If John Schnatter ever leaves the pizza company he founded, he can take the name of Papa John’s Cardinal Stadium with him.
If he wants to rename it after himself, someone close to him or a different business enterprise, well, he can do that too.
Control of the stadium's name is just one of the perks the University of Louisville granted Schnatter in an agreement inked 20 years ago.
That donation agreement, and a separate contract between Papa John’s and the athletics department, have been amended several times to dictate the terms of $20 million in gifts.
But records show Schnatter pulled about $1.5 million from athletics last year, giving it instead to academics. (Read "There's More To The Papa John, U of L Story")
U of L provided the contracts to KyCIR this month through a public records request. Spokesmen for Schnatter and Papa John’s did not respond to several requests for comment.
Schnatter ruffled feathers at U of L in recent months, criticizing the athletics department and its “invisible” leadership. He hinted at his outsized influence while discussing the university’s budget. ( Watch the meeting)
“We’re getting ready to put $60 million in a stadium. By the way, it’s my stadium,” he said with a chuckle.
Schnatter Has The Name
U of L Athletics spokesman Kenny Klein said he doesn’t know the technicalities of who owns the naming rights.
Schnatter holds the naming rights to the stadium under his own personal agreement with the university. His publicly traded pizza company has a sponsorship agreement with the school’s athletic association.
http://www.documentcloud.org/documents/3726425-Schnatter-PJCS-Agreement-Original-Plus-2.html
Schnatter's agreement specifies:
- Schnatter can donate either cash or shares of publicly traded corporations.
- He receives charitable contribution letters from U of L that note the university “did not provide any goods or services” to Schnatter in exchange for the contribution.
- If the stadium were to include a “wishing well” or any other charitable solicitation, Schnatter can pick the charity that benefits.
- If Schnatter asks for a new stadium name, he would have to cover the costs of changing the logos and signage.
In 1996, the naming rights were a $5 million arrangement -- a $4 million contribution from Schnatter and a $1 million sponsorship from his company. The separate deals have since been amended and extended as Schnatter and his company have given millions more.
Schnatter’s personal donations under the stadium deal -- now $12.5 million for 42 years -- averages out to roughly $300,000 a year for the name recognition.
Back in the late 1990s, this was a good deal for Schnatter and U of L. Stadium naming rights were less common and less lucrative. The Louisville Cardinals was a less successful football team, several years before its players were primetime ESPN fodder and two decades before its quarterback won a Heisman Trophy.
But big-dollar deals have become the norm since. Earlier this month, Kroger announced a $1.85 million-a-year deal to name the University of Kentucky’s football stadium.
Papa John’s Has The Sponsorship
In Louisville, a sponsorship agreement between athletics and Papa John’s governs perks such as suite access, season tickets and parking arrangements.
https://www.documentcloud.org/documents/3726424-PJCS-Stadium-Agreement-Original-Plus-2.html
Among the corporate perks and concessions:
- Papa John’s has exclusive rights for pizza sales at the stadium and during U of L events at other facilities.
- The Papa John’s logo must be displayed during the first and last two minutes at the downtown arena when U of L’s basketball team is playing -- even though the arena’s corporate naming rights belong to the KFC Yum! Center.
- The pizza company got first pick of a suite at the new arena, as well as numerous season tickets and parking passes at the football stadium.
- U of L promised to market Papa John’s Cardinal Stadium as a possible home for a professional soccer team.
The stadium deal is a lot different in Lexington. At UK, the naming rights belong to JMI Sports, a sports marketing firm who purchased the naming rights as part of a $210 million, 15-year media deal in 2014. The firm, in turn, recouped some of its investment through its deal with Kroger.
Use Your Name, Get A Tax Deduction
IRS rules treat a stadium naming deal the same as any other donation: tax-free.
Attorney Marcus Owens ran the IRS' Exempt Organizations division from 1990 to 2000 and reviewed the stadium agreements at the request of KyCIR. He said college stadium naming rights have “de minimus” or negligible value, and any visibility connected to it is considered incidental.
That certainly holds true for a dorm or academic hall that rarely garners headlines. But how could anyone argue there’s little value when a corporation’s name is broadcast on primetime TV?
Because… America loves football.
Owens said legislators and regulators have conceded that stadium names aren’t valuable.
“It’s probably referenced between the lines in the Declaration of Independence,” he joked.
College bowl game sponsorship prompted a series of court decisions and legislative discussions. Ultimately, in 1997, the IRS created a “qualified sponsorship agreement” that allows a charitable contribution deduction for donations and a business expense deduction for sponsorship payments.
Owens said he believes Schnatter and Papa John’s made full use of the IRS concessions.
Schnatter was legally entitled to a charitable deduction for his portion of the gift, and Papa John’s could write off its donations as a marketing expense, Owens suggested.
Owens said the agreement, which runs until 2041, and the fact that Schnatter is now on the governing board create some interesting questions if he ever seeks to renegotiate the deal.
With annual naming rights agreements at other high-performing sports programs going for millions a year, Owens said the IRS could consider a deal like Schnatter’s current arrangement to be so good, it might be an “excess benefit transaction” now that Schnatter’s a trustee.
Kate Howard can be reached at khoward@kycir.org and (502) 814.6546.
Disclosures: In 2015, the University of Louisville, which for years has donated to Louisville Public Media, earmarked $3,000 to KyCIR as part of a larger LPM donation. University board member Sandra Frazier and former member Stephen Campbell have donated.
