Reprieve

ConsecoFieldhouse

The headline in yesterday morning’s Indianapolis Star made many Pacer fans breathe just a little easier: Pacers Getting $33.5 Million to Stay

As with all deals of this nature, it is very complex and leaves many questions unanswered, but it does give the future in Indy just a little more altitude.  Francesca Jarosz and Heather Gillers give a good summary of the highlights.

Highlights of the Deal

  • The CIB will give $30 million over the next three seasons to the Pacers.
  • The CIB will make a minimum of $3.5 million in capital improvements to Conseco Fieldhouse.
  • The Pacers will continue to operate the fieldhouse and keep revenues from game and nongame events.
  • If the Pacers move before the 2013-14 season, they will repay $30 million to the CIB by June 30, 2013.
  • The amount the Pacers repay will be reduced for each season that they continue to play at Conseco: If they play the 2013-14 season, they’ll repay $28 million; by 2018-19, that would fall to $1 million.

Sources: Capital Improvement Board, mayor’s office

So, on the surface at least, it seems that the Pacers will be here for at least another three years.  There are some real benefits to all — well, most — parties, at least in the short term.  The Pacers get some financial relief that will allow them to see what changes the upcoming Collective Bargaining Agreement (CBA) brings.  The city and administration hang on to the Pacers for at least a little while and avoid having to take on the operations of Conseco Fieldhouse.  The fans get some short-term stability.  There are, however, complaints that are both loud and valid about using taxpayer funds to support the Pacers.

Still, this should probably treated as a stay of execution, rather than a full pardon.  The same problems exist today that existed yesterday.  Though something of an oversimplification, the issues can be summed up in the following three bullets:

  • Flagging Fan Base
    It’s no secret that the Pacers have fallen from grace with the locals over the last few years.  There’s no reason to recount the mind-numbing series of off-court embarrassments nor the four straight seasons finishing out of the playoffs that explain a large part of the “why.”  To be brutally honest, however, Indy has never really been an NBA town, and it certainly doesn’t help the Pacers that they hit rock bottom just as the Colts were winning a Super Bowl.  Ultimately, It has been easy for Indianapolis sports fans to find alternate places to spend their sports entertainment dollar.
  • Shallow Local Pockets
    Indianapolis is not a large city, nor is it growing at any appreciable rate.  It is generally expected that the U.S. economy will turn around, but the truth of the matter is that many cities all over the country have been trying to do too much with too little through both good times and bad for quite some time now.  Regardless of how much the economy rebounds, it is unlikely that future deals like this will ever be any more popular among the vocal tax base than this one was.  About 70% of more than 2,100 respondents to an Indy Star Poll viewed this deal as a “Corporate Bailout.”  There will never be enough money for police and schools and potholes and hoops.
  • Aging Ownership Without Any Apparent Succession Plan
    Shortly before Mel Simon passed away, his brought Herb bought him out, becoming the sole owner of the Indiana Pacers.  The Simons have owned the Pacers since 1985, showing an admirable commitment to keeping the Pacers in Indianapolis.  Unfortunately, Herb is 75 years old, and it’s far from set in stone that the next generation of Simons will want to take over the franchise.  Despite comments indicating they have no intention of selling, it’s becoming harder and harder to believe that it’s not a possibility.

Taken as a whole, it seems that unless something drastic changes with either the new CBA or the basic reality of the Pacers in Indianapolis, there will be a semi-permanent state of crisis surrounding the Pacers remaining in Indianapolis.  The right and the wrong of this situation is almost impossible to tell with the available information.  Also, to be honest, I’m not sure I could be objective about it.  I want the Pacers to stay, so I’m kind of biased.

There are definitely things that both the Pacers and the NBA need to do to remove pressure from the situation.

I’ve spent close to 20 years as a Operations and Financial Analyst, and about all I can tell you about the business model under which the Pacers and the rest of the NBA operates is that it is apparently nonsensical.  The payroll for the the Pacers for last season was close to three times their gate revenue.  These two numbers will always be somewhat out of whack, because the NBA stopped being a gate-driven league decades ago (TV contracts), but that ratio is not sustainable — even though the current Pacers’ “unsustainable” payroll is not outlandishly high by NBA standards.

