knowledge, nothing has been finalized,” wrote Karman in an email, to which Klein added “that is my understanding as well.” Asked if the negotiations are expected to be finalized in days, weeks or months, Karman replied that there is not a set timeframe for when this agreement would be reached.
Though Brinkman said Louisville Metro had committed to paying the arena a minimum of $10.8 million annually — $4 million more than its current minimum payment — a resolution passed by Metro Council last year specified that any agreement negotiated by Mayor Greg Fischer would have to be approved by the full council. Mayoral spokesman Chris Poynter adds that no such agreement has been made yet by Fischer with the other parties, as negotiations are ongoing.
“We anticipate there will be a deal between the city, state, arena authority and UL,” Poynter tells IL. “It is still in negotiations. When there is a deal, it will go to council for approval.”
Arena authority chairman Cox also tells IL that the negotiations with UofL are continuing, though he remains confident that an agreement acceptable to all involved will be reached.
“The negotiations are ongoing with the university,” says Cox. “And I do believe that we will reach an agreement to modify the lease agreement between the Yum! Center and the school. And then once we do that, I’m hoping that we will be able to move forward with the mayor’s office and the Metro Council.”
Asked when he expected this agreement to be reached, Cox simply answered: “Soon.”
Spokespersons for Gov. Bevin did not reply to multiple emails from IL for this story.
Sen. Chris McDaniel, R-Taylor Mill, hesitantly voted for the bill despite the deleted provision requiring UofL to pay an additional $3.5 million each year, saying at the time that he believes “it is a true travesty that we do not have more accountability for the University of Louisville.” He also added that if the university or city did not uphold their agreements cited by Brinkman, he would labor to “kill this TIF in its entirety and force an immediate default on these bonds.”
McDaniel told IL he does not know if anyone has backed out of an agreement or if the $2.5 million is still a point of contention in the negotiations, but he hopes all of the parties involved are negotiating with the same sense of urgency that was requested of the state legislature to extend the arena’s TIF.
“My information is no better than yours, which is that Scott Brinkman said that they had an agreement on that, so I’m counting on him to be able to deliver on what he said was committed to, and we’ll go from there,” said McDaniel. “It would be very, very problematic if the different players don’t uphold their end of the bargain on this.”
While observers wait for an official agreement concerning the arena, in the background is the matter of the cryptic criticism leveled at UofL Athletic Association leadership by Papa John’s CEO John Schnatter last week. Schnatter — now a board member of the university, UofL Foundation and UofL Athletic Association — suggested in a trustees meeting that leadership in the athletics department is unaccountable and “invisible” to university leadership, and that “until you fix athletics, you cannot fix this university” — though he has declined to provide specifics.
In a radio interview Monday, Republican state Rep. Phil Moffett of Louisville expressed agreement with Schnatter’s “fix” and “invisible” comments, and in the context of a discussion about UofL’s massive men’s basketball program profits stemming from the arena, suggested that the athletics department has too much independence from university leadership.
“There’s a big separation between the administration of UofL and the athletics department,” said Moffett. “I think you’re going to see that change a lot.”
While UofL Athletics Director Tom Jurich responded to criticism of the university’s lease last year by threatening to move UofL’s teams out of the Yum! Center and build a new on-campus arena, Cox has stated repeatedly that Jurich has met with arena officials and negotiated in good faith since last summer. Asked if he has any insight into whether Schnatter’s criticisms stemmed from trouble in the arena lease negotiations, Cox said he does not know the pizza magnate personally and can’t speak for him, but that “the school, in my opinion, has always met with me and negotiated with me in good faith. And I’m certainly confident that we’ll reach an agreement.”
In a radio interview with Terry Meiners Friday afternoon, Bevin clearly distanced himself from Schnatter’s criticisms by fully embracing Jurich, effusively praising his work leading UofL athletics.
“Tom is a good friend of mine, a man I have such unbelievable respect for,” said Bevin, unprompted. “He has done… yeah, there’s here, there and anywhere in any large organization. And people always want to find somebody to throw under the bus or somebody to point to. But I will tell you this: That man is a good man. He is an incredible athletics director. His integrity is impeccable. And he truly, genuinely has always put the interests of the student-athlete first above all else. And it’s not a coincidence in my estimation that he’s built the caliber of program that he has.”
Bevin continued: “You would have to look a long time to find somebody as well-known and well-respected in the NCAA at any level who’s in the position of being an athletic director, as you find, in terms of the respect that people have for Tom.”
Brinkman stated in February that the arena’s debt would not be refinanced until state Auditor Mike Harmon’s examination of the Louisville Arena Authority’s finances is complete. Harmon spokesman Michael Goins tells IL that this audit is expected to be completed in May or June.
This post has been updated with additional reporting.