ABSTRACT

Louisville City FC (football club), a professional soccer team located in Louisville, Kentucky, received a mandate from the United Soccer League: build a soccer-specific stadium by 2020 to remain in the league. At the time of this announcement, the team played its home games at Louisville Slugger Field, a professional baseball stadium owned by the city of Louisville and managed by the Louisville Bats, a minor league baseball team. In response, local government officials paid $75,000 for a facility feasibility analysis to review the potential effects of building a soccer-specific stadium. The analysis offered insights into the advantages and disadvantages of constructing a new stadium. Louisville FC leaders and local government officials weighed the various options provided in this report, including three proposed stadium plans ranging from $30 million to $50 million. The team would like to use this information and move forward with construction. Stadium opponents, however, cite the financial difficulties with another local sports facility, the KFC Yum! Center, and question whether building a new stadium represents a sound decision. This case study gives readers an opportunity to evaluate the merits of the stadium proposal and whether the team and city officials should pursue this decision.

INTRODUCTION

Louisville City FC (where FC stands for football club, where football is the international name for soccer) is a professional soccer team located in Louisville, Kentucky, and is part of the United Soccer League (USL). John Neace, the team chairman and president, received a mandate from the USL: every team in the league must play in a soccer-specific stadium by 2020. At the time of the announcement, Louisville City FC played its home games at Louisville Slugger Field, a professional baseball stadium located in downtown Louisville. The stadium is owned by the Louisville Metro Government and managed by the Louisville Bats, a minor league baseball team.

To address this mandate, Louisville Mayor Greg Fischer and local government officials paid $75,000 for a soccer stadium feasibility analysis (Louisville commits $75K for feasibility study of soccer stadium, 2016). Consulting agency Conventions, Sports, & Leisure (CSL) conducted the study. The "advisory and planning firm specializing in providing consulting services to the convention, sport, entertainment, and visitor industries" (CSL, 2012) created a 92-page document. Their feasibility analysis outlined Louisville City FC stadium lease terms with the Louisville Bats, the stadium situations for other USL teams, and the possible stadium options for Louisville City FC to pursue. The feasibility analysis also provided more insights about the potential merits of new stadium construction for the soccer team.

Mayor Fischer, Louisville City FC chairman and president Neace, other Louisville FC leaders, and local government officials reviewed the feasibility study results and weighed the options offered in the analysis. These options included three stadium construction plans outlined by CSL. The team certainly wanted to move forward with construction in order to comply with the USL 2020 mandate. The Louisville City FC leaders also believed a new stadium would improve team profitability (CSL, 2016). As a potential financial partner in this venture, Mayor Fischer and local officials needed to make decisions about next steps based on the feasibility analysis while managing the competing demands of other community stakeholders.

United Soccer League (USL)

As part of this decision-making process, the team's leadership and local officials needed to consider the USL dynamics and the desire for professional soccer in Louisville. Professional soccer has grown exponentially within the United States - starting with Major League Soccer (MLS) and moving to the USL. The fandom and popularity of the sport emerged in MLS major metropolitan locales such as Chicago, Los Angeles, New York, and Seattle and spread to USL cities such as Cincinnati, Oklahoma City, Pittsburgh, and St. Louis. Included in the USL tier of professional soccer is Louisville City FC, located in Louisville, where 1.3 million people reside (Louisville, KY, 2017).

The USL started in 2011 with 15 teams. The league eventually grew to 30 teams organized into the Western and Eastern conferences (USL, 2017). The teams schedule games from March through September of each year. At the end of the regular season, the USL holds a single-elimination playoff for the best eight teams in each conference, leading to a league champion. The average attendance at USL games has grown over time, starting with approximately 2,300 attendees per game in 2011 and expanding to 3,400 by 2016 (CSL, 2016).

In 2016, approximately one-half of the USL teams held their games in soccer-specific stadiums. These stadiums had an average capacity of 8,000, while the average capacity of all USL stadiums equaled 9,400. The 2015 average attendance at these games was 3,218. Louisville City FC boasted the second highest average attendance in 2015 with 7,032 at Louisville Slugger Field, which holds a maximum of 13,131 spectators (CSL, 2016). Louisville City FC scheduled its games around the Louisville Bats games. The average attendance of the team continued to grow, increasing to 8,050 for the first half of the 2017 season (Green, 2017, July 2). In August 2017, Louisville City FC attained a new record in its home game against FC Cincinnati with 13,812 spectators in attendance (Lintner, 2017).

The Stadium Situation

Louisville City FC began its inaugural season playing in Louisville Slugger Field, which is managed by the Louisville Bats and owned by the city of Louisville. The baseball team has a 20-year lease with the city. Louisville City FC in turn signed a five-year lease with the Louisville Bats and operates as a secondary tenant. Signed in September 2014, the lease states Louisville City FC will operate under this arrangement for five years until December 2019. The team, however, has the option to terminate this lease early if a soccer-specific stadium is built and Louisville City FC becomes the new primary tenant of the new stadium (CSL, 2016).

The Louisville City FC lease with the Louisville Bats outlines revenue and expense allocations for each soccer game. Louisville City FC receives 100% of the revenues generated through ticket and merchandise sales, parking, unsold annual suites (occurs when Louisville Bats suite owners do not exercise their option to purchase the same suites for Louisville City FC games), sponsorships through temporary field signage, and broadcasts. The soccer team also receives 50% of the revenues from annual suite sales for Louisville Bats season ticketholders who buy season tickets for the soccer games. In return, the Louisville Bats receive 100% of the revenues from concessions and annual suite sales for these games. The baseball team receives 100% of the sponsorship revenues from naming rights, fixed signage and building sponsors, and temporary field signage during its own games. Fifty percent of the revenues from annual suite sales of Louisville City FC games also accrue to the baseball team. On the expense side, the soccer team pays $5,000 in rent for each game. Louisville City FC also incurs 100% of the game-day costs and team facilities operations. This includes utilities, maintenance, and other expenses associated with the Louisville City FC locker rooms, offices, and storage spaces at the stadium. Finally, Louisville City FC is responsible for expenses such as security and public-address announcers (CSL, 2016).

The Louisville City FC leadership argued that having their own stadium would help the team better manage their expenses and attain profitability. In 2015 Louisville City FC reported $2.3 million in operating revenues and $3.0 million in operating expenses, resulting in a $0.7 million operating loss. Ticket sales represented the largest percentage of team revenues at approximately 80% of total revenues, followed by merchandise (15%), sponsorships (5%), and other revenues (1%). The team did not provide a breakdown of its 2015 expenses. The CSL pro forma income statement included line items for operating expenses such as team operations, general and administrative, and advertising expenses as well as stadium operating expenses such as event services, utilities, and ticketing (CSL, 2016). The team likely incurred the same or similar expenses in 2015.

The Louisville City FC leaders believed challenges with operating as a secondary tenant at Louisville Slugger Field directly influenced the financial performance of the team. They highlighted limitations with how much revenue could be generated through game-day operations. Louisville City FC leaders also believed the team paid "higher than normal game-day costs" associated with constantly converting the facility from a baseball field to a soccer pitch (CSL, 2016).

Other challenges with playing at Louisville Slugger Field persisted beyond the financial aspects. For spectators, this included less than ideal sightlines, with some seats located farther from the soccer pitch. Scheduling challenges existed, where Louisville City FC waited until the Louisville Bats scheduled its games before scheduling its own. The lease also stated that the team must play between 15 and 20 games at the stadium each season. Finally, the team had to ask in advance for permission to practice on the baseball field (CSL, 2016).

USL Stadium Mandate

In 2016, the USL decreed that all teams must play in a soccer-specific stadium. All teams should have their stadiums available for use by the start of the 2020 season, and these stadiums must have the ability to accommodate as many as 10,000 spectators (Green, 2017, April 12). For teams such as Louisville City FC, this requirement dictated building a new stadium. Mayor Fischer approved a feasibility analysis to address this prospect. He highlighted the possibility of expanded economic development and economic impact beyond game-day operations. The mayor expressed his preliminary commitment to this venture, noting, "This new investment in soccer will contribute to our authentic and vibrant community and give citizens one central team to rally around" (Louisville commits $75K for feasibility study of soccer stadium, 2016). A feasibility study would offer more details about the USL, the current state of professional soccer, and options for team and city officials to pursue.

Feasibility Study

The feasibility study created by CSL contained an analysis of several key factors: (a) estimated stadium utilization and projected seating capacity; (b) USL benchmark stadiums; (c) stadium options for Louisville City FC; and (d) five-year pro forma income statement and sensitivity analysis of projected revenues and expenses for the Louisville City FC.

Stadium utilization and seating capacity

For the estimated stadium utilization, CSL projected that Louisville City FC would host 19 games in the stadium: 15 regular season games; two exhibition games; one US Open Cup game; and one playoff game (Table 1). CSL also forecasted other events, which would allow Louisville City FC to take greater advantage of the facility. The consulting agency projected that the stadium would host one national or international soccer game, two music concerts, and seven other local events. The average attendance at these events would equal 6,553, consisting primarily of general admission tickets (average of 6,091 tickets sold) in conjunction with club seat and luxury suite sales of 270 tickets and 192 tickets, respectively.

These estimated figures led to another area for analysis: stadium seating capacity. The USL mandate required seating capacity for as many as 10,000 spectators. Another consideration for team and government officials, however, was the potential to attract an MLS franchise. MLS requires stadium capacity for as many as 20,000 spectators. The team and city leaders needed to consider whether to focus solely on the USL requirement or think more long-term and factor the MLS seating into the decision. Other USL stadiums offered perspective on this decision.

Benchmark sports facilities

Some USL teams had soccer-specific stadiums, whereas others started the process of planning for and building them. As part of the feasibility analysis, CSL selected several USL stadiums to serve as benchmarks for Louisville City FC, including the following: San Antonio FC with Toyota Field in San Antonio, Texas; Pittsburgh Riverhounds with Highmark Stadium in Pittsburgh, Pennsylvania; Rio Grande Valley FC with RGVFC Stadium in Edinburg, Texas; Sacramento Republic FC with Bonney Field in Sacramento, California; and Rochester Rhinos with Rhinos Stadium in Rochester, New York (Table 2).

Benchmark sports facilities also exist within the Commonwealth of Kentucky. Since 2000 state and local officials have completed several stadium and arena construction projects. The CSL feasibility analysis examined six of those projects, including: Louisville Slugger Field (built in 2000); Applebee's Park in Lexington (2001); BB&T Arena in Highland Heights (2008); Bowling Green Ballpark in Bowling Green (2009); KFC Yum! Center in Louisville (2010); and Elizabethtown Sports Park in Elizabethtown (2012). The project costs averaged $86 million with a low of $17 million for Applebee's Park and a high of $349 million for the KFC Yum! Center. The public funding sources accounted for 87% of the financing. Bowling Green Park, Elizabethtown Sports Park, and Louisville Slugger Field were 100% publicly financed. The public funding for the KFC Yum! Center equaled 89%, while BB&T Arena's equaled 78%. Only Applebee's Park was paid entirely through private financing.

Louisville City FC stadium options

Based on its research of Louisville City FC and benchmark stadiums, CSL presented three stadium options in the feasibility analysis - low cost, mid cost, and high cost - and potential funding sources for these options (Table 3). CSL estimated that the building square footage for the three options would equal 170,000 square feet but cost per square foot could range from $150 to $265, respectively. This would result in a building costing from $25.5 million to $45.1 million. The stadium would need to provide parking, an additional expense CSL estimated at $4.9 million for 1,400 parking spots at $3,500 per spot. CSL noted that spectators could take advantage of local parking garages and other on- and off-street parking around the stadium. A stadium placed in an urban location similar to the Louisville Slugger Field location would allow spectators to take public transportation, ride bikes, and/or walk to the facility, reducing the number of additional parking spaces needed by the stadium. Adding the parking costs to the building costs resulted in the three stadium options, ranging from $30.4 million to $50.0 million in total costs.

Payment for the soccer specific stadium would most likely come from private and public funding sources. CSL projected private funding from several sources: stadium naming rights; the team's annual rent payments; facility fees; luxury suites; and other private contributions. This private funding could range from $15.0 million to $23.0 million based on the selected stadium option. Public funding contributions could include tax increment financing (TIF), public grants, Louisville Metro general funds, and other funding sources. These sources could total $15.0 million to $27.0 million, again depending upon the selected stadium option. In each scenario, the split of private versus public funding would reflect either a 50/50 split (low-cost estimate) or a 46/54 split (mid and high-cost estimates).

