Sunday’s news that the arena may cost another $90 million came as little surprise to some of the people who have been critical of the project all along. My inbox soon had the expected e-mails saying I Told You So. One wag riffed on a famous line from the film “Casablanca”: “Gambling in the casino? I’m shocked, shocked.”
This is complicated stuff, at least to lay people. A bond issue, most of us can understand. An entity, often a municipality of some sort, wants to build something and needs money to pay for it. The entity sells bonds to investors, who provide a pile of cash. Then, the bond issuers pay it back real slow. Genius.

But it gets more complicated in the details, and every deal has its share. In the Louisville confab, the list of variables to watch is actually rather spare: Will the business plan generate the revenue needed to keep up with — “service,” in finance speak — those slow payments? And, given current events in the financial world, what kind of luck will the Arena Authority draw as the clock ticks?

Recall that the arena story has always been that it will pay for itself. It was not pitched to the public as an intangible facet of a larger overall picture of Louisville and its possibilities (possibilities!) — a plausible sell, by the way — but as a place that will Stand On Its Own Two Feet.

Some of the skeptics I’ve heard from over these many months have been long focused on the revenue question as the core of their dissent. Conventional wisdom says a venue needs 200 typical events a year to make its nut. I verified that assertion with Mark Rosentraub, one of the most prominent academics operating in the area where sports and entertainment intersect with the public sector.

(Rosentraub is currently dean and professor of urban affairs at the Maxine Goodman Levin College of Urban Affairs at Cleveland State University; he has roots at Indiana University, where he founded the Center for Urban Policy and Environment. He’s worked for cities like L.A., Philadelphia, Brooklyn, Indianapolis and San Diego in their efforts to retain sports teams and build facilities, and consulted for Major League Baseball, the San Diego Padres and the Indianapolis Motor Speedway and Racing League. The point is, he’s no hack. His expertise was offered to but not tapped by the Powers That Be In Louisville, for whatever reason.)

But, even by Arena Authority Czar Jim Host’s own admission, Louisville can only count on around 110 events annually. That’s why its business plan draws on various sources of revenue — hall rental, internal advertising, naming rights and, perhaps most prominently, revenue from a related TIF district.

Skeptics point out that the TIF district is unusually sprawling, which they say indicates the level of contortion necessary to make sure the numbers add up. There is significant pressure on the TIF district to crank out the revenue.

My conversation with Rosentraub was brief and concise. He hasn’t studied the Louisville project in a couple of years, so his knowledge is not specific. But all such deals, he said, boil down to one immutable thing: Is the business plan good? If the numbers are solid, you move on with the project even when the financial world is squirrelly. Then you refinance when rates drop.

Rosentraub suggested I contact someone with Live Nation, the world’s largest live music company and second-largest entertainment venue management company, with the thought they should be able say with certainty how many events Louisville can support in a regional market that includes competitors like Indianapolis and Cincinnati. Calls to two reps were not returned by LEO’s press deadline, so that discussion will have to wait.

The “X” factor here — and the skeptics like to point out there’s always an “X” factor — is the severe downturn in the lending world. After a period of indiscretion — aka the subprime mortgage bacchanal — it is time for rectitude, which means decision-makers may get overcautious, which means any project with a questionable business plan may not pass muster with the big firms that know what they’re looking at. Which may mean that $90 million is something like a line in the sand.

So here we are again at the crossroads of a big public policy question. Certainly the Louisville deal may yet come together and make some entity proud to have its name emblazoned in huge letters at Second and Main. Supporters, including Host, insist they’ve been extremely conservative with projections, and they point out that interest rates are already dropping.

And yet — and I know I’ve been saying this a lot lately — when the dust settles it may turn out that our leadership has served up another shit sandwich.
Gosh, I sure hope not.

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