HOME COURT ADVANTAGE

The Economic Feasibility of an NBA Franchise in Louisville, Kentucky

White Paper prepared by BoxcarPR 2906 Eastpoint Parkway Louisville, KY 40223

A HOME COURT ADVANTAGE Since the merger of the ABA and NBA, talks have circulated around bringing a NBA franchise to Louisville, Kentucky. Proponents of the NBA franchise believe that a professional basketball team would increase Louisville’s exposure in the national marketplace and deem it a ‘world-class city.’ In return, this exposure would develop into positive economic impacts by way of businesses relocating into the marketplace. Kentucky is a region well known for its love of basketball thanks to its rich collegiate programs at the University of Kentucky (8 National Championships), University of Louisville (2 National Championships), and other strong teams at Western Kentucky University, Transylvania University, and Bellarmine University. However, it is also evident through historic economic data and current literature that Louisville would not be able to sustain a NBA franchise. It is highly probable that an NBA team would not be able to survive in this market and would look to move away quickly. In the long run such a turn of events would be extremely harmful to the region’s economy and its universities. THE ISSUE There are currently four teams in the NBA that are considering relocation: Sacramento Kings, Memphis Grizzlies, Minnesota Timberwolves, and the Milwaukee Bucks1. In addition, recent news reports have featured discussions by Mayor Greg Fischer and the idea to host 10 games with the Indiana Pacers2. The construction of the Yum! Center, a facility designed and built to professional team standards is a main reason for the resurgence of NBA to Louisville discussions. Unfortunately, these discussions come at a time when the Louisville-Jefferson County Metropolitan Statistical Area is lagging behind national trends in economic growth indicators. Bureau of Economic Analysis data reflects the following…
“In 2010 Louisville-Jefferson County had a per capita personal income (PCPI) of $36,992. This PCPI ranked 141st in the United States and was 93 percent of the national average, $39,937. The 2010 PCPI reflected an increase of 1.1 percent from 2009. The 2009-2010 national change was 2.8 percent. In 2000 the PCPI of Louisville-Jefferson County was $29,676 and ranked 91st in the United States. The 2000-2010 compound annual growth rate of PCPI was 2.2 percent. The compound annual growth rate for the nation was 2.8 percent.”3

1

Rasher & Rasher, NBA Expansion Viability Study; Sacramento Kings Relocation: 10 Cities, October 2012 Arnold, Joe. "Fischer 'brainstormed' Pacers Playing in Louisville, NBA Talk Peeves U of L." WHAS11.com. WHAS11 News, 25 Sept. 2012. Web. 1 Nov. 2012. <http://www.whas11.com/sports/basketball/UofL-Athletic-Department-says-city-has-specific-NBA-team-in-mind-forLouisville-171263751.html>. 3 "BEARFACTS." Louisville-Jefferson County (MSA) Per Capita Personal Income Data. Bureau of Economic Analysis, 2011. <http://www.bea.gov/regional/bearfacts/action.cfm>.
2

Likewise our region has nearly doubled the amount of unemployed workers in its labor force since 2002. Bureau of Labor Statistics datasets indicate that Kentucky’s economy is struggling to regain ground following the 2008 recession4:
Local Area Unemployment Statistics Series Id: LAUMT21311406 Not Seasonally Adjusted Area: Louisville-Jefferson County, KY-IN Metropolitan Statistical Area Area Type: Metropolitan areas State/Region/Division: Kentucky
Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Period Annual Annual Annual Annual Annual Annual Annual Annual Annual Annual Labor force 598159 600542 600263 610682 622850 626844 629163 632466 630781 633714 Employment 565827 565732 568356 574725 587306 593509 589182 569277 566562 572282 Unemployment 32332 34810 31907 35957 35544 33335 39981 63189 64219 61432 Unemployment Rate 5.4 5.8 5.3 5.9 5.7 5.3 6.4 10 10.2 9.7

Will these bad economy indicators be appeased with the arrival of an NBA franchise to the region? NBA to Louisville supporters argue that a professional team would bring new jobs and revenues from fans staying in hotels and using local businesses; however, the net impact is barely enough to cover the costs associated with the team’s arrival. The 2012 Economic Impact Study performed by Cambridge Economic Research calculates the projected impact to be a net positive of $2.4 million. Given the average tenure of a NBA team, the net present value of a team arriving to Louisville would be just under $19 million (annual stream of $2.4m over 11 years at 6% interest rate).5 Louisville must be advised that cities are asked to pay millions in other costs to relocate a team including lease break fees, lease rights, and stadium upgrades. These costs can be well over $100 million dollars and are non-negotiable given the standards of the NBA business and marketing models. 6
4

5 6

"Bureau of Labor Statistics." Louisville-Jefferson County, KY-IN Metropolitan Statistical Area- Local Unemployment Statistics.

Economic Impact of an NBA Team on Louisville. Cambridge Economic Research, 23 Oct. 2012. Print. Economic Impact of an NBA Team on Louisville. Cambridge Economic Research, 23 Oct. 2012. Print.