Pro forma income statement and sensitivity analysis.

Conventions, Sports, & Leisure also provided estimates regarding annual expenses and revenues in conjunction with the estimated project costs and funding sources. General admission ticket sales represented the largest source of revenues, projected to equal 49% of the revenue total in 2019 (Table 4). Many in attendance preferred to purchase tickets for individual games (61%) as opposed to season tickets (39%). However, the number of season ticketholders increased from 1,097 in 2016 to over 1,197 in 2016. Most of these individuals (83%) lived within 25 miles of the stadium, and 59% lived within 10 miles of Louisville Slugger Field (CSL, 2016).

Beyond ticket sales, sponsorships (16%) and general concessions (10%) served as the next largest revenue streams, followed by suites (6%), event rent (4%), and parking (4%). Team and stadium operations comprised 62% and 38% of the projected expenses, respectively. The 2019 projections suggested the team would generate $0.2 million in net income, and that this figure would grow to $0.3 million by 2023. These positive net income figures contrasted with the reported net loss for the team in 2015.

In conjunction with these estimates, CSL completed a sensitivity analysis of team revenues and expenses for 2019 through 2023 (Table 5). Conducting a sensitivity analysis helps when creating a pro forma income statement. This analysis involves manipulating different pro forma income statement line items such as revenues or expenses to determine their potential effects on the organization's profitability during one time-period or over time. Quantifying shifts in team revenues and expenses would allow the Louisville City FC and local government leadership to assess where the team could potentially generate more revenues (e.g., attracting more fans) as well as where the team might face financial risks (e.g., not securing sponsors or supplemental events). The pro forma income statement served as the baseline estimate. Several variables were then manipulated to quantify their potential effects on revenues and expenses accordingly. These manipulations included variances in the number of attendees per game, changes in naming rights and sponsorship funds, and shifts in the number of Louisville City FC games versus concerts held at the stadium. 2019 projections spanned from a net income loss of $0.3 million to positive net income of $0.5 million.

Stadium Update

In April 2017 Mayor Fischer, Louisville City FC personnel, and other officials made a major stadium announcement. They decided after reviewing the CSL feasibility analysis and conducting extensive deliberations to proceed with the stadium project. The $40 million stadium option was selected, starting with 10,000 seats in the initial construction but leaving open the option for eventual expansion to 20,000 seats (Green, 2017, April 12). Louisville City FC would partner with architectural firm HOK to develop the stadium plans. The facility would be built in Butchertown, a Louisville neighborhood located approximately one mile from Louisville Slugger Field, on a 40-acre plot of land. City officials and Louisville City FC management deemed this location the most appropriate based on its proximity to the current stadium and downtown Louisville. This site in their estimation afforded the team additional space for growth. Neace stated, "We're building this [stadium] to get an MLS franchise here.... It's time we think bigger" (Green, 2017, April 12).

Stadium discussions also included the split between private and public financing. The team expected to use both funding sources. Mayor Fischer challenged the Louisville City FC leadership to first identify private funding, after which he would commit to having conversations with government officials, community leaders, and residents about the potential financial contribution of the city. The Louisville Metro Government 2016-2017 budget included a $583 million general fund. However, these funds were allocated primarily for expenses related to education, infrastructure, and public safety, with little to no discretionary monies set aside for new stadium financing (Louisville Metro Government, 2016). The mayor would need to discuss other funding options, which he suggested would most likely result from TIF.

A TIF allows stadium owners to defer facility taxes owed to state and local governments. Government officials in turn expect the stadium to increase business activities and property values surrounding the facility, leading to additional sales and property tax revenues. This incremental tax growth theoretically would offset the taxes not received initially from stadium owners (Fried, Shapiro, & DeSchriver, 2003). Louisville government officials anticipated sizable economic development associated with the stadium construction. Building the stadium could produce social capital and structural capital. Structural capital results from the stadium serving as an "anchor for economic development" (Howard & Crompton, 2014, p. 268). Social capital reflects the social relationships formed within and among different groups related to the stadium. The plans tentatively included office and retail space, two hotels, restaurants and bars, and parking garages and lots in addition to the stadium, which would create structural capital or more economic development. The neighborhood residents and Louisville City FC fans could develop social capital through their ongoing and new relationships facilitated by attending games, supporting the team, and using the stadium and other new amenities in the neighborhood. Initial estimates suggested the stadium project could produce around $100 million in benefits over a 20-year period (Green, 2017, April 12, July 2) and a harder to quantify but still important amount of social capital within the community.

Stadium Opposition

Louisville City FC and local officials appeared excited about this opportunity. Despite this optimism, soccer specific stadium detractors remained. One of the biggest reasons for their pushback was the stadium construction expense. Projected costs for the stadium equaled $40 million. This did not include the underlying land, valued at $8.3 million in 2017 (Green, 2017, July 2). The chosen location housed several businesses and an oil tank facility. The stadium project would require the removal of these companies and cleanup of oil land contamination (Green, 2017, April 12). Suggested additions such as hotel, retail, and office developments to complement the sports facility coupled with financing costs could cause the total project costs to swell to an estimated $200 million (Lerner, 2017).

To pay for these types of projects, some government officials will use tax revenues, deriving from either general taxes or selective taxes. Most or all taxpayers pay general taxes, and these include property and sales taxes. Conversely, a smaller group of taxpayers pays selective taxes, and these include: tourism taxes (renting cars and hotel rooms); sin taxes (gambling or purchasing cigarettes, alcohol, and lottery tickets); and ticket surcharges (purchasing tickets to sporting and other events). Using general taxes to pay for sports facility construction requires voter approval, and voters have increasingly expressed their displeasure with using tax revenues to pay for stadiums and arena in lieu of other municipal projects. The benefit principle of taxation suggests "those who pay for a public investment should receive commensurate benefits from it" (Howard & Crompton, 2014, p. 267). Taxpayers assert that utilizing taxes to build a stadium helps the team owners and athletes, rather than residents who paid the bulk of those taxes. Using tax revenues for these purposes creates opportunity costs, where local officials have fewer funds to spend on projects related to education, infrastructure, and public safety and health. As a result, government officials have used selective taxes, because these taxes target a limited number of individuals and are more often aligned with the sports projects. For example, out-of-town visitors would purchase tickets and might rent cars and hotel rooms when they come to attend a game and stay overnight. Selective taxes generated from these activities would go toward paying for the stadium construction costs (Howard & Crompton, 2014).

In addition to using general and selective taxes, government officials could use a TIF to help fund stadium construction. Stadium detractors, however, quickly pointed to another Louisville sports project partially funded by a TIF - the KFC Yum! Center. The downtown basketball arena serves as the home facility for the University of Louisville men's and women's basketball teams. The arena cost $238 million with an additional $87 million for the land and relocation of two businesses and $24 million in financing costs (Green, 2010, November 1). The initial arena proposal included a TIF as a public funding source. Several years after the arena opened, the facility and community leaders admitted the projected TIF dollars and other funding sources fell short of the original estimates. The TIF produced about half of the originally estimated amount needed for the arena financing (Green, 2017, July 20). Stadium opponents pointed to the arena as a cautionary tale. They did not want the government to participate in another sports venture funded by another TIF that could leave the city and state saddled with more debt.

Conclusion

A challenging decision faced the Louisville City FC leaders, Louisville mayor and city officials, and others involved with the proposed stadium project. The team had proven success. Its attendance numbers continued to grow from the inaugural season, and more residents rallied around the team. Without a new soccer stadium, Louisville City FC leaders argued that the team would continue to face financial deficits attributable to its less-than-optimal lease terms with the Louisville Bats. Additionally, the USL directed all teams to play in soccer-specific stadiums by 2020. This mandate would force Louisville City FC and other teams without stadiums to pursue construction projects if they intended to meet this requirement and remain within the league. While Mayor Fischer expressed favorable sentiments regarding the soccer team and its current and potential effects on the city, he and others recognized the financial difficulties associated with the KFC Yum! Center. A new multi-million-dollar sports facility funded by a new TIF costs could represent a financially perilous decision.

WRITE PROJECT REPORT CHARTER AS A PROJECT MANAGER PRESENTING TO THE PROJECT TEAM THAT WILL BUILD THIS PROJECT THE BACKGROUND OF THE PROJECT, REASONS FOR THE PROJECT AND PROJECT OBJECTIVES.