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What U of L's Basketball Scandal Could Cost The City

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The latest scandal surrounding the University of Louisville and its athletic department has prompted a major fallout across campus and in the college sports world.

The school’s reputation has certainly taken a hit. But what about the city’s economy?

From the U of L flags flying from porches, to the license plates on cars, to all the game day gear worn on the city’s streets, Louisville bleeds Cardinal red.

With the school’s basketball program already on NCAA probation, additional violations could mean a future with no basketball or a diminished product. One national sports columnist has called for the NCAA “death penalty” -- a sanction barring a school from competing in a sport -- which hasn’t been levied in 30 years.

The impact of the scandal could trickle down to game day bar tabs, tickets for the publicly funded Yum! Center and downtown parking.

University of Maryland, Baltimore County sports economist Dennis Coates said when a city loses a major sports franchise -- even a valuable college team -- it’s not the local economy that will bear the most trauma.

“Men’s basketball is what puts Louisville on the map when it comes to collegiate sports,” Coates said. “To lose that is going to be a huge emotional and psychological hit. We'd love to be able to put a dollar value on that, but there’s no way that we can.”

Both the Louisville Convention and Visitors Bureau and Greater Louisville Inc. declined to comment Wednesday.

The U of L men’s basketball team is a financial powerhouse locally and nationally. Forbes Magazine ranks U of L as the most valuable college basketball team in the country, generating $45.4 million in 2016. That’s a 19 percent increase from the year prior, when U of L was also the most valuable team.

Part of the team’s value lies in the university’s stake in the Yum! Center.

The arena and its $690 million construction debt is financed through a partnership between the city, the university and a state-level tax incentive. This summer, the city and the university renegotiated the Yum! Center deal to make U of L responsible for a greater share of the arena’s costs.

The university now must pay an additional $2.4 million a year, on top of the originally agreed upon $1.3 million to $1.8 million. As part of that increase, the university raised men’s basketball ticket prices by $3 for the upcoming season.

“If U of L is generating less revenue from the team, that’s going to make it more difficult to meet their payments,” said John Garen, professor of economics at the University of Kentucky. “It just depends on how bad things get for U of L and how the fans react.”

Arena Authority Chairman Scott Cox said the arena authority’s goal has long been to refinance its municipal bonds this year. “Nothing that has happened in the last few days has changed our goals,” he added.

Beyond the Yum! Center, though, the impact might not hurt the city as much as doomsdayers predict.

Victor Matheson, a sports economist at College of the Holy Cross, said potential fallout -- ticket sales, income from playoff runs, alumni donations -- would be mostly inside the university orbit.

Matheson has studied league shutdowns and cities after the loss of a professional sports team. He said there is essentially no impact on local economies when they lose a sports franchise.

For most collegiate teams, the majority of fans who attend regular season games are local, so they aren’t purchasing hotel rooms or bringing additional tourism dollars to the city. And local fans will find something else to do.

“It’s not as if people who are not going out to basketball games then instead spend the entire evening huddled in their closet, with the lights out, not eating anything or drinking anything,” Matheson said.

Restaurants and sports bars near the stadium will likely see a decline, but the city as a whole will experience what Matheson called the “substitution effect.” Restaurants, bars, movie theaters and other sports teams will absorb the dollars U of L fans would have spent at the Yum! Center.

Eleanor Klibanoff can be reached at  eklibanoff@kycir.org and (502) 814.6544.

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