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An analysis of why the KFC Yum! Center is doomed for bankruptcy unless the current lease between the arena and the University of Louisville Athletic Association is renegotiated.
Citation preview
BILLION DOLLAR
BASKETBALL
© 2013 Crystal Publications, LLC. All rights Reserved.
www.billiondollarbasketball.com
Author – Denis Frankenberger
2
Billion Dollar Basketball Cover Illustration and Content Copyright © 2013 by Crystal Publications LLC All rights reserved. No part of this document, in part or whole, may be reproduced or transmitted in any form or by any means without attribution, which includes the name of the author and his publisher. The content herein is from the public domain and is intended for informational purposes only. Although the author has made every effort to ensure that the information provided in this White Paper is correct at the time it was released, the author does not assume and hereby disclaims any liability to any party for any loss, damage, or disruption caused by errors or omissions regarding any of the content provided in this White Paper. Reader assumes full responsibility for use of information contained herein. The author reserves the right to make changes, corrections and/or updates without notice. The author assumes no responsibility or liability whatsoever on behalf of the reader of this White Paper or use of the content on the URL: www.billiondollarbasketball.com. The full text of this White Paper with supporting documents and any updated content or corrections, if any, can be accessed without charge through the Internet by entering your email address at the following URL: www.billiondollarbasketball.com
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Why the KFC Yum! Center will fail and leave tax payers on the hook:
Over $800 million in Debt
Operating Costs Exceeding $92,000 per Day
Lease Giving Away Millions to Tenant and Others
Losing more than $50,000 per day during 2011, more than $37000 per day during 2012
More than $30 million in losses since opening
Financial Impossibility to Succeed
A Lease that is Choking the Financial Life from the Arena
(unless the Lease is renegotiated)
4
INTRODUCTION
In the wonderfully researched and written book, “Field of Schemes” author
Neil deMause & Joanna Cagan detail dozens of examples of “How the Great Stadium
Swindle Turns Public Money into Private Profit”.1 But these schemes, prevalent in
many major cities, are borne by private owned, taxpaying, professional sport teams
NOT state supported public universities or their tax exempt athletic associations.
Louisville’s KFC Yum! Center Arena and the Arena Authority’s prime tenant,
the University of Louisville Athletic Association is an exception because it is the
largest and most expensive in the U.S. whose primary tenant is not a professional
sports team.
This publication is meant to identify the actual sources and potential causes of
the Arena’s financial problems which to date have yet to be accurately reported to the
public; and most importantly to identify a solution to save the Arena from its
impending financial crisis. Otherwise, the Arena is destined for an embarrassing
financial failure and ultimately, a probable bankruptcy.
Due to the enormous publicity that the KFC Yum! Center Arena has received
this financial failure will be broadcast nationally with significant “branding” damage to
our city as well as naming rights sponsor – Yum Brands.
Other than the differences in tenants, in short, the “Field of Schemes” non-
fictional accounts are very similar.
The authors say, “Stadium deals [and arenas] can bring unprecedented riches to
a sports team owner, but city residents tend to be unenthusiastic at first.”2
“Sure we love our team,” is a typical response when the stadium (or arena)
juggernauts roll into a new city.
“But hundreds of millions of dollars for rich owners….when we [the city] can
barely even afford to buy books for our school kids? It’ll never fly.”
5
But fly it did in Louisville, Kentucky. With up to 649 million dollars in taxpayer
support3, and another 349 million dollars of bonds sold to investors4, Louisville now
has “Bil l ion Dol lar Basketbal l” for all to enjoy.
The Arena Task Force members and subsequently the Arena’s Directors clearly
had close links to the University of Louisville5. In the end, the Arena Authority
together with the University of Louisville Athletic Association crafted a lease with
terms so over-burdensome, so skewed, so one-sided6 that any reasonable person,
including those who were parties to the lease, knew or should have known that the
Arena could not have succeeded financially under the onerous terms of the lease.
This publication has been generated on behalf of the taxpayers who are
generously supporting the Arena. The release of the Arena’s actual financial
problems have become necessary because those taxpayers have not been provided
with accurate information and/or documents with respect to the real facts
concerning the impending financial calamity about to befall the Arena.
The fact is, after its first two full years of operation the following financial
information obtained by the author, including an analysis of the audited financial
statements, yields the ugly truth.7 Louisville’s beloved KFC Yum! Center Arena
simply cannot survive unless the terms of its lease with it prime tenant the University
are renegotiated into a normal lease for a “tenant” as opposed to the existing lease,
which resembles an “owner’s lease” – except that the taxpayers pay for the losses
instead of the owner. With this knowledge an interesting question arises: How and
why was the lease structured in such a manner to begin with?
6
Section 1 - The Arena…in Financial Trouble? Say it isn’t so!
There is little, if any, question, the KFC Yum! Center which opened in October
2010 is a great source of community pride in and around Metro Louisville.
Downtown Louisville was longing for an arena. Virtually all of its major
neighboring cities to the north, south, east, and west, already had downtown stadiums
or arenas that housed professional sports teams. Metro Louisville was in a desperate
need for an inner city venue draw.
In fact, since it’s opening the outstanding KFC Yum! Center Arena facility has
justifiably received accolades from practically everyone in the sports industry, both
locally and nationally. In addition, with the University of Louisville Athletic
Association as its prime tenant, the Arena has been recognized as the largest and most
expensive in the United States whose primary tenant is NOT a professional sports
team.
However, caught up in the euphoria of the concept of a massive downtown
arena that could conceivably help generate well needed economic growth and
development to downtown Louisville, there were only a few brave concerned citizens
who came forth questioning the financial logic of more than $640 million of taxpayer
support plus $349 million of bonds, a combined one billion dollars.
Some of these concerned citizens also questioned the soundness of locating
the massive arena on its present downtown site resulting in what has led to a land cost
of $91 million and a total combined cost of more than $400 million in land,
construction costs, and equipment.8
A few of those concerned citizens included two of the City’s most successful
businessmen, Papa John’s John Schnatter and Humana co-founder David Jones Jr.,
who together spent more than $220,000 of their own money to have nationally known
arena consultants perform studies9 and draw conclusions. Unfortunately these
7
efforts were highly criticized by officials and ostracized by the local media and
ultimately ignored by Arena advocates and task force officials, so Schnatter and Jones’
efforts went for naught.
In an ironic twist that Alfred Hitchcock couldn’t have dreamed up, AEG, one
of the three consulting firms who were members of the Bonham Group, hired to
author the Schnatter/Jones report which indicated the Arena’s present downtown site
would cost approximately $115,000,000 more than a close alternative site10 thereby
confirming the likelihood of the Arena’s inability to succeed financially if it were built
on its present site, has recently been hired by the Arena Authority to manage the
facility.
Quite frankly the entire scenario is astounding. Why? Because the reality is the
Arena, saddled with a one-sided totally unfair lease, lost more than $50,000 per day
(for calendar year 2011)11 and under its lease has literally no chance of anything but
financial failure. Sadly, the few who read the tea leaves of this daunting financial
failure upfront, and who questioned the logic of the proposed plan, were relegated to
silence as a result of media and public criticism.
