The Pacers’ Predicament

After just 11 years some feel the Conseco Fieldhouse is dated

The future of the Indiana Pacers has been one surrounded by questions over the past couple of years. Pacers management has continued to insist that the team is losing money at a rate that they cannot recoup and has asked for public assistance. However, the public has not reacted favorably to the notion of using taxpayer money to fund anymore sports projects or stadiums after the building of Lucas Oil Stadium. Yet, it is easy for public officials to be swayed to move when some estimated that the city of Indianapolis would lose $55 million annually if the Pacers did not improve their facility or were relocated. Heavy-handed remarks by the commissioner also did nothing to quell the hearts of basketball loving Hoosiers. David Stern wants to get his way at all costs. No pesky city, in his mind, has the right to stand up to him. If they do they will pay the ultimate price. Ask Seattle what that price is. The city and the Pacers have reached a financial agreement that lopsidedly favors one party of the other. Can you guess which one? Even with this new arrangement, the future of the NBA in Indiana remains in doubt.

“I don’t want to make Herb Simon’s time too easy here, but I will say I understand what they’re trying to get is a small fraction of what was done for the Colts…I don’t want to threaten something. I think that to say there’s a rich basketball tradition in Indiana – talk about evident – and the Pacers have been a good booster of the state, played some pretty good ball and hopefully they’ll be able to work it out. I sure hope they can.”

David Stern spoke those words in February of 2009 concerning the growing problems present in the lease contract the Pacers maintained that they had with the Capital Improvement Board (CIB) who operate and maintain the Conseco Fieldhouse. The dilemma began when the Pacers and their ownership claimed that they could no longer pay the $15 million annual operating costs required of them in their lease agreement because the franchise is losing too much money. Franchises hemorrhaging money seems to be a growing concern among the NBA. In fact, it is Stern’s main talking point when discussing the need to restructure the Collective Bargaining Agreement. According to Stern, the NBA lost close to $370 million last season. Indiana is one of ten teams estimated by Forbes to be in serious financial trouble in the league. Times were beginning to look bleak for the Pacers.

Luckily, the team, its ownership, the city of Indianapolis, and the CIB reached a publicly unpopular bailout package for the Pacers this summer. Tax payers will fund the city of Indianapolis’ contribution of $33.5 million through June 20, 2013 to help Herb Simon, the Pacers’ owner, operate and improve the Conseco Fieldhouse. Further, the CIB will pay $10 million over the next three years to help maintain the arena. They will also chip in an added $3.5 million to pay for improvements to the fieldhouse. That is a heavy chunk of change for tax payers and a private group to shell out for little guarantee that the NBA will continue to exist in the Hoosier state.

What the agreement does state is that the Pacers must payback all the money they were loaned interest free. However, the details on when the team must pay back the loan are hazy at best and leave the door open for ownership to drag their feet on the matter. The only concrete repayment mentioned in the bailout agreement concerns the Pacers leaving the city. If the Pacers leave the city after the 2012-13 season, which is the final year of the bailout, the team will owe the city at least $30 million of the money that was lent to it to maintain the fieldhouse. Yet, there is a not so subtle catch worked into the deal. For every year the Pacers remain in Indianapolis, the amount of the loan which they must repay decreases significantly. If the team leaves after the 2019-20 season, the team would owe absolutely nothing to the city. (The current lease agreement ends in 2019.) Taxpayers of Indianapolis certainly received a raw deal. That is not the end of it though. All loans are to be immediately repaid, according to the deal, if the operating agreement is terminated. However, if the team is sold or ownership of assets is sold the loans would not have to be repaid until the closing of the sale or the transfer of assets has been completed. There it is. The door is wide open for the team to uproot to another city. If a business group was planning on purchasing the Pacers to relocate them to another city it would be easy to raise whatever loan money was left to repay from investors and taxpayers from the target destination. Clay Bennett, the mastermind behind the Seattle steal, found that task all too easy.

Those are the basics of the new deal that the team has been given. With all the fuss being made about the Conseco Fieldhouse it would seem that the facility is 20 or more years old. It is not. It has been in operation for only eleven years making it one of the newer arenas in the NBA. Prior to Conseco Fieldhouse the Pacers played in Market Square Arena since 1974. Apparently for Stern and his “Mall of America” archetype for arenas, the fieldhouse is not new enough and therefore must be improved or replaced at all costs. Stern’s comments have lead to further claims to justify the bailout was needed. Jim Morris, Pacers Sports & