Editor’s note: There will be math in this post. And no calculators, please.

I’ve been covering the KFC Yum! Center financing issue for more than three years now – through multiple debt downgrades by rating agencies, monthly losses and other setbacks.

Until now, the company line at the Louisville Arena Authority has been, “Everything is awesome!”

Monday, for the first time, I heard Arena Authority officials speak candidly and at length about the financial challenges they face as they work to pay Yum! Center bondholders. Those challenges include the initial revenue projections that dictate an accelerating pace of repayment of $348 million in bonds placed in 2008 to build the arena, with payments topping out at $37 million in 2029.

This change of tenor among Arena Authority officials comes paradoxically at the same time arena finances are improving, trend lines are positive and the pace of downtown revival is quickening with millions of dollars in new projects on the books including hotels and residences.

That said, rating agencies such as Standard & Poor’s monitoring the Arena Authority debt have noted time and again the tax increment financing (TIF) district set up to fund the downtown arena has yet to produce revenue to match our bond obligation.

But four years into operations, we have sufficient data to analyze where we’re headed, including all the numbers for fiscal year 2013/2014.

Larry Hayes

Larry Hayes

Arena Authority Chairman Larry Hayes, who’s also secretary of the Kentucky Economic Development Cabinet, said the 2006 projections of millions more in TIF district funds was the result of a campaign to build the arena in the exuberant pre-Great Recession financial climate.

“I’ve always said those projections were aggressive,” Hayes said.

Banker and Arena Authority board member Jim King, who’s president of the Metro Council, said “in his heart of hearts,” he wonders whether there are enough top acts to keep the crowds coming. So far, King added, KFC Yum! Center manager AEG Facilities, based in Los Angeles, has brought the top names in national entertainment to Louisville.

AEG took over managing the arena in 2012 from the Kentucky Fair Board after a series of losses due to high operating expenses.

King also mentioned that a poor season by the University of Louisville’s basketball team, which is the downtown arena’s main tenant, could also be problematic.

Councilman Jim King

Councilman Jim King

But this year, revenue is up. In June, Kentucky Finance Cabinet officials announced the latest TIF revenues totaled about $7.4 million, up 32 percent from $5.6 million for the 2012/2013 fiscal year. More importantly, the trend is increasingly favorable, with the TIF initially producing about 14 percent of the original projections.

TIFs are predicated on dedicating increased sales and employment taxes to pay for public projects on the theory the project will stimulate economic activity around it. And that has been the case for KFC Yum! Center.

The bond repayment was structured on the special tax district generating $12 million this year, so the TIF produced about 62 percent of the projected amount needed to service the debt.

The events revenue was projected to be $7 million for FY 2012/2013, but came in at zero. This year, it was projected to be $10 million, but again came in functionally at zero. At Monday’s Arena Authority meeting, officials announced a $1.4 million net operating profit. But documents handed out to board members showed that after deducting incentive fees and guarantees due AEG totaling about $1.4 million, AEG actually paid the Arena Authority $41,974.38.

Since AEG took over management of KFC Yum! Center, event revenue has increased dramatically, rising to $13.2 million gross revenue for this year. However, event expenses for the year totaled $4 million, and administrative costs and overhead deducted another $6.8 million, for a net profit of about $1.4 million not including the cost of servicing the debt.

There is a note at the bottom of each statement: Excludes “Category A” Revenues, property taxes, and amounts payable in connection with bonds,

The authority’s 2014 payment is $21.8 million in principal and interest to be paid to bondholders Dec. 1, which King and Hayes said the Arena Authority has, including $9.8 million, the maximum contribution from the City of Louisville.

Amortized, that works out to about $1.8 million per month. The problem seems to be, the arena has multiple months of losses, according to Arena Authority records.

So, even the most lucrative month of December, when the arena reported a “net profit” of $1.15 million after shows by Keith Urban, Beyonce and Justin Timberlake, the total revenue including the TIF and naming rights came to just over $1.8 million, which means the arena essentially broke even.

