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Can Louisville Support an NBA Team?

By Albrecht Stahmer

Albrecht is a native Louisvillian who attended Ballard and UK. He has spent the past 15 years working in Miami, Hong Kong, Singapore and Tokyo. In 2007-08, he was involved in attempting to raise Asia Pacific-based private equity funds for investment in a potential ownership group for an NBA basketball franchise in Louisville at J. Bruce Miller’s request. In that capacity he had numerous conversations with J. Bruce Miller regarding the NBA, Louisville’s position to attract a franchise and gained insight into the financial structure of the business and how it would exist in the framework of a mid-sized market like Louisville. He is currently a management consultant in Tokyo.

nbalogo Can Louisville Support an NBA Team?When the Kings’ home schedule tipped off in Sacramento last Monday, it was amid speculation that something had to give with regards to the team and their future there. Since the latest Sacramento arena plan collapsed in September, the Kings ownership and NBA Commissioner David Stern have publicly expressed frustration at the absence of a new arena solution. They have further hinted that relocation of the franchise is a possibility.

Locally, a group of young basketball fans (Neal Turpin, Phil Caballeros, Aaron Hooper, Josh Gumm and Zack Doyle) took it upon themselves to start a Facebook page, ‘Bring the Sacramento Kings to Louisville’, last Tuesday. Phil emailed Courier-Journal columnist Rick Bozich, who posted it on his blog. By Wednesday morning, there were 300+ people who ‘liked’ it. By Wednesday afternoon, this blog started spreading the word and by Saturday morning 2500+ ‘liked’ it; television stations in both Louisville and Sacramento aired stories. By Monday morning, more than 4000 people ‘liked’ it. A grassroots groundswell had begun.

This groundswell begs two questions: Can Louisville support an NBA franchise? And more importantly, will Louisville support a franchise? To answer the first question, yes, Louisville has the economic wherewithal to support a team. Two publicly-released, independent studies since 2000 have concluded this. The answer to the second question is less quantifiable as no study can determine the willingness of a community to support a team. But the fans mentioned above have certainly created a buzz.

Study #1

Greater Louisville Inc., the local chamber of commerce, contracted PricewaterhouseCoopers in 2000 to analyze the metro area’s ability to support an NBA team. Their 50-page report clearly established that the regional population and business community were plenty big and strong enough, in comparison to then-current NBA host cities, to provide a solid foundation of support.

Among the key findings of this study were:

1.   The average NBA market had a metro population of 4.5 million versus Louisville’s metro population of 1.2 million, which would be the smallest market in the NBA. However, when compared to peer cities with populations of less than 2.0 million, Louisville compared favorably to Charlotte, Indianapolis, Milwaukee, Orlando, Portland, Sacramento, Salt Lake City and San Antonio in terms of demographic, socioeconomic and corporate profiles [and now Memphis and New Orleans as both have landed teams since this study was completed]. Louisville’s population does not preclude it in any way from being able to support an NBA franchise.

2.   Small markets have tended to show strong support for their teams, particularly when it is the only professional game in town. Of the five cities with only an NBA franchise among the big four professional sports leagues (Salt Lake City, Orlando, Portland, San Antonio and Sacramento), all five were among the top 15 NBA teams in terms of per game attendance averages over the five-year period preceding this study. Among all the small market cities, five were among the top ten in the same attendance table [Charlotte (1), Salt Lake City (5), Orlando (7), Portland (8) and San Antonio (10)]. Overall, small-market teams drew an average of 15,592 fans per game, 11% more than the overall NBA average of 14,085 per game. Based on this data, it could be reasonably assumed that Louisville fans would support a local franchise in a similar manner, especially considering the passion for basketball in the Bluegrass. The Universities of Kentucky and Louisville consistently rank among the top three in annual NCAA basketball attendance.

3.   In terms of population per professional sports franchise, Louisville would rank in the upper half of NBA cities with a population of 1.2m for one franchise [14th out of 29]. In comparison, Indianapolis’ population of 1.5 million supported two professional franchises (NBA & NFL), Cleveland’s population of 2.7 million supported three (NBA, MLB & NFL), Denver’s population of 2.3 million supported four (NBA, MLB, NHL & NFL) and Boston’s population of 4.3 million supported four (NBA, MLB, NHL & NFL). Louisville would rank above all four of these cities in this metric. On average, NBA cities had a population of 1.3m per professional sports franchise. Louisville would rank just above the median and just below the mean. In other words, squarely in the middle of the pack.

4.   Similarly, in terms of mid- and large-sized companies, Louisville would rank 11th out of 29 with 506 such companies per franchise. When analyzed as companies per professional sports franchise, Louisville would rank ahead of Detroit, Atlanta, Dallas, Minneapolis, Phoenix, Denver and Miami, all large cities that support four professional franchises (NBA, MLB, NHL & NFL). Louisville’s business community has adequate mass to support a professional franchise.

5.   Louisville would rank 27th out of 29 markets in terms of median household income, ahead of only San Antonio and Miami. Considering San Antonio won championships in 1999, 2003, 2005 and 2007 and Miami captured the 2006 title, lower median household income does not appear to prevent a community from successfully producing a competitive team.

Granted, this study is 10 years old, but the city-on-city comparisons are relatively unchanged. For the 2009-2010 NBA season, the seven small market teams fared more poorly in attendance with only Salt Lake City and Oklahoma City among the top half of the attendance table. However, the seven cities whose only professional sports franchise is an NBA team fared much better as all but two finished in the top 17 (of 30) in attendance [Portland (3),Salt Lake City (6), San Antonio (10), Oklahoma City (12) and Orlando (17)]. Even with two outliers [Memphis (28) and Sacramento (29)], the single-franchise cities averaged 92.4% of arena capacity. This would seem to validate the conclusion that a city’s per-franchise numbers with regards to population and businesses are more important than its actual population figure. In Louisville, ticket, merchandise and advertising money would not have to split among multiple professional teams as it is in bigger cities. While the Universities of Louisville and Kentucky would provide competition for dollars, this same argument can be made for any other city that hosts professional sports franchises.

