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College basketball scandal raises financial concerns in Kentucky
September 28, 2017 / 10:14 PM / 25 days ago

College basketball scandal raises financial concerns in Kentucky

LOUISVILLE (Reuters) - A federal bribery investigation that led to the suspension of the University of Louisville’s Hall of Fame basketball coach has raised concerns about financial fallout in Kentucky beyond the hardwood.

The KFC Yum! Center where the University of Louisville men's basketball team plays, is pictured in Louisville, Kentucky, U.S., September 28, 2017. REUTERS/Chris Kenning

The probe alleging that four men’s basketball assistant coaches from around the country and an Adidas AG executive participated in a scheme to pay recruits’ families was made public on Tuesday.

Louisville head coach Rick Pitino, who won a national championship in 2013, was put on leave on Wednesday. But his lawyers said in statement that he did nothing wrong and was effectively fired.

The news could put a dent in university donations and ticket sales, deter prospective students and weaken the economic impact of the Cardinals’ arena, which has helped fuel downtown development, several university economists said.

“Basketball is huge in Kentucky. Any setback to the university, whether in academics or sports, is not good the for the city,” said Mason Rummel, president of the James Graham Brown Foundation.

The foundation has given more than $70 million to the university, but halted most donations because of past concerns about governance.

Louisville city officials and developers downplayed the scandal’s potential effect on the local economy, saying any decline in mostly local crowds of up to 22,090 who attend games at the KFC Yum! Center arena would have a modest impact on nearby restaurants, bars and businesses.

The bigger financial concerns center around the university, which recently agreed to take on a larger share of the costs for the $238 million arena, built under a city-university partnership, local media reported.

The university also may need to worry about alumni support as donations to its academic programs fell 25 percent to $63 million between 2016 to 2017, university officials said Thursday.

That decline came after an investigation of the use of prostitutes and strippers to attract players that recently led NCAA officials to strip Louisville of its 2013 championship, as well as controversies over high pay among top university officials.

In 2009, Pitino admitted to having sex with the wife of a Louisville equipment manager. The woman was later convicted of trying to extort him.

Academics said the constant drip of bad news can hurt.

“It’s not just selling fewer T-shirts in the bookstore,” said David Carter, executive director of the USC Sports Business Institute. “If it’s viewed as an ongoing issue, that it can’t be trusted to be ethical, that begins to really hurt cash flow.”

Louisville’s basketball program is valued at $320 million, down from a nation-leading $367 million in 2015, said Ryan Brewer, an Indiana University-Purdue University Columbus finance professor.

University officials say its past challenges have not hurt student recruitment or retention, and they hope to persuade financial supporters they are making needed changes. Spokesman John Karman said the school will show donors it is serious about reform.

Robert Cox, 44, a Louisville resident and Cardinals fan, said he believes the loss of Pitino will not deter fans from coming to games in a city where there are no professional sports teams. “It hurt, though,” he said.

Any economic pain could worsen if the NCAA bans the program from participating for at least a year, the so-called “death penalty,” said Vanderbilt University sports economist John Vrooman.

The university will need to rebuild its brand, Carter said.

“Every time people talk about Louisville in the next several years, this will be the first thing they will talk about,” he said.

Reporting by Chris Kenning; Editing by Dan Grebler

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