Here’s how the monthly revenue for FY 2013/2014 broke down, according to arena financial reports, which again do not include deducting the money owed to bondholders.

• July 2013, events revenue posted a $92,000 loss

• August 2013, $149,000 loss

• September 2013, $407,000 loss

• October 2013, $53,000 loss

• November 2013, $600,000 profit

• December 2013, $1.15 million profit

• January 2014, $300,000 profit

• February 2014, $115,000 profit

• March 2014, $208,000 profit

• April 2014, $140,000 profit

• May 2014, $322,000 loss

• June 2014, $585,00 profit

Here is the TIF projection and what the TIF actually yielded:

2010     $5,184,000        $678,000          14.13 percent of projection

2011      $6,674,000        $2,168,000       32.48 percent

2012      $8,273,000       $3,541,672         42.81 percent

2013      $9,987,000       $5,177,216*        51.84 percent

(Cumulative total projected = $30,118,000 | Actual = $11,564,888 | = 38.39 percent )

2014   $11,823,000        $7,400,000       61.7 percent

2015   $13,790,000

2016   $15,896,000

2017   $18,149,000

2018   $20,560,000

Metro Council President King has always acknowledged he’s the point person on the arena, and would be the person who would take the most heat if finances worsen. But he’s always contended KFC Yum! Arena increasingly is fulfilling its goal of reviving downtown.

Dennis Petrullo, Yum! Center manager and AEG executive, told IL he moved downtown after transferring from AEG’s St. Louis operations and sees firsthand how much more vibrant downtown is now compared to before KFC Yum! Center opened in 2010. “There’s no comparison … the activity now is round the clock.”

Petrullo also was candid in his appraisal of finances, saying events revenue is never going to be a significant contributor to servicing arena debt. “The revenue increases have to come in the TIF district, the naming rights and the sponsorships…,” Petrullo said.

The bond rating services that monitor Arena Authority finances seem to agree. Last December, Standard and Poor’s, the Wall Street debt rating agency, downgraded $340 million of the debt two full steps to BB from BBB-. At the time, S&P raters said they were skeptical as to whether the TIF district will ever generate sufficient revenue to make a significant contribution to servicing the Arena Authority debt.

On the concert side, Petrullo is far more confident the parade of the world’s biggest acts will continue in Louisville because of KFC Yum! Center. No one can predict the concert business will not have crests and troughs, he said. But there are business dynamics that suggest it will remain robust.

“It used to be acts made money recording,” he said. “Now, they make money touring.” Yum! Center has drawn big crowds, ranked in the top 10 percent of arenas nationally since it opened, Petrullo said.

Katy Perry sold 16,000 tickets in Louisville. Pink had the top selling show of her tour here, Petrullo said. “I didn’t even think she was that popular here.”

Though acts may ebb and flow in popularity, or disappear, there is always new talent in the pipeline, or top acts returning. The Eagles performed early in the Yum! Center years, then returned and grossed more the second time, Petrullo noted.

The only thing that could dampen the party, he said, is if local concert goers lose their enthusiasm.

For the record, I told Hayes, King and Petrullo that IL has never described KFC Yum! Center as anything other than an unmatched community asset. But I used the metaphor of Louisville as the working-class city that decided to buy a Ferrari.

We own it. We love it.

But can we pay for it?

Increasingly, the answer seems to be, “yes,” as Louisville grows more affluent. But, ultimately, the numbers are the numbers.

These are the numbers for 2013:

• Total debt payment: $20.85 million

• TIF revenue: $3.5 million

• Naming rights and sponsorship revenue: $4.5 million

• Suites/premium seating: $1.4 million

• City’s obligation: $3.3 million (above its minimal legal obligation of $6.5 million)

• Interest income: $.7 million

• Event revenue: $0

Here are the numbers for this year:

• Total debt payment: $21.77 million

• TIF revenue: $7.5 million

• Naming rights and sponsorship revenue: $4.5 million

• Suites/premium seating: $1.4 million

• The city: $3.8 million (above its minimal legal obligation of $6.5 million)

• Interest income: $.7 million

• Event revenue: $0