The only notable change in local factors since this report was produced has been the influx of premium seating inventory in Louisville. In 2000, premium seating included 24 private suites at Freedom Hall, 26 private suites at Papa John’s Stadium and 30 private suites, along with 400 club seats, at Louisville Slugger Field.

Since then, Churchill Downs built 79 private suites and the University of Louisville added 33 private suites (for a total of 59) and 1,725 club seats at Papa John’s Cardinal Stadium and increased premium seating at the new KFC YUM Center to 71 private suites, four party suites and 3,100+ club seats (plus court-side VIP seating). If and when the University of Kentucky builds a new basketball arena, an obvious assumption is that it would come with a healthy dose of premium seating, a not-insignificant portion of which would be purchased by Louisville-based fans and companies. While there might be some fears of market saturation for such seating with 240 private suites and almost 5,000 club seats in the city and more potentially on the way in Lexington, a more logical explanation would be the previous absence of premium seating in the market. Based on this absence, Churchill Downs and the University of Louisville Athletics Association are now simply providing supply to meet demand, with the University of Kentucky Athletics Association likely to follow in the future.

Study #2

In 2004, publishing firm American City Business Journals (ACBJ) carried out a less in-depth, yet equally telling study. ABCJ analyzed 172 U.S. markets to determine the feasibility of each supporting one or more franchises from one or more of the big five professional sports leagues (MLB, NBA, NHL, NFL and MLS). This study used aggregate personal income to determine the financial viability of franchises in each market. It determined that Louisville’s total personal income of $42.1 billion was 20% higher than the base requirement of $35.2 billion necessary to support an NBA franchise.

Granted again, this data is six years old, but it can be assumed that personal income has not decreased by 20%. In fact, it can be assumed personal income has increased slightly as the 2010 census should show a nominal increase in the metro Louisville population above and beyond the increase in the local unemployment rate.

Of course, the worst recession since the Great Depression has caused significant financial hardship since both of these reports were authored, but this is a national phenomenon that is not limited to Louisville. As a result, the crux of both reports vis-à-vis comparative analysis of peer cities remains relevant.

Peer Cities

The big four professional sports leagues have a total of 122 franchises: MLB (30), NBA (30), NHL (30) and NFL (32). Of these 122 franchises, Canada hosts six NHL teams, one MLB team and one NBA team. The remaining 114 franchises are spread over 42 U.S. metropolitan areas (the New Jersey teams are part of the NYC area; the Oakland teams are part of the San Francisco area; Green Bay is part of the Milwaukee area).

Of these 42 metro areas, Louisville ranks ahead of five other cities that host professional franchises in terms of population [Oklahoma City (NBA), New Orleans (NBA & NFL), Salt Lake City (NBA), Raleigh (NHL) and Buffalo (NFL & NHL)]. Additionally, eight other small market cities host professional franchises [San Jose (NHL), Columbus (NHL), Charlotte (NBA & NFL), Indianapolis (NBA & NFL), Nashville (NFL & NHL), Milwaukee (NBA, MLB & NFL), Jacksonville (NFL) and Memphis (NBA)]. Finally, since the 2000 census, the professional sports cities of Portland (NBA), Sacramento (NBA), Orlando (NBA), San Antonio (NBA) and Kansas City (MLB & NFL) have all climbed just above the 2.0 million, small-market population figure. And our good neighbor to the north, Cincinnati, hosts both MLB and NFL franchises with a population of 2.1 million. Again, Louisville’s population does not preclude it in any way from hosting an NBA franchise.

Of the six Canadian cities that host franchises based in the U.S. professional sports leagues, Louisville has a larger population than three of them: Ottawa (NHL), Calgary (NHL) and Edmonton (NHL).

It is also worth noting that since 1999, three current NBA franchises have considered relocating to Louisville. First, the Houston Rockets kicked the tires in Louisville before staying put after that city agreed to construct a new arena. The Vancouver Grizzlies and Charlotte Hornets also flirted with the city before relocating to Memphis and New Orleans, respectively. None of the three owners had any doubts as to whether Louisville could support a team, but rather got better arena deals in the other cities. Poor executive leadership locally on this issue also helped push these teams to other cities.

It is further worth noting that the ABA’s Kentucky Colonels folded as the result of a personal financial decision by the owner, John Y. Brown, Jr., rather than a lack of fan support. After moving to Freedom Hall in the fall of 1970, the Colonels averaged 7,860 fans per game over their final six seasons, which usually placed them either first or second in the ABA and within the top ten of combined ABA/NBA attendance figures (out of 27). This type of support encouraged the team to invest in two mammoth contracts. In 1970, they signed UK legend Dan Issel to one of the largest contacts ever signed in professional sports at that time. A year later, they outbid the NBA for Artis Gilmore, the most coveted collegiate player in the class of ‘71. Even after selling Issel, the team’s most popular player, following the 1975 championship season, the Colonels still drew 6,935 fans per game in their final season—albeit down more than 20% from the year before.

So going back to the first question, without a doubt, Louisville can support an NBA franchise. Two independent studies and a strong track record in the ABA support this. Whether the city will is another question entirely. However, the notion that the city is incapable of financially supporting a team is false. The debate should center on whether the city is willing, rather than able, to support a local franchise.

lounba580 500x215 Can Louisville Support an NBA Team?

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Here are some of our past articles involving Louisville and the NBA.

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