With the region’s fervent support of its local collegiate teams coupled with poor personal income numbers, it is far fetched to think that a Louisville citizen’s dollar can be stretched even further to support NBA tickets. Money spent on professional sports is money diverted from other forms of entertainment including concerts, movies, local festivals, amateur/collegiate sports, restaurants, and the fine arts. New investment stemming from the NBA in Louisville can only be counted if it dollars originating from tourism. Additionally, of the four cities being considered for NBA relocation, Louisville has the smallest population of 1.3 million residents. 7 Nielson Rating Data lists Louisville as the 48th television market8. This designates that the city is a small television market and in fact, should a professional basketball team arrive, the smallest television market in the NBA. Historically, small markets have never won a championship and have seldom advanced to the finals. In fact the last championship by a small-market team was 1976 following ABA-NBA merger 9. Superstar players are not attracted to small markets because of the lack of exposure they receive. Small markets like Louisville must compensate for limited attendance and television market size with bigger and better financial incentives, rental costs, and revenue sharing. Low advertising revenues will stress the city even more. CREATING A WORLD CLASS CITY A world-class city is defined by its culture, citizens, and potential for future growth. Louisville is a city with rich history and amenities such as a vibrant arts community, unique restaurants, first-rate facilities, and premiere universities. In addition, Louisville has an incredible sports presence thanks to our collegiate basketball programs, Churchill Downs, the Ryder Cup and Senior PGA Tour hosting years, and the Louisville Bats. As a smaller city, Louisville offers a low cost of living and is considered one of the most livable cities in the nation. However, this distinction may be short lived because of the economic indicators of the last decade. Louisville and the surrounding region must continue to attract businesses and startup companies through attractive taxation structures and convenient business communities. By capitalizing on Louisville’s competitive advantages including its geographic location, higher education institutions, and livability, the city can attract the companies and entrepreneurs it needs to grow. A significant amount of marketing and incentives are also
7 8 9

Economic Impact of an NBA Team on Louisville. Cambridge Economic Research, 23 Oct. 2012. Print.
"The Nielsen Company: Local Television Market Universe Estimates Comparisons of 2010-11 and 2011-12 Market Ranks." 2011. Web.

Florida, Richard. "The NBA's Small-Market Disadvantage." The Atlantic Cities, 23 May 2012. Web. <http://www.theatlanticcities.com/artsand-lifestyle/2012/05/nbas-small-market-disadvantage/2025/>.

needed to attract new firms. But, performing these actions via an NBA franchise would be a roundabout and dangerously foolish exercise. At the present time, this region’s economy is not strong enough to attract and sustain and NBA team and certainly not viable to bounce back should the team depart after a decade of operation. Of the city’s current positive components, the University of Louisville is by far the city’s strongest economic driver with $1.2 billion added to Kentucky economic output in 2003200910. UofL’s basketball program alone is considered to be the most valuable in the nation ($36.1 million) according to Forbes magazine11. To damage the revenue stream of the University of Louisville is to damage the entire Kentucky economy. KEEP OUR BASKETBALL HERITAGE ALIVE To create a world-class city, Louisville must work in tandem with the University of Louisville instead of against the operations of this institution. Those citing that the University achieved too lucrative of the deal with the Yum! Center must be aware that those revenues go back to support student-athletes and new residents and activity in our city12. If the city continues to misalign its priorities with such an important entity it will drop further down into labor force and personal income rankings. An NBA franchise would cost hundreds of millions of dollars that the local government could not support without placing an incredible burden on taxpayers. Instead, tax dollars should be used to support more critical city government services. The Yum! Center is an incredible facility that doubles as an excellent home to the Louisville Cardinals and premiere entertainment acts such as Bruce Springsteen, The Who, and Justin Bieber. These concerts are made possible through direct cooperation between the University of Louisville, the Louisville Convention and Visitors Bureau, and Kentucky State Fair Board. Should an NBA team arrive in Louisville, scheduling conflicts would preclude such entertainment and would essentially strip the University of Louisville’s identity from the facility. It is common practice for NBA teams to remove branding for collegiate counterparts in its facility13.

10

"Study Shows UofL Is Major Economic Driver." UofL Today. University of Louisville, 14 Jan. 2010. Web. <https://louisville.edu/uofltoday/campus-news/study-shows-uofl-is-major-economic-driver>.
11

"Xavier among Forbes' Most Valuable College Basketball Teams." Business Courier, 13 Mar. 2012. Web. <http://www.bizjournals.com/cincinnati/news/2012/03/13/xavier-among-forbes-most-valuable.html>.
12
13

University of Louisville Athletic Association, Inc. 2012 Operating Budget. Miller, Kevin; Workman, Harold; Burda, Debbie. "Off Campus Arena Comparison." 2005. E-mail.

A project annual stream of $2.4 million in economic and fiscal benefits is not significant enough to cover the costs the city of Louisville would incur and certainly not enough to benefit the community in the long term. The detrimental effects to the University of Louisville athletic program would be long-lasting as well with decreased scholarships and Title 9 opportunities.

More information can be found in the enclosed report: “Economic Impact of an NBA Franchise on Louisville” created by Cambridge Economic Research and Home Court Advantage Talking Points. This white paper has been prepared by BoxcarPR. For more information please contact bob@boxcarpr.com or 502.554.0940.

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