Year of Publication

2006

College

Martin School of Public Policy and Administration

Date Available

9-5-2014

Executive Summary

The purpose of this research design was to make recommendations to Louisville Metro Council Members, members of the Kentucky General Assembly from Jefferson County and Louisville Metro Mayor Jerry Abramson on the potential revenue and economic impact a potential franchise of the National Basketball Association (NBA) could have on the proposed Louisville Arena Project and the city of Louisville.

Research in the literature review showed that stadiums, arenas and professional teams are poor investments by communities. Despite the research, the new Louisville Arena is going to be built because the Kentucky General Assembly included $75-million in bond financing for the Louisville Arena and the city of Louisville has already pledged their bonding capacity to help pay a third of the cost. One of the major components lacking is research to show if a professional team can help subsidize an arena that is already in existence and as a result, making it a “dual-use” facility.

The proposed Louisville Arena project must have 113 dates annually to operate at a “break even” level. Currently, 138 events take place in Freedom Hall annually according to the Leib Group, consultants for the new Louisville Arena project, but only a portion of those events are expected to move to the new arena when it opens. As a result, Louisville lawmakers are going to need to start looking at ways to subsidize the debt service obligations and the question this study addresses is if an NBA team could do just that.

The results of a study by the University of Memphis show that 58% of visitors in attendance for their dual-use arena, the FedExForum, would be from outside the city of Memphis. This study is critical to the Louisville/Metro area in that Louisville and Memphis are comparable size demographically and financially. This study also indicated these visitors would arrive solely to attend an NBA game. Therefore, any money these visitors bring into Louisville/Jefferson County for an NBA game represents new money to Louisville, but not necessarily to the state.

Comparisons of the proposed Louisville Arena to NBA arenas located in cities of a similar market size to Louisville indicate that the proposed single-use facility is adequate enough to serve as a dual-use facility. Results also revealed that if an NBA team were attracted to the city of Louisville, $24 million (available in Table 7) in new revenues could be generated for the city of Louisville and the Louisville Arena Authority by having a dual-use facility. This is largely due to the NBA providing new “entertainment” to the community because an NBA team draws from a larger market base. There is also the reality that currently not a single major-league professional team of any type in the state of Kentucky. This contrasts with the University of Louisville men’s and women’s basketball teams which would simply move the entertainment money from one location (Freedom Hall) to another location in downtown Louisville.

Incentives and the probability of attracting a potential NBA franchise to Louisville were addressed, as was a discussion on how the arena would still be able to issue tax-exempt bonds, even if one of the “primary” tenants is a privately held professional basketball team. Recommendations were made based on the results of the economic and revenue impact analysis. The recommendations provide a different perspective on how an NBA team can move into a community and help bring in new revenue and visitors.

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