Posted by John Vrooman on Friday, May 4, 2018 in NCAA Basketball.

Interview with Louisville Courier-Journal.

Top 10 Revenues and Salaries.

I’m just wondering about what the Yum Center will be like and how it will be perceived by the community in 30 years, when the bonds are scheduled to be paid off. Can you weigh in with any perspective?

The new luxury arenas have at least two lives: the official one is structural and the other more realistic one is economic. Most bond financing arrangements are based on a 30 year life, while the more technological economic life expectancy is usually about 20 years.

This de facto economic obsolescence why it is common for arena franchises (NBA/NHL) to start seeking new arenas at around 20 years for arenas that have a de jure structural bond life of 30 years. As a result, the generational cycle for public arena extortion usually runs 20 years.

Also, on a separate front, the arena’s naming rights deal is coming up for renegotiation soon. Do you have a sense in the marketplace about how much naming rights go for these days? And do renewed contracts tend to go up or down in value, or stay about the same?

The current going rate for naming rights for NBA/NHL arenas in a Louisville sized market are in the $5 million to $7 million range for a usual 20 year term (note the “economic” length of the deal) , and the rate increases at about 3 percent to 4 percent per season.

The older Sprint Center 2004 deal in KC is $2.5 million, the recent Charlotte deal is about $5 million and the Milwaukee Bucks are seeking $7 million to $10 million for their new arena.

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When you’re talking about the “more technological economic life expectancy” of about 20 years, you mean when teams and the public start feeling like an arena is old and outdated?

Yes. The economic architecture is driven by customized profit maximization for the anchor tenants. In the modern venues specialized club seating and luxury suite configurations can obsolesce relatively quickly based on the latest technology and ticket pricing schemes. Ironically the evolution of new smart luxury venues is technologically driven by new media like streaming and wi-fi.

Also, does the economic life expectancy differ between arenas for pro teams versus college teams?

Yes. Professional venues are specifically designed to internally maximize profit for the anchor tenant. Whereas college venues have traditionally been designed to maximize fan welfare often at the expense of profit.

This is why professional venues are relatively small and specialized based on the sport, and college venues are larger multipurpose monoliths.

This is also why downsized special purpose pro venues should be privately financed and larger multipurpose college venues are often publicly subsidized.

The basic rule in monopoly ticket pricing is to charge half as many fans twice as much while the basic rule for publicly funded venues is satisfy more fans at a lower price. We are now in the middle of a venue revolution where traditionally publicly subsidized college venues are evolving into the realm of specialized monopoly pricing with luxury suites, club seats and PSLs. This is what I meant when I told Reuters last year that:

The Louisville Cardinals are a stone cold semi-professional money machine. With an annual basketball budget in excess of $50 million and a head coach’s salary around $8 million (just ahead of Kentucky’s John Calipari ), the Louisville Cardinals and their head coach are the most expensive basketball program-coach package in the NCAA by a long shot. This basketball budget would place the Cardinals in the top 25 of Power 5 football budgets and Coach Pitino is/was the second highest paid head coach in college sports period.

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