The KFC Yum! Center is a multi-purpose sports and entertainment arena located in downtown Louisville, Kentucky. The 22,090 seat arena is best known as the home of the University of Louisville men’s and women’s basketball teams. In addition to basketball, the KFC Yum! Center hosts concerts, family shows, and various sporting events. The arena first opened in October 2010 and construction costs totaled approximately $238 million.
Arena Financing and Costs
The KFC Yum! Center was financed through a collaboration between the Louisville Arena Authority (LAA), the University of Louisville, the Louisville Metro Government, and ArenaCo. The financing breakdown is as follows:
Louisville Arena Authority | $349 million |
University of Louisville | $238 million |
Louisville Metro Government | $127 million |
ArenaCo | $92 million |
The LAA financed their portion through bond offerings paid back by arena revenues and a ticket surcharge. The University of Louisville leased the naming rights to Yum! Brands for $13.5 million. They also provided $15 million upfront for construction. The Louisville Metro Government contributed $75 million for arena construction along with providing infrastructure improvements valued around $52 million. ArenaCo contributed $42 million upfront and received guaranteed annual revenues from arena events.
In total, arena construction costs amounted to approximately $238 million. This does not include ancillary spending related to acquiring land, relocating existing businesses, infrastructure upgrades, financing costs, architecture fees, legal fees, and other expenses which brought the total project cost over $350 million.
Construction Cost Breakdown
Construction costs for the KFC Yum! Center can be divided into the following categories:
General Conditions | $18 million |
Additional Site Work | $12 million |
Concrete and Masonry | $44 million |
Structural Steel | $22 million |
Architectural Precast Concrete | $5 million |
Roofing and Sheet Metal | $12 million |
Curtainwall and Glazing | $18 million |
Interior Finishes | $25 million |
Mechanical and Electrical | $46 million |
Equipment and Furnishings | $12 million |
Broadcast Equipment | $2 million |
Technology and Security | $8 million |
Wayfinding and Signage | $2 million |
Demolition | $12 million |
The largest construction line items were concrete, masonry, steel, mechanical systems, interior finishes, and electrical. State-of-the-art systems for telecommunications, broadcast capabilities, lighting, acoustics, and patron amenities also added considerably to costs.
Development and Planning
The KFC Yum! Center was in development for over 5 years before construction began in 2008. Planning first began in 2003 when the University of Louisville determined their existing Freedom Hall arena was outdated. They partnered with city and state officials in 2004 to explore new arena options. After conducting feasibility studies, the Arena Authority was established by the Kentucky General Assembly in 2006.
The LAA selected an architect and construction manager in 2007. The project was put out for competitive bid in 2008. Construction spanned from 2008-2010. Before construction, the project faced several hurdles including environmental approvals, land acquisition, historic preservation issues, and financing challenges. Overall, the planning and development phase lasted about 5 years.
Project Timeline
2003 | University of Louisville begins exploring new arena options |
2004 | City and state officials partner to study feasibility |
2006 | General Assembly establishes Louisville Arena Authority |
2007 | Architect and project manager selected |
2008 | Construction bids solicited and project financing finalized |
2008-2010 | Arena construction |
October 2010 | Arena opening |
Several factors led to the long development timeline including political debates over public financing, the wide number of stakeholders involved, site selection analysis, and the large scale of the project.
Operational Costs
In addition to upfront construction expenses, there are ongoing operational and maintenance costs associated with running the KFC Yum! Center. These costs have run between $18-25 million annually and include:
Staffing Costs
Staffing is one of the largest expense items and covers salaries, benefits, training, and employment taxes for the arena’s management team, event staff, janitorial team, guest services team, administrative employees, box office representatives and more. There are over 400 part-time and 150 full-time employees.
Utilities and Maintenance
This includes electric, gas, water, sewer, waste management bills along with HVAC, plumbing, janitorial, pest control and general facility maintenance. These fixed overhead costs exceed $5 million per year.
Insurance
The arena requires extensive event cancellation, property, liability and worker’s compensation insurance policies which amount to around $1 million annually.
Technology Costs
From the lighting and scoreboard systems to point of sale terminals and WiFi, the arena relies on cutting edge IT and AV equipment which requires ongoing maintenance and licensing expenses.
Marketing and Sales
While most events bring in revenue through tickets or leases, the arena does require in-house marketing and sales staff to promote the venue, sell sponsorships and handle event bookings.
Management Fees
ArenaCo receives an annual management fee starting at $1.75 million (and indexed for inflation) for oversight of operations, finance, booking and more.
Covering these fixed overhead costs generally requires hosting around 150 event days annually attracting over 1 million attendees. For context, in 2019 the arena held 181 event days and welcomed 1.2 million guests.
Taxpayer Impact
There has been much debate whether the KFC Yum! Center represents a reasonable public investment or an excessive subsidy to benefit private arena interests. Supporters argue the economic activity attracted to downtown Louisville justifies the public spending. Critics point to underperforming financial projections as a sign taxpayers are shouldering too much of the burden.
The Louisville Arena Authority financed their $349 million contribution through bond offerings covered by three main revenue streams:
Arena Revenues
The Arena Authority receives money from arena operations including rent, concessions, sponsorships, ticket fees and more. However, these revenues have fallen short of original estimates.
Metro Government Contribution
The city guaranteed they would contribute up to $10 million annually if arena revenues are insufficient to cover bond payments. The city has had to provide the maximum $10 million payment every year so far.
Ticket Surcharge
A $1 to $3 ticket fee is charged on arena event tickets. However this has generated under $2 million annually, far short of original projections.
With arena revenues underperforming projections, taxpayers have been asked to contribute more than anticipated. Meanwhile, the Arena Authority remains on the hook for nearly $300 million in outstanding bond obligations over the next 20 years. It remains to be seen whether the arena will become more self-sustaining over time.
Conclusion
The KFC Yum! Center required an immense upfront investment, financed through a public-private partnership between the Louisville Arena Authority, State of Kentucky, University of Louisville and ArenaCo.
Construction of the $238 million arena took over 5 years of planning, before the doors opened in 2010. Ongoing operational expenses continue to run between $18-25 million annually for staffing, maintenance, insurance, marketing and management costs.
The venue was financed largely by municipal bonds, which so far have underperformed original revenue projections. This has required increased taxpayer contributions to cover bond payments.
While the KFC Yum! Center has successfully attracted hundreds of events and over a million guests per year to Louisville’s downtown, it has come at a higher public cost than anticipated. Looking ahead, stakeholders will continue working to improve the arena’s financial standing and deliver a good return on investment for taxpayers.