There is reason to hope that the coming year will help considerably on that front.  Two thirds of the Pacers’ salary will expire this coming season.  Also, the owners appear absolutely committed to making major changes to the CBA next year.  A lockout is a near certainty, and I’m sure that Herb Simon isn’t the only owner hoping that the NBA will come out the other side with an agreement that will help small market teams like Indiana to survive and, hopefully, thrive.

It also goes without saying that the Pacers have to start putting a better product on the floor.  It is in everyone’s best interest that the team is able to draw crowds and maintain the interest.  They’ve done a good job of cleaning out the problem children, but now they need to get back to winning consistently.  The 2008-09 season showed promise — with a competitive, often entertaining team despite its record — but much of that progress was erased by a brutal 2009-10 season.  It is difficult to be sanguine about a winning season this year, but there is reason to hope that the team might be able to start progressing at a faster rate after it gets out from under these salaries.

Still, the problems are not one-sided, and I really disagree with the characterization of this agreement as a corporate bailout. I’ve been thinking about this for some time, and I’ve come to the conclusion that spinning this as a handout to billionaires grossly misrepresents the very odd relationship between small-market NBA teams, their owners, their fans and their cities.

What is happening in Indianapolis is a kind of bizarre symbiotic/parasitic relationship where the owners and the city actually conspire to subsidize a hardcore fan base that is too small to support the teams existence in the city during lean times.  In effect, it isn’t Herb Simon that’s getting the handout, it’s me.

And you.

Ultimately, for the Pacers to stay in Indianapolis, they will often rely on both the ownership and the city to fill in the holes during down times.  And down times are virtually inevitable.

But, I want to be clear about one thing: I am not saying that the people who have argued against taxpayer money going to this purpose are wrong.  In fact, it’s almost impossible to argue that point.  The Pacers are a luxury, and, regardless of what economic impact studies do or don’t say, it is probably not a luxury that brings economic benefit to the city.  I like love having the Pacers in Indianapolis, but I cannot financially justify their existence in Indianapolis.

That is why I pretty much believe that today’s deal was simply an exercise in kicking the can down the road.  It was done by a tired owner and a CIB & Administration that probably is putting a little more stock in the cachet of having an NBA franchise than is really warranted.  Decisions to route public funds to the Pacers will always be made on foundations that are more visceral than rational.

It’s also why a large part of me expects to see Indianapolis lose the Pacers in the not-distant-enough future.  The $33.5 million dollars is money the city doesn’t really have.  While I expect major changes in the CBA, there’s no guarantee that the small-market teams will come out of it in significantly better shape.  Though it’s always comforting to say that the economy will come around, that’s really more of a hope than a projection.  The dreary conclusion is that Indianapolis is not a robust — and dedicated — enough market to support both the Colts and the Pacers.

To me, it really all comes down how much longer Herb Simon will stay with this, and whether or not he can find new local ownership that will display the same level of commitment to keeping the Pacers in Indianapolis that he and his brother Mel have had.  This is no mean feat.  Any new local owner would have to be willing to invest a quarter of a billion dollars in a property that is unlikely to generate cash and has been depreciating in value for the last few years.  I don’t how many residents of Indiana fit that description, but I’m guessing there aren’t many.

If none emerge, the ownership will be found elsewhere. And soon enough, the Pacers will be elsewhere, as well.

I’ve seen people downplay this possibility by rattling off a decided lack of cities looking for teams.  That reasoning is a little thin.  What’s more important than finding a city is finding an owner.  Six years ago, would you have thought that a team was going to end up in Oklahoma City by 2008?

Once again, none of this is a plea to save the Pacers.  Nor is this a criticism of Indianapolis and its people.  It is my home, and I love it.  It just seems to me to be the most likely path that we’ll go down over the next few years.

But, for now, we’ve got three years.

I guess I’ll just hope that Bird’s plan can come together, and that Stern and the owners can negotiate a deal that will allow a much more sensible business model.  And with these last few words, I’ll stop worrying about an empty Fieldhouse until I’m absolutely forced to deal with it again.

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Tags: Conseco Fieldhouse Herb Simon Indianapolis Mel Simon Relocation

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