The source of the Arena’s financial failure was known, or should have easily
been known, by the parties to the Lease on, or before, the very day the lease was
signed July, 2008.
In fact, the lease between the Arena Authority and the University which
extends through September 30, 2044, is so onerous with such enormous
disproportionate percentages of revenues going to the University, the Arena Authority
with its more than $800 million dollar debt12, laboring under more than twice the
Arena’s projected expenses13, has absolutely no chance of financial survival.
As preposterous as it sounds, the wonderfully admired Arena – without the
University volunteering to a termination of its lease and entering into a complete re-
negotiation of its unfair Lease - will fail financially.
8
In fact, in a September 10, 2012 Board of Directors meeting Metro Council
President and Arena Director Jim King pointed out in a recitation to Mayor Greg
Fischer that certain payments to the Arena Authority were needed “to prevent a debt
service payment default on the Authority’s outstanding bonds.”14
This plea of course was made AFTER “Arena officials have scraped together
cash to deal with previous shortfalls nearly emptying a [$3 million] building
renovation fund and notifying Louisville Metro government that more city money
may be needed as early as next spring” as reported in a December 23, 2012 Courier
Journal front page article.
And the root cause of its failure – the University’s lease – absent the parties
coming to grips with a renegotiation of it terms, will result in a billion dollar financial
nightmare for the taxpayers, Metro Louisville, the Commonwealth of Kentucky, and
worse yet the investors who purchased $349 million of Arena bonds which have
already been downgraded by Moody’s to “junk bond” status.15 (Note worthy is
Moody’s recent, January 17, 2013 downgrading of the credit of the parent company of
the guarantor of the Arena bonds to two points above junk bond status.)16
Even a high school economics student reviewing the terms of the lease listed in
Section 2 of this publication, could have recognized and ascertained the terms of the
lease are so grossly unfair to the Arena that it would result in nothing less than
financial failure.
An obvious question one might ask would be, “Who was negotiating the lease
on behalf of the Arena Authority?” The answer appears to be, “No one.” Could this
have been a result of the close ties of many of the Arena Board members to the
University of Louisville?
There have been resignations and many changes of the Arena board members
since its inception. Even today there are significant inappropriate close ties between
9
Arena board members and the University. Inexplicably there have been directors
serving on both the Arena and the University’s Athletic Association boards.
Because the Louisville Arena Authority was established as a private tax exempt
company, the Arena Authority Board has apparently used this status as insulation
from the media and the general public as some sort of justification for its continuous
failure to provide to both the financial community as well as the general public any
reasonable degree of financial transparency.
Metro Council President and Arena Director answered this author’s December
31, 2012 letter suggesting the Council pass a resolution to require the Arena Authority
operational financial transparency saying it “would have no lawful effect on the Board
of the Louisville Arena Authority.” 17
In fact Arena Chairman Larry Hayes, in an October 15, 2012 Arena Board of
Directors meeting, stated “that communications between the Arena Authority and
members of the financial community has been sadly lacking.”
Despite Mr. Hayes’ observation, this absence of transparency continues despite
the Arena Authority’s own computation on the Form 990 federal tax returns it has
filed that its public support percentage is 93.36%, 94.25%, and 94.593% in years 2011,
2010, and 2009, respectively.18
The Arena Authority and the non-investigative local media have repeatedly
conveyed to the public that the Arena’s financial difficulties are a result of abbreviated
TIF revenues received from the state19 in relation to vastly over estimated projections
of TIF revenues found in the August 2008 bond prospectus20 that were granted by the
state to help subsidize the Arena.
Proof of the inflated TIF revenue estimates are evidenced by the actual TIF
revenues received verses those that were projected.21 In fact the 2008 projections
were overstated by 7.5 X; 3.1 X and 2.3 X for years 2010, 2011, and 2012
respectively.22
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Granted the Arena’s TIF revenues are indeed lower than the 2008 projections
but for certain, they ARE NOT the prime source of the Arena’s financial difficulties23.
Clearly, the primary reasons for the Arena’s financial difficulties are the terms of its
Lease with the University and operating expenses that are more than twice what was
projected24 in June of 2008 and included in the bond prospectus. [$5.875 million in
operating expenses were projected in the 2008 feasibility report vs. the $12.124
million of 2011 actual operating expenses…..a more than 106% error.]
Clearly the below analysis indicating the 2011 $4.5 million shortfall in Arena
TIF revenues versus the 2008 projection for 2011 relate to only 24.3% of the Arena’s
net operating loss in 2011 (including debt service payments and before Metro
Louisville’s subsidy payment).25 Proof that the highly publicized short falls in Arena
TIF subsidy funds is NOT the primary source of the Arena’s financial problems is the
following analysis on page 11.
[Recently acquired financial data indicates the Arena’s 2012 TIF revenue
amount received of $3,541,672 was $4.7 million short of the 2012 projection.
However this shortfall amount is only 37.6% of the Arena’s net operating loss for the
first 11 months of 2012.]26
11
2011 Year Ended 12/31 – Louisville Arena Authority, Inc. – Analysis
(Financial figures taken from the Arena’s Dec. 31, 2011 Statement)
Operating Revenues: (including: sponsorship, suite & premium seating, naming rights, and event revenue)
$15,257,963
Debt Service per audited statement (all interest for 2011)
$21,682,864
Operating Expenses (excluding $11,438,712 of depreciation & amortization )
$12,124,775
Total Debt & Operating Expense
-$33,807,639
Operating Loss (including debt service before government subsidies)
($18,549,676)
* 2011 Shortfall in TIF revenue = $4,506,000, which is only 24.3% of the above loss
Also, from a close inspection and review of the terms of the Lease and notes
included in the Arena’s audited financial statements it appears as if the Directors of
the Arena Authority, intoxicated by the euphoria of the Arena becoming a reality, in
what appears to have been a King’s gifting party of expensive, valuable VIP Suites
issued to the University (2); the Humana Corporation (1)*, the Kentucky State Fair
Board (1) and the Arena Authority itself (6) for free VIP Suites27 valued as much as
$1.25 million for the next 20 years and a strange (and unusual) trade off of an Arena
VIP Suite to the Galt House for “accommodations” provided during the construction
period, supplied by the Galt House in the amount of $386,427.28
[*Strangely with respect to the Humana Suite, page 19 of the August 2008 bond
prospectus states: The purchase price of the parcel was $11,000,000. Under the
12
terms of the sale Humana has no obligation or responsibility for the environmental
condition or remediation of the parcel. In addition the Corporation (Arena
Authority) paid at the closing of the Humana parcel $3,000,000 towards relocation
costs.
Under the agreement, to the extent Humana’s relocation costs exceed
$3,000,000, Humana was entitled to receive “in kind opportunities and/or services
including rent free use of a hospitality suite and certain branding (signage) rights. And
“the anticipated value” of the additional “in kind” relocation cost reimbursement was
pre-established at $1.8 million.29 However no documentation has been discovered to
date indicating a reconciliation report, audit, or accounting of Humana’s actual
relocation costs to substantiate the “anticipated reimbursement” supporting the giving
or trading of the free Suite.]
