The Louisville City FC ownership group won’t commit to hold up its end of the proposed $200 million deal to build a soccer stadium and retail and office park in Butchertown.
The group pledges to lock-in some $100 million in private investment in the project. But the development agreement they’re asking the Louisville Metro Council to approve on Thursday includes no such guarantee. And the owners have no intention of adding such a provision.
The lack of contractual commitment could yield a private investment that’s far less than what’s been suggested, putting a larger burden of financial risk on taxpayers than what’s been presented.
Experts in contract law and sports economics say the lack of such a provision is unfavorable, but not uncommon.
Promises of additional private investment can be used to win public support by creating an illusion that the public investment is a small portion of the overall deal, said Navad Shoked, a professor at Northwestern University who specializes in contract law.
“It’s completely legal,” he said. “But it’s a complete sham.”
Mike Mountjoy, a spokesman for the 47-member Louisville FC ownership group, said the wording of the contract reflects reality. He said he can’t be sure any tenants will be interested in leasing or buying property near the stadium to set up a shop or office, and therefore it’d be irresponsible to make such a commitment.
“There are no guarantees in life,” Mountjoy said.
The Possibility Of A Soccer Stadium, But No Soccer Team
Top city officials, team owners and soccer fans have praised the proposed stadium project since it was announced last month.
The plan calls for Louisville Metro government to invest $30 million to buy and prepare the land for development. The team owners will repay $14.5 million back to the city within 20 years, at which point the ownership group will own the land.
Louisville Mayor Greg Fischer called the deal a “smart opportunity,” and a necessary move if the city wants to attract a Major League Soccer franchise in the coming years.
But the current agreement provides no guarantee about the future of soccer in Louisville.
The development agreement also does not prevent the team ownership group from selling the team at any point.
And the team could be moved out of Louisville as soon as the required $14.5 million reimbursement is paid to Louisville Metro government, per the agreement.
This means the city could be left with a soccer stadium, but no soccer team, said Bruce Markell, a law professor at Northwestern University.
“It’s a lost opportunity cost for the city,” Markell said. “There will be a cost to razing the stadium or there will be a cost in attracting another sports team.”
Mike Mountjoy of Louisville FC said it’s unlikely the team will be sold with the intent to move out of Louisville.
“We would never sell the team because it would destroy the value of the stadium,” he said. “The only entity that gets hurt is us.”
Ambiguous Contract Wording
The agreement Metro Council members are being asked to approve is also rife with ambiguities that provide no guarantee of additional investment.
The email said the development agreement between the city and team owners would be adjusted to ensure the ownership group spends a minimum of $45 million on the stadium; previously, the agreement had said it was “anticipated” the team owners would spend “at least $45,000,000 and likely in excess of $50,000,000” to build the stadium.
But no changes have been proposed regarding the development of the surrounding commercial property, which the agreement currently states “is expected” will be “in excess of $100 million.”
In the responses, Fischer’s office said details about that element remain unclear.
But Northwestern University contract law professor Navad Shoked said this detail is important and the ownership group should — at a minimum — lay out what they plan to spend on the investment or how they intend to secure the additional investment.
“It’s not that there is just no guarantee,” Shoked said. “It’s that they just come up with it out of thin air.”
Without a contractual agreement, the notion of additional investment cannot be counted on, said Bruce Markell, who also teaches contract law at Northwestern University.
“These are just hopes and aspirations,” Markell said.
Councilwoman Julie Denton, a Republican who has questioned the deal, said an investment guarantee is ideal because the city’s payback depends on the Louisville FC owners being able to leverage that investment. The city’s math includes counting on the additional tax revenue the private investment would bring.
Without specific assurances, Denton said she’s struggling to support the deal.
“Both sides have to be bound,” she said. “If you don’t have that language in there boxing both sides in [the deal] can go sideways.”
Councilman Brandon Coan, a Democrat also unsure about how he’ll vote on Thursday, said he’s bothered by the lack of commitment from the team ownership group.
“I think the city’s commitment ought to be based on the developers’ actual costs,” he said in his most recent newsletter. “Not the sum total of third-party expenditures.”
Mountjoy, of the ownership group, said “we can’t guarantee what we don’t control.”
“The development will clearly be $100 million over a length of time or it’s a failure,” he added.
The ‘Cards Are Stacked Against Cities’
Public involvement in sports stadium development is often fraught with blunder.
“These deals tend to not be very good for cities,” Shoked said.
In Atlanta, city funds were directed away from the local parks system to help fund a new baseball stadium. In Las Vegas, taxpayers will be on the hook for more than half of the some $2 billion needed to build a football stadium.
One reason, is because ownership groups are often specialists in development and real estate and the “cards are stacked against cities,” said Jeremy Evans, an attorney in California who specializes in the sports industry.
Moreover, Evans said deals like this should be easy to understand — not clouded in obfuscation. And this particular deal includes elements so confusing that understanding the meaning is difficult even for professors and attorneys, like Evans.
“And I work in the sports industry,” he said.
Evans said cities should be clear about what they intend to commit to and be mindful of what they intend to invest — just because they want a plot of land developed.
“Cities will ultimately make bad deals because they are fans,” he said. “They don’t think about consequences.”
Disclosure: Louisville City FC is privately owned by 47 investors. Two of those, Gill Holland and José Donis, are Louisville Public Media board members.