June 19, 2007

Name that arena

There are incestuous connections and a weird history between the Arena Authority and its newly-minted naming-rights partner, Team ServicesIf you were already of the belief that our elected officials haven’t leveled with us about the real costs of the coming Louisville Arena and whether it will really pay for itself over the long haul, well, this isn’t going to make you feel any better. At its regularly scheduled meeting Tuesday morning, the Louisville Arena Authority accepted a deal making Team Services, LLC — a Maryland-based sports marketing firm and subsidiary of Learfield Sports, which acquired it about two years ago — the firm responsible for securing “naming rights” to the new arena. Naming rights is essentially the fee that corporations pay to have their name on the marquee (think RCA Dome in Indianapolis). That firm has direct ties to the authority that go back further than this project. Moreover, its own history in this kind of work is not without problems. In 2005, Arena Authority chairman Jim Host — then chairman of the authority’s predecessor, the Louisville Arena Task Force — boasted that naming rights would bring in “at least $40 million” over 20 years, providing a significant chunk of the revenue necessary to pay off the $573 million of bonded debt the arena will cost over 30 years.At the time, nearly all national experts panned Host’s $2 million-per-year prediction as pie-in-the-sky, as such a figure would be one of the largest deals ever cut for collegiate naming rights in the country. The lone expert publicly agreeing with Host’s predictions at the time was E.J. Narcise, a principal at Team Services, LLC. Narcise was quoted in The Courier-Journal at the time saying naming rights to the Louisville Arena were “worth every bit of $40 million.” He also made the pitch at Tuesday’s meeting, where he reiterated that sentiment. However, unknown at the time, a deeper connection existed between Host and Narcise that has never been disclosed: Team Services formed a joint venture with Host Communications (Host was CEO at the time) on another collegiate naming-rights deal in 2003, involving the University of Texas’ Erwin Special Events Center, the facility where the university’s basketball teams play (that year both the men’s and women’s teams played in the NCAA Final Four).The promise to the University of Texas at the time: $2 million per year in naming rights.In the May 2003 press release announcing the deal, Host said, “Our partnership with Team Services brings this project an unmatched level of experience and expertise in the collegiate and naming rights marketplace.”Meanwhile, by the end of 2003, Team Services leveraged the Texas deal (among others) to beat out six other companies in landing a lucrative naming-rights contract with the state of Illinois, which they assessed was worth as much as $300 million over three years. (Host was not part of this.) In a deal announced by Gov. Rod Blagojevich, Team Services was tasked to find corporate sponsors for a wide variety of state property, from state parks, historic buildings and even selling rights to an official state beverage.By 2005, both deals had fizzled badly for Team Services.To date, no naming-rights deal has been obtained for the University of Texas, and its efforts in Illinois morphed into a major political scandal after media reports revealed that Team Services — after receiving several hundreds of thousands of dollars in fees — was partly owned by a Blagojevich donor and former business associate of the governor’s own chief of staff.Compounding the trouble, Team Services managed to generate barely $1 million in sponsorship revenue for Illinois over the first two years of its contract, despite receiving $459,638 in consulting fees, a far cry from the mega millions the firm projected would be generated in naming rights for the cash-strapped state. Since then, Team Services was forced to renegotiate its contract and now receives a flat commission for any revenue it generates. Here in Kentucky, Host told the media in August 2005 that he was close to a signing a $40 million, 20-year naming-rights deal, but refused to disclose which company was interested. Of course, Host’s comments came a month before the Louisville Arena Task Force presented its final recommendations to Gov. Fletcher on the financial viability of building the arena in the first place. Not surprisingly, barely a month later, the state signed off on the arena proposal and Host was named chairman of the newly minted Louisville Arena Authority. Meanwhile, it became apparent that no such $40 million deal had been completed — or was even still in the works — and Host’s financial predictions began evolving. By the November 2006 arena groundbreaking, Host was predicting a $40 million, 30-year naming-rights deal, acknowledging for the first time that several unspecified companies had expressed interest in the arena, but for less than $40 million. By February 2007, Host’s talking points changed again. He began saying that while his $40 million naming-rights goal had fallen short (explaining that unnamed companies were interested in something closer to $25 million), he argued that a sponsor was really not essential any longer, causing a lot of head-scratching among arena watchers who were well aware of the line-item such naming-rights revenue contributed to the project’s crucial bottom line. Finally, in this month’s updated analysis of the arena’s finances prepared by Leib Advisors, it was acknowledged that a $40 million, 30-year naming-rights deal (they aren’t talking 20 years any longer) would require exceeding the highest deal ever made for a college arena, currently held by the University of Virginia, which reached a $35 million deal in 2004, but with no expiration date, unlike Host’s projections of 20 or 30 years. So yesterday, Host turned to his old business partner, Team Services, hoping they can deliver on their 2005 promise, when they predicted “Louisville could get more than $40 million,” despite their troubling recent track record and failure to deliver on naming-rights expectations. Mark Nickolas is publisher of the political blog BluegrassReport.org. Contact him at mark@bluegrassreport.org