Using the VIP Suite valuation number published on page 29 of the 2008 bond
prospectus of $75,000 per year30, these 11 free VIP Suites would have otherwise
provided a well needed $825,000 of additional annual revenues for the Arena.
[However, in a January 22, 2013 response to questions about free suites the Arena’s
accounting firm stated “The Kentucky State Fair Board was never issued a suite”,
implied that the Arena Authority has only one free suite, failed to acknowledge if
management company AEG is provided a free suite, and failed to acknowledge the
number of University’s free suites saying only “UofL controls all suites except the
Louisville Arena Authority suite and the Humana suite”.]31
In addition to the free Suites, the Arena Authority conveniently added for them
selves a free Arena “Party Suite” reserved for the exclusive use of the Landlord (the
Arena) for each Basketball Game, with the University providing to the Arena up to 60
tickets for the persons who use the reserved Party Suite, at no cost to Arena.32 And
the free tickets provided to the Arena are not to be counted as part of the 700
13
complimentary tickets allowed the University as described in the lease in which the
Arena receives no compensation33.
Further, there is no indication as to the location of these 700 complimentary
tickets for the University, and of even more concern – there’s no indication anywhere
what the University does with them – and if they sell them – to whom are they sold?
Even if these 700 tickets are worth $35 each, that results in a loss of more than
$24,500 per game (not including the Arena’s $2 ticket surcharge) or $539,000 (in a 22
game season) and nearly $1.5 million for the 2 ½ years the Arena has been open. Not
to mention this does not include the Arena’s 60 free tickets from the University for
the persons who use the Arena’s free Suite as these 60 free tickets are not counted
against the maximum 700 free tickets per game issued by the University.34
As a result of all of the above, per the Arena’s 2011 tax return, the Arena
reported a loss of $19,664,86235 ; their 2011 year ended December 31, 2011 audited
financial statement states a loss of $14,644,09736; and including the Arena’s required
payments per their debt service schedule37 before government subsidies, they had an
“Adjusted Operating Loss” of $18,549,676 38. It is important to note this loss is
before Metro Louisville government dips into their rapidly depleting financial reserves
to come up with its annual $10 million “Maximum Guaranteed Payment” to the
Arena Authority (the average amount guaranteed by the City to the Arena for the next
30 years).39 And the City doling out this $10 million payment annually at a time
when Metro Louisville deputy chief of staff to Louisville Mayor Greg Fischer, as
reported January 15, 2013 stated, “Our pension obligations are at such an extreme
level, they are hindering our ability to deliver basic city services”.40
This revelation along with the University of Louisville Athletic Association
making tens of millions from Arena related activities would lead even the most naïve
taxpayer to question: Is the more than $600 million in taxpayer support of the Arena
14
nothing less than us taxpayer’s subsidizing the millions of University of Louisville
Athletic Association revenues it gets from Arena related events?
The most important question to be asked, “Is this going to become an ultimate
financial disaster?” With the knowledge that the operating cost of the Arena in 2011,
including its debt service requirement was more than $92,000 per day41, one would
have to conclude the answer to be an absolute and unequivocal --- YES!
It gets worse! …….
15
Section 2 – The Lease….Unfair?
Noting the operating cost of the Arena including its debt service
was $92,624 per day during calendar year 201142, it begs the question: Do
you believe the below lease terms to be fair and reasonable?
Absent Arena Authority financial disclosures, few outside the
Arena Board and University are privy to documented figures with
respect to the net amount the University actually pays (or receives) for
its Lease of the Arena due to its complexity.
However a detailed review of the July 2008 Arena/University lease
reveals overwhelming numbers of unusual, onerous lease provisions,
many specifying payments the Landlord- the Arena, must pay the Tenant
- the University.
A review of these terms would lead any reasonable person with a
minimal economic education or understanding to the conclusion that the
University, net of its Arena related revenues, “pays” nothing to lease the
$400+ million Arena facility. Rather the obviously skewed, one-sided
lease specifying disproportionate percentages of revenues going to the
University represents a huge source of income for the University
Athletic Association at the financial peril of the Arena, the taxpayers
supporting the Arena with more than $600 million in subsidies, and the
bond holders who invested more than $349 million.
16
The items bulleted below are the Condensed, Consolidated Terms & Conditions of the 7-11-2008 Louisville Arena Authority (“Arena”) / University of Louisville Athletic Association (“University”) Lease Agreement.43
The University receives a disproportionate 88% of revenues arising from the lease of the Private Suites. At least the balance of the Private Suites that have not been granted to others free or swapped for services. In addition, the University receives 88% of all Premium Seating Revenues. The Private Suites are valued at $75,000 each per year, not including license fees, and the non-taxed University retains 100% of all license fees. In addition to Private Suites, the “Premium Seating” consists of 2,054 side court club seats, approximately 800 mezzanine club seats, 304 loge seats with a configuration of 70 loge boxes that include 62 boxes with 4 seats and eight boxes with 6 seats each. [Note: Per the lease, the amount owed by the University to the Arena for the above 12% of Premium Seating Revenue is paid to the Arena on an annual basis no later than each April 30 during the term.]
Two of the (71) Private Suites have been granted to the University free and are reserved for use by the Office of the President of the University and the Office of the Athletic Director of the University. Per the terms of the Lease, “No rent or license fee will be charged for the two reserved Private Suites.
Six of the remaining Private Suites are reserved for use by Landlord (the Arena
Authority), according to Section 5.1 (b) on page 14 of the lease44 for marketing to Arena sponsors and at the University’s option, other Private Suites in addition to the six Private Suites the Arena may, at its option, either sublicense such reserved Private Suites to third parties and collect sub license fees from the third parties in amounts determined by the University in its discretion, or grant to third parties the right to use such reserved Private Suites at no cost. In either such event, the Arena is obligated to reimburse the University for the then current license fees for all such reserved Private Suites used by the Arena.
[In a 1-22-13 letter response to this author regarding questions about free suites, the Arena’s accounting firm stated “The Arena Authority has a suite that is utilized for several purposes, including sponsorship sales, entertainment, board members and companies that the building conducts business with.”]45
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One VIP Private Suite @ no charge, including the cost of its build-out, has been granted to Humana Corp for 20 years valued @ $1.25 million ostensibly for having sold property to the Arena for $11 million (the then market value) and after the Arena paying an additional $3 million to Humana as compensation for it having to move its employees.
[In response to a request to the Arena for a copy of a verified appraisal of the then market value of the real property associated with the 2007 “Property Sale and Relocation Agreement with Humana, Inc”, the Arena’s accounting firm responded on 1-22-13: “We are attempting to locate the Humana appraisal” however they included a copy of the PVA report indicating a $10,090,000 value.46 More importantly the Arena failed to answer a request for the cost associated with relocating Humana employees after the purchase. This is important because the specific stated basis for Humana’s free Arena Suite is for the Arena’s “reimbursement” for the then (2007) “anticipated” additional employee relocation cost over the $3 million paid by the Arena, which had been estimated at $1.8 million.47 However to date, there has been no reconciliation or data provided by the Arena supporting the Arena’s documented $1.25 million gift to Humana of a built-out Arena Suite for 20 years.]48
One VIP Private Suite @ no charge has been granted to the Kentucky State
Fair Board. [In response to questions about this free suite, the Arena accounting firm responded, “The Kentucky State Fair Board (“KSFB”) was never issued a suite”]49
One VIP Private Suite has been granted to the Galt House in exchange for
“accommodations” provided during the construction period of the Arena valued @ $386,427. However there is an absence of financial disclosures found to date, indicating why the Arena Authority was responsible for providing “accommodations” to individuals during the construction period, the identity of the recipients, their company affiliation or relationship to the Arena Authority, and the date the “accommodations” were provided.
[In response to questions about the “Galt House exchange”, the Arena accounting firm responded, without providing any evidence of savings, that
18
“The Galt House agreement was a trade agreement to save money during construction. We received lower Architectural Fee and Construction Manager costs in return for rooms that the construction manager utilized during construction. During construction the room cost was an agreed normal rate.”50 However there was no data or information submitted by the Arena or their accounting firm indicating evidence of any savings or what the Architectural Fee and Construction Manager costs would have been had the “accommodations” not been provided.]
University has the exclusive use and control of the Private Suites at all times
during the term of the Lease. [In response to questions about free suites, in a 1-22-13 letter the Arena’s accounting firm stated, “UofL controls all suites except the Louisville Arena Authority suite and the Humana suite”.]51
Arena is solely responsible for the cost of providing custodial services to the
Private Suites at no charge to the University or its licensees. Arena is responsible for paying all electricity, water, basic cable or satellite television service, and the Internet service used in the Private Suites.
Arena is responsible for structural portions of the Private Suites, including
improvements…and the heating ventilating and air conditioning system. Arena is solely responsible for providing such other maintenance and repair to the Private Suites as to keep and maintain them in good condition and repair.
When an NCAA Event is held in the Arena, the Arena is solely responsible for
staffing the Arena for the event, yet the University shares equally with the Arena in all net revenues derived from NCAA Events held in the Arena.
University receives all proceeds derived from the sale of programs and program
advertisements.
University receives from Arena 50% of all payments it receives from third party concession and catering sales at all University-sponsored Events. This includes sales at all concession stands, and catering provided to the Private Suites and the Party Suites, donor rooms and club seating areas.
University receives all payments received by the Arena (including without
limitation lease payments and/or percentage rental based on food and alcohol
19
sales) from any and all the restaurants located within the Arena for all University-sponsored Events. (6 restaurants with a cumulative 30,000 sq. ft. seating as many as 1,535).
University receives from Arena 50% of all rental/commission payments
received by the Arena in connection with the Gift Shop and its operations.*
University receives from the Arena 50% of any additional merchandise revenue received by Arena from any source other than the Gift Shop, including without limitation the sale of merchandise at concerts, NCAA events, ice shows, or other non-University-sponsored Events.
University or its affiliate, the Cardinal Athletic Fund receives all license fees
and ticket costs, as a condition of obtaining and/or renewing a license to use a Private Suite or Premium Seating and/or purchasing season tickets….These payments to the Cardinal Athletic Fund, by the terms of the lease agreement are not shared with the Arena.
University receives all revenues generated from all Side-Court VIP seating,
and all revenues generated in connection with these seats are retained by the University and are not counted as gross admissions receipts with respect to calculations for payment to the Arena. (There were 46 such seats at the most recent men’s basketball game. Reportedly the seats sell for $10,000 per season).
Arena granted the University 10% of all Permanent Signage inventory inside
and outside the Arena at no charge for use by the University…..and all revenues generated from this Signage are not shared with the Arena.
Arena pays to University 50% of all revenue received by Arena from the sale
of the balance (of 90%) of the Signage inside and outside the Arena excluding the 10% of the Permanent Signage reserved for the University of which University receives 100% of the revenues.
University receives from the Arena 33 1/3% of the revenue received from the
sale of inventory of all video boards outside the Arena.*
University receives 100% of all license fees from television, radio, motion picture, Internet, or other rights to the broadcasting, filming, or the other recording of all Basketball Games and any other University-sponsored Events held in the Arena and retains all revenue from the sale or license of rights.*
20
University shares equally with Arena in all net revenues derived from NCAA
Events held in the Arena, however the Arena is solely responsible for staffing the Arena for the event and the Arena assumes all financial risks associated with hosting all NCAA Events in the Arena.*
For each NCAA event….one of the Party Suites (to be selected by the
University) will be reserved for the exclusive use of the University, at no charge to the University. At the University’s sole option, the University may either permit its patrons and guests for the NCAA Event to use such reserved Party Suite at no charge or may charge a rental fee in which case the University is not be required to pay the Arena any portion of the rental fee.*
Furthermore the nature and amount of “perks” provided the University by the
Arena would lead any reasonable person to conclude the terms of the lease are far beyond “reasonable” adding to the conclusion there is no possible way, under the terms of the subject lease, the Arena can survive financially. To wit:
The University has “Scheduling Priority” as well as “Priority Use” of the Arena
not only for “University-sponsored Events” but also “other uses incidental thereto”.*
“Priority Use Periods” as defined in the lease includes the Leased Premises for
Basketball Games (all men’s and women’s) AND for practices of the Basketball Teams and visiting teams
The University does not pay to the Arena the percentage of gross admission
receipts….on the value of any ticket that is distributed on a discounted basis
The University may give away or discount a certain number of tickets to any Basketball Game or University-sponsored Event, including, but not limited to tickets given to the various departments in the University. Per the lease, the total of non-paying admissions, excluding complimentary or discounted student admissions, is estimated to be 670 per game, but per the terms of the lease can be as many as 700 per game.
In addition to the above “maximum 700 complimentary tickets” the University
may give free for each basketball game played in the Arena and the Arena also receives up to 60 free tickets from the University for the persons who use the
21
Arena’s free Suite and these 60 tickets are not counted against the maximum 700 free tickets per game issued by the University.
In the case of other University-sponsored Events, including, but not limited,
to women’s Basketball Games and other varsity athletic events, the number of non-paying admissions will be determined by the University, in its sole discretion
Season tickets for athletic games played in the Arena can be sold to the
University’s faculty, staff, Letterman’s Club members and students at a discounted price (thus eliminating any potential fee paid to the Arena).
University receives 400 complimentary parking passes in the Parking Facility
for each men’s and women’s Basketball Game. The complimentary passes…include 100 annual parking passes permit the University’s administrative staff, basketball staff, basketball support staff and players to have so called ‘in-and-out-access” to the Parking Facility on a daily basis, in addition to parking for the games
The Arena, at its cost, is responsible for providing heat, air conditioning,
electricity, and water in the…Arena. On Game Days and Practice Days during Basketball Game hours or basketball practice hours…the Arena is required to maintain the indoor temperature…so that it does not exceed 78 degree Fahrenheit or 15 degrees Fahrenheit less than the outside temperature, which ever is higher, and the Arena is required to maintain the heating….so that the temperature is not lower than 65 degrees Fahrenheit
The Arena is responsible for providing garbage removal services….at the
Arena’s expense
The Utilities are paid for by Arena on Game Days and By the Arena on any day on which a University-sponsored Event is held in the Arena.
The Arena, at the Arena’s sole expense, is required to pay for all costs incurred
in preparing the Arena…for use by the applicable sports team (or other user in the case of other University-sponsored Events), including, without limitation, the laying and removing of the practice floor and the goals of the Leased Premises
22
Each Private Suite licensee (including the Arena’s free Private Suites), will receive from the University five complimentary parking spaces for use at each Men’s Basketball Game, either in the Parking Facility, or in another garage or surface lot, as provided in the lease.
The University has the non-exclusive use and control of the Party Suites during
the Term. Landlord is responsible for providing custodial services to the Party Suites at no charge to the University.
For each Basketball Game played in the Arena, one of the Party Suites (to be
selected by University) will be reserved for the exclusive use of the Arena. For each Basketball Game, the University will provide to Arena up to 60 tickets for the persons who use such reserved Party Suite, at no cost to Arena. The tickets provided to the Arena are not to be counted as part of the 700 complimentary tickets for the University to use as described in the lease.*
For each Basketball Game played in the Arena, the three remaining Party Suites
will be reserved for the exclusive use of the University. At the University’s sole option, the University may either permit its patrons or guests for Basketball Games to use such reserved Party Suites at no charge or may charge a rental fee in which case, the University is not required to pay the Arena any portion of the rental fee.
For each NCAA event….one of the Party Suites (to be selected by University)
will be reserved for the exclusive use of the University, at no charge to the University. At the University’s sole option, the University may either permit its patrons and guests for the NCAA Event to use such reserved Party Suite at no charge or may charge a rental fee in which case, the University will not be required to pay the Arena any portion of the rental fee.
With respect to “Rent”, page 17 of the Lease specifies:52 Rent for Men’s Basketball Games With respect to “Rent” for each men’s Basketball Game played in the Arena the University pays the Arena the greater of 1) 10% of the gross admissions receipts received by the University from the sale of tickets after deducting sales tax and any ticket surcharge imposed upon and collected from the customer, or 2) the minimum Arena event rental of $10,000 per ticketed men’s Basketball games, but subject to the “Complimentary ticket” provisions contained in the Lease.
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Rent for Women’s Basketball Games The University pays to the Arena the greater of 1) 5% of the gross admissions receipts received by the University from the sale of tickets or….the minimum event rental of $5,000 per any ticket event other than a men’s Basketball game, but subject to the “Complimentary ticket” provisions contained in the Lease. Other University-sponsored Events Same terms as above “Women’s Basketball Games”, with this addition: “For any other University-sponsored Event held in the Arena for which the University does not charge admission to the event, Tenant will pay to Landlord the minimum arena event of $5,000 per event.
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Below is how the “rent” revenue worked out on behalf of the Arena for 2011 University basketball games: ANALYSIS OF THE ARENA’S COST/DAY vs. RENT REVENUES RECEIVED FOR ALL U of L BASKETBALL GAMES/EVENTS PLAYED AT THE KFC YUM CENTER DURING 2011. 2011 Event Losses
Arena Revenue
Revenue on Game Day
Daily Operating Expense
Arena Loss on Game Day
Men’s Basketball (23)
$1,365,933 $59,388 $92,624 $764,419
Women’s Games (14)
70,000 5,000 92,624 $1,226,736
Other U of L events (4)
20,000 5,000 92,624 $350,496
TOTALS $1,455,933 $2,341,651 * 23 Men’s games X $92,624/Arena cost/day = $2,130,352 total cost - $1,365,933 revenue = $ 764,419 loss * 14 Women’s games X $92,624/Arena cost/day = $1,296,736 cost - $70,000 revenue = $ 1,226,736 loss * 4 Other U of L events X $92,624 Arena cost/day = $370,496 cost - $20,000 revenue = $350,496 loss Conclusion: Under the terms of the Arena lease with the University, below is an
interpolation and reconciliation of losses incurred per event as it relates to rent related
“revenue recognized related to men’s and women’s basketball games played at the
arena, and other university-sponsored events” as per the financial notes in the LAA
year end December 31, 2011 audited financial statement”.53
• For each men’s game the LAA incurred a $33,235 loss • For each women’s game the LAA incurred a $87,624 loss • For each “Other U of L sponsored event” the LAA incurred a $ 87,624 loss
Note: The above is excluding arena ticket surcharge revenue, premium suite
and seating revenue, and concession and catering revenue which were $815,572;
$1,929,343; and $497,030 respectively for the year ended December 31, 2011. 54
Granted, this superfluous revenue results in an overall net gain of $900,294 for
the Arena related to U of L basketball games and other events, however this net gain
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is obviously far outweighed by practice days utilized and the vast number of revenue
free days resulting in the arena’s net operating loss, inclusive of debt service
requirements, of $18,549,676 before government subsidies.55 This relates to a loss of
$50,821 per day for the 2011 calendar year.
Question: Why would the University have interest in negotiating and executing a
Lease that is known upfront to be impossible for the Landlord to survive financially,
not to mention totally devastating to the bond holders, the City, the State, and the
taxpayers who have collectively provided a Billion Dollars in financial support for the
Arena?
Look no further than Section 47 of the Lease. ADVANTAGE…UNIVERSITY.
Section 47 of the Lease “Right of Tenant” contains provisions in the event
“the Mortgagee acquires title to the Arena by reason of foreclosure….or as a result of
any other means….then a) before the Mortgagee may solicit or consider any
unsolicited offers to purchase the Arena, Tenant to have a period of 90 days after the
date on which the Mortgagee acquires title to the Arena to give notice to the
Mortgagee that it will purchase the Arena at the price that is sufficient to retire or
provide for the retirement all of the then outstanding Arena Bonds”.
Also, the same section of the Lease states that in the event “the
Mortgagee…receives a bona fide offer to purchase the Arena (from a third party), the
Mortgagee will deliver a copy of the offer to Tenant, and Tenant may within 90 days
after receipt of the copy of the offer to Tenant give notice to the Mortgagee that it
will purchase the Arena on the terms and the price set forth in the offer…”56
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Section 3 – The Arena TIF Q. What is a TIF? A. Although highly controversial, Tax Incremental Financing is a tool used by government to use future gains in taxes to finance current improvements that will (maybe) create those gains. Q. How does it work? A. When the Arena TIF was generated by State government, the theory was the Arena would create an increase in the value of surrounding real estate, thus increases in values of taxable properties and taxable activities including increasing sales taxes and occupational taxes in the designated TIF district. But by the mere token the TIF revenues are a fraction of what was projected (actually only 31.7%)57, it is evidence the predicted economic growth simply has not occurred as thought. In fact, in a December 23, 2012 Courier Journal reported that during 2011 there were “21 retailers that opened in the business district near the Arena” but “At the same time, the number that closed was 20”.58 For a net 1 new business for the year this seems to be a rather poor investment for the taxpayers given the more than $8.7 million given the Arena by the City and State as of 2011. Q. Why is the TIF not providing the anticipated funds? A. Much to the credit of those creating the controversy, TIF’s don’t always work because they are all based upon speculation and frequently revenue projections that are too high. Also contributing are overly optimistic anticipated effects of the project on surrounding areas, and the ever present market changes that were not considered. All of these common errors are factors in the Arena’s abbreviated TIF funds. Q. Most importantly: Are the lower than expected TIF revenues the primary source of the Louisville Arena’ Authority’s financial problems as the Arena and media has claimed?
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A. Without question, the answer is No! As you can see below, it is less than 25% of the 2011 problem. [And according to financial information just received from the Arena’s accounting firm, less than 38% of the Arena’s loss for 2012 as of Nov. 30, 2012]. Although the Arena’s TIF revenues have been woefully short of estimates, the below financial analysis confirms that the Arena’s primary financial problems are a result of insufficient revenues to pay its debt service due to its onerous Lease with the University of Louisville Athletic Association.
2011 Year Ended 12/31 – Louisville Arena Authority, Inc. – Analysis
(Financial figures taken from the Arena’s Dec. 31, 2011 Statement)
Operating Revenues: (including: sponsorship, suite & premium seating, naming rights, and event revenue)
$15,257,963
Debt Service per audited statement (all interest for 2011)
$21,682,864
Operating Expenses (less $11,438,712 depreciation & Amortization )
$12,124,775
Total Debt & Operating Expense
-$33,807,639
Operating Loss (including debt service before government subsidies)
($18,549,676)
* 2011 Shortfall in TIF revenue = $4,506,000, which is only 24.3% of the above loss * Total Debt Service & Operating Expense = $92,624 per day
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Arena TIF Payments – Projected vs. Actual
CALENDAR YEARS 2010 2011 2012 2008 Published Projections
$5,184,000
$6,674,000
$8,273,000
Actual Arena TIF Payments
678,000
2,168,000
3,541,672*
TIF Shortfall vs. Projections
(4,506,000)
(4,506,000)
(4,719,000)
* $3,554,000 as reported by Courier Journal 12/23/12 Clearly the lower than expected TIF funds are not the primary source of the Arena’s financial problem with respect to the total of the Arena’s losses before government subsidies. TIF Payment Increases are Largely Consumed by Increases in Debt Service – Projected and Actual
Although 2008 projected TIF revenues (per the above chart) have proven to be
far in excess of the actual TIF revenues received by the Arena, when comparing the
increases with the established increases in Debt Service from year-to-year, the
projected TIF funds and their annual increases, even had the projections been
accurate, would have been largely consumed by the amount of the annual increases
in debt service as displayed below.
Worse yet, the reality is the actual increase in TIF funds received from the
state in 2011 ($1,490,000 more than the $678,000 received in 2010) and for 2012
($1,386,000 more than the $2,168,000 received in 2011) have been largely consumed
by the increase in Debt Service payments, specifically by 49.6% and 41.1%
respectively for 2011 and 2012.
So the concept and media spin promulgated by the Arena Authority and the
media that potential future increases in Arena TIF funds will resolve the Arena’s
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financial problems is totally false and inaccurate. The below matrix clearly illustrates
that the established increases in the Arena’s annual Debt Service Schedule largely
offset even the grossly over-stated 2008 projections of future TIF fund increases.
YEAR
Debt Service Requirements
Year to Year
Increase
Projected TIF funds
Year to Year
Increase
% of TIF
fund Increase
consumed by Debt Service Increase
2011 $19,548,525 $6,674,000 2012 20,288,525 740,000 8,273,000 $1,596,000 46.4% 2013 20,858,525 570,000 9,987,000 1,714,000 33.3% 2014 21,768,525 910,000 11,823,000 1,836,000 49.6% 2015 22,328,525 560,000 13,790,000 1,967,000 28.4% 2016 23,098,525 770,000 15,896,000 2,106,000 36.6% 2017 23,420,925 322,400 18,149,000 2,253,000 14.3% 2018 25,114,975 1,694,050 20,560,000 2,411,000 70.3% In actuality no reasonable person should have believed the below, highly inflated projections of the anticipated Arena TIF funds nor that their over stated increases would become reality.
ARENA TIF REVENUE PROJECTIONS (in thousands)
YEAR 2010 2011 2012 2013 2014 2015 2016 2017 2018 Projections
5,184
6,674
8,273
9,987
11,823
13,790
15,896
18,148
20,560
$ Increase
+1,490
+1,599
+1,714
+1,836
+1,967
+2,106
+2,253
+2,411
%Increase
28.7%
24.0%
20.7%
18.4%
16.6%
15.3%
14.2%
13.3%
Total projected percentage increase for Arena TIF revenues from 2010 to 2018 = 297%
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ACTUAL TIF REVENUES RECEIVED Year
2010
2011
2012
Actual
$678,000
$2,168,000
$3,541,672*
* Per 2012 statement As displayed on page 27, the abbreviated TIF funds account for only 24.3% of the Arena’s 2011 financial losses.
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Section 4 – The University is making millions while the Arena is struggling for its financial life
Arena Authority Board member Todd Blue who while serving on the Arena
board had proposed changes to the Authority’s lease agreement with the University to
provide more Arena revenue saying, “This building is an incredible revenue generator
– one of the most unique in the country, which we should all celebrate – and I just
would like at some point to really look at the swath of that top-line dollar amount.
Those millions of dollars are going to U of L and I’m just saying: Why is that not on
the table to talk about?”
During an early 2012 Arena board meeting, Todd Blue reportedly argued
during a lengthy discussion of the operational review that the revenue split with
U of L is not favorable. After the meeting Todd Blue resigned as a Director. As
reported in a March 2012 CJ article, former Arena Authority member Todd Blue and
U of L spokesman Mark Hebert addressed the issue with Todd Blue being quoted
saying, “I don’t feel remotely apologetic to ask U of L to participate in good
community stewardship and work with us to reconfigure the agreement.”
While Hebert did not directly address Blue’s proposal in a statement he
reportedly stated, “The University of Louisville will always do what is in the best
interests of the University and our community. Perhaps more than anyone, we want
the downtown arena to be successful and we’re doing our part to make it a success.”59
Judging from the terms of the lease, the Arena’s financial statements, the
Arena’s huge losses over the course of its first two years of operation, the more than
$600 million of taxpayer subsidy granted the Arena, and a review of the long lists of
University revenues generated from the terms of the lease and estimates of the tens of
millions of revenues the University is receiving from Arena related events, one would
have to seriously question the sincerity of the University’s “community stewardship”
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as it relates to their lease, the Arena’s financial dilemma, and the taxpayers of the city
and state.
The bottom line is Metro Louisville and State taxpayers are subsidizing the
millions of dollars of revenues the University of Louisville Athletic Association is
receiving from Arena activities at the financial peril of the Arena, and the billion
dollars of financial support provided by the taxpayers and the bondholders, while the
Arena is struggling for its financial life.
Worse yet, feigning that increased TIF funds and more events are the answer to
the Arena’s financial problems, the Directors of the Arena seem to be attempting to
mask the real problems and avoiding the ultimate dire financial outcome facing the
Arena, the public, and the bond holders. Making matters worse, especially for the
bond investors, the credit rating of the parent company of Assured Guaranty, the
guarantors of the Arena bonds, was reduced two levels by Moody’s on Friday, January
18, 2013.
In spite of what appears to be wonderful achievements by the current Arena’s
management to secure increased numbers of concerts and activities, of the only two
monthly financial statements ever provided to date on the Arena’s website (Sept &
Oct 2012), they indicate that “Event Expenses” exceeded “Event Revenues” for
those two month’s by a total of $179,503. This resulted in Arena net operating losses
for September and October of $124,875 and $28,581 respectively.
Indicated on the October 2012 statement is a year to date total of the Arena’s
operational loss of $359,361,60 which is obviously excluding 10/12ths of the 2012
Debt Service of $16,907,104. [This despite the fact that the Arena’s monthly
financials displayed, inaccurately, a note that they “exclude ‘Category A’ Revenues”.
In fact the income statements include “Premium Seating” revenues which are part of
“Category A” revenues as defined in the bond prospectus]61.
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Most importantly the Arena’s monthly financial statements exclude “the
amounts payable in connection with the bonds” which, if included, would reveal an
eight figure loss for 2012. In fact, financial information forwarded by the Arena’s
accounting firm on 1-22-13 for year-to-date November 30, 201262 indicates that for
the first 11 months the Arena lost $12,589,247 including debt service payments
(excluding government subsidy payments).
As Metro Council President and Arena Director Jim King succinctly pointed
out in a particular recitation to a resolution to Mayor Fisher requesting a payment of
$9,800,000 during the September 15, 2012 Arena Board of Director’s meeting, “At
such times and in such amounts as are necessary to prevent a debt service
payment default on the Authority’s outstanding bonds.63”*
*Note: The author is aware of the Arena’s bond debt “Senior Reserve Fund” of which
$14,925,035 is invested in contracts (“GIC’s”) with a fair value of $22,636,816 as of 12/31/11.64
[Noted are the following unanswered questions in the 1-22-13 response from the Arena’s accounting
firm: With respect to a request for 1) “Detailed financial data regarding the specific “broken-out”
sources of the Arena’s $9,468,472 of “Event Revenue” for Year Ended December 31, 2011,
2) Detailed financial data specifically “breaking-out” the recipients of the $15,135,623 of ‘Arena
Operations’; the $4,258,970 Direct Cost of Events; and the $4,168,894 of General and
Administrative Costs.” And 3) A break down and/or reconciliation of revenues vs. expenses for
each non-basketball event conducted in the Arena during 2011. The written response to each of
these three requests was: “In order to answer this, it would require detailed financial analysis
which is not within the purview of a Request for Information”]65
CONCLUSION
Facing more than $800 million in debt service obligations with annual debt
service payment amounts increasing up to a high of $37,363,200 in 2029; with limited
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(if any) annual revenues exceeding the Arena’s annual operating expenses and
operating costs of more than $92,000 per day66; a 2 year cumulative record of losing
more than $43,000 per day 67; and subjected to lease terms in which it has no
conceivable chance of succeeding financially or even remotely being able to retire the
principal on the bonds, the major controlling officials of the Arena’s Board of
Directors who have served on that Board – several of whom are among the more
prominent businessmen/women in this community - and the executive administration
of the University of Louisville either know, or for certain should have known that
this set of irrefutable facts presents an imminent financial crises that can only be
resolved by the parties completely re-negotiating the terms of the lease between the
Arena and the University of Louisville.
This is not something that can be delayed or a task that can be dealt with by
some other group of people at some other time – a long time down the road. An
attitude of that sort would be little more than a monumental irresponsibility.
Therefore it is essential that the parties agree, as soon as possible, to renegotiate
the terms of the lease making them comparable to other contemporary leases that
other universities utilize for their respective teams use of the basketball arenas they
participate in. This is a task that could be completed within 2 weeks.
Lastly it must be stated that there are so many of these comparable leases
across America’s collegiate landscape that the ‘routine delay’ attributable to a ‘task
force’ or a ‘study’ is not required. This effort must be accomplished quickly and put
into effect within several months at the most.
In this regard, the “new” Lease must be one that resembles a “tenant”
relationship with an Arena owner as opposed to the present Lease that resembles an
“owners” lease of its own building.
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SOLUTION
1) Kentucky Governor Beshear and Metro Louisville Mayor Fischer immediately recast the Arena Authority Board of Directors appointing experienced noteworthy business people from anywhere within the United States who have no connection to the University of Louisville with preference given to those who have experience with Arena or Stadium operations. There should be a complete separation of persons associated or affiliated with the University with the purpose being to make the Arena a venue that belongs to the "community" of Louisville, which includes all sorts of community participants from Bellarmine University, to the State High School Basketball tournament, and the various end-of-season League and Conference Tournaments, etc. The Arena should be a “welcoming place” to all Kentucky and regional residents – a place that attracts people from everywhere – without regard to their university loyalty or partisanship. That being accomplished – the Arena will become something that ALL Kentuckians can call home and help to erase the growing antagonism that has been recently encouraged between the Universities of Louisville and Kentucky. The time has long past when the State and City can afford the luxury of a rivalry which economically damages the State and drives a wedge between citizens of this state. There should be nothing in the Lease that prohibits the Arena from agreeing to lease its facilities to any ent i ty so long as the lessee is legally honorable. The Lease should also mandate that the University of Louisville (which would remain a significant tenant) would be required and expected to work 'closely' with and in conjunction with the planning for the use of the Arena by any professional sports team that might desire to rent the arena bowl as its hometown facility. The Governor and the Mayor, being the appointive authorities must demand that the lack of operational financial transparency that has prevailed with the present Board composition cease - and cease immediately.
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2) Board meetings to be held via webinar or video conferencing with the Board agreeing to provide the financial community as well as the public with complete operational and financial transparency.
3) The Commonwealth of Kentucky and Metro Louisville governments mandate that the present lease be renegotiated by the new Arena board and the University of Louisville Athletic Association Board to a ‘new’ lease with terms acceptable to both parties and executed by both parties no later than June 30, 2013.
4) The re-negotiated terms of the lease must be completely non-monopolistic with respect to any and all potential events.
5) The elimination of any and all terms contained in the renegotiated lease including but not limited to: “free”, “at no charge”, “all revenues”, “is not required to pay”, “retains 100%”, “no rent or fee”, “not shared”, and “exclusive use and control”.
6) The Kentucky Legislature provide a resolution whereby the Arena lease must be renegotiated to a level of fairness allowing the Arena sufficient revenues to, at least, pay its expenses and its annual debt service by no later than June 30, 2013. Otherwise the Commonwealth shall utilize the provision contained in its “grant commitment” (TIF) whereby the Commonwealth imposes it’s “election to terminate at the end of any calendar year upon sixty days prior written notice” its cumulative maximum grant of $265,000,000 to the Arena Authority.*
* Per Note C 10 (3) p 15 of the Arena’s 2011 audited statement
7) As stewards of the community, and in their best interest as well as the Arena’s and the taxpayers, the parties receiving free Arena Private Suites and/or Suites in connection with or without quasi, and/or unrealized, revenues provided the Arena, including the Humana Corporation, the Galt House, the Kentucky State Fair board (or if transferred with the management change, AEG), the Arena Authority itself , and the University agree to forego all free Private Suites by donating them back to the 501 C (3) Tax Exempt Louisville Arena Authority, Inc and taking the appropriate charitable deduction, if any that may apply, in order to assist in saving the Arena from financial failure.
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8) The community, its leadership, and the parties involved in the lease endorse and stand behind this proposal to save the Arena from its inevitable financial collapse without additional and substantial multi-million dollar taxpayer commitment.
End.
1 Neil deMause and Joanna Cagan, Field of Schemes, 2008 2 Field of Schemes, p 62 3 Arena 2010 audited financial statement p 15 4 KY Economic Development Finance Louisville Arena Authority bond prospectus pp 1-4 5 Ties that bind: Deal between Louisville Arena Authority and UofL is sweet for a reason, June 27, 2012 www.LouisvilleInsider.com 6 Arena / University Lease, http://www.arenaauthority.com/docs/contracts/ULLeaseAgree.pdf 7 Louisville Arena Authority year end 2011 audited financial statement 8 Arena Authority 2011-2010 audited financial statement p 2 9 The Bonham Group, Evaluation of the Water Company Site for Proposed Louisville Arena, Feb 2006 10 The Bonham Group, Executive Summary p 3 11 Financial analysis p 10 using 2011 audited statement financial figures, “Billion Dollar Basketball” 12 Arena $839,524,341 Debt Service Schedule p 81 found on p 91 of bond prospectus 13 Leib Advisors, LLC Aug 2008 Updated Analysis, p 10 found on p 292 of Arena bond prospectus. Arena $839,524,341 Debt Service Schedule p 81 found on p 91 of bond prospectus 14 Arena Sept 2012 Board meeting minutes p 2, http://www.arenaauthority.com/docs/Schedule/091012-minutes.pdf 15 Moody’s Investor Service, May 29, 2012 published rating action on the Kentucky Economic Development Finance Authority’s (KEDFA) Louisville Arena Project Revenue Bonds (senior lien only). 16 Moody’s Investor Service January 17, 2013 downgrading report of Assured Guaranty, http://www.moodys.com/research/Moodys-downgrades-Assured-Guaranty-lead-insurer-to-A2--PR_263412 17 Arena Oct 2012 Board meeting minutes p 1, http://www.arenaauthority.com/docs/Schedule/101512-minutes.pdf , December 31, 2012 Letter from author Denis Frankenberger to Metro Louisville Council President and Arena Director Jim King; January 14, 2013 response letter from Jim King to author Denis Frankenberger 18 Arena Authority’s 2011, 2010, 2009 form 990 tax returns, Section C. Computation of Public Support Percentage 19 Courier Journal Dec 23,2013 “Arena struggles to pay off debt” 20 Leib Advisors, LLC Aug 2008 Updated Analysis, p 10 found on p 292 of Arena bond prospectus. 21 Billion Dollar Basketball p 25 Analysis - Arena TIF payments – Projected vs. Actual 22 Billion Dollar Basketball p 25 Analysis - Arena TIF payments – Projected vs. Actual 23 Billion Dollar Basketball p 24 2011 Year Ended 12-31-12 Financial Analysis 24 Leib Advisors, LLC Aug 2008 Updated Analysis, p 10 found on p 292 of Arena bond prospectus. 25 Metro Louisville Guaranteed Payments pg 6, found on Arena bond prospectus p16 26 “Statement of Activities” received from Arena’s accounting firm DMLO on 1-23-13 for the eleven periods ended Nov. 30, 2012 27 Lease Agreement p 14 with respect to granting six (6) and two (2) free private suites given the Arena and the University respectively and Arena Authority 2011 audited financial statement pp 9-10. 28 Arena Authority 2011 audited financial statement p 10, Note C (2) “Galt House Agreement”. 29 Arena Bond Prospectus p19 found on p29 of the prospectus digital copy 30 Arena Bond Prospectus p 29 found on p 39 of the prospectus digital copy 31 1-22-13 letter from Arena accounting firm DMLO p 2 answer to Q 5 32 Lease Agreement p16 Section 5.2 (b) “Use of Party Suites for Basketball Games” 33 Lease Agreement pp 17-18 Section 6.1 (d) “Complimentary Tickets” 34 Lease Agreement p 16 Section 5.2 (b) use of Party Suites for basketball games 35 Arena 2011 form 990 tax return p 1
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36 Arena 2011 audited financial statement p 3 37 Debt Service Schedule totaling $839,524,341 pg 81 found on p 91 of the bond prospectus digital copy 38 Billion Dollar Basketball p 25 Analysis of year ended Dec. 31, 2011 audited financial statement 39 Arena Bond Prospectus p 6 found on page 16 of the bond prospectus digital copy “Metro Louisville Guaranteed Payments” 40 Courier Journal January 15, 2013 article “Louisville ranks low on pension funding for municipal workers, report says” 41 Billion Dollar Basketball p 25 Analysis of year ended Dec. 31, 2011 audited financial statement 42 Billion Dollar Basketball p 25 Analysis of year ended Dec. 31, 2011 audited financial statement 43 Lease Agreement between the Louisville Arena Authority and the University 44 Lease Agreement Section 5.1 (b) p 16 45 1-22-13 letter from Arena accounting firm DMLO 46 Arena accounting firm response to request for information dated 1-22-13 47 Arena bond prospectus, p 19 found on p 29 of the digital 48 Arena 2011 audited financial statement p 10 Note C (3) 49 1-22-13 letter from Arena accounting firm DMLO p 2 Answer to Q 5 50 1-22-13 letter from Arena accounting firm DMLO and the “Exchange Agreement” dated 11-01-06 signed by the Arena Chairman Host 4-07-07 and construction manager PC Sports 5-08-07. 51 1-22-13 letter from Arena accounting firm DMLO, p 2 answer to question 5 52 Lease p 17 Section 6 53 Arena audited 2011-2010 financial statement, pp 13-15 Note C (7) 54 Arena audited 2011-2010 financial statement p 14 55 Billion Dollar Basketball p 26 Analysis using audited financial statement data 56 Arena Lease pp 45-46 Section 47 53 Arena TIF payments – Projected vs. Actual 58 Courier Journal Dec 23,2013 “Arena struggles to pay off debt” 59 Kentucky Sports Radio website 4-22-12 by John Wilmhoff 60 Arena Authority Sept. and Oct. financial statements displayed on its website 61 Arena Authority Bond Prospectus p 296 of 604 Definitions of Category A and B revenues 62 Arena Authority “Statement of Activities for the eleven periods ended Nov. 30, 2012” 63 Minutes of Arena Authority Sept 10, 2012 Board Meeting p 2 64 Arena Authorities 2011 – 2010 audited financial statement p 24 65 1-22-13 letter from Arena accounting firm DMLO pp 2-3 66 Billion Dollar Basketball, p26 analysis using 2011 audited financial statement figures. 67 Combined 2011 and 2012 YTD Nov. 30, 2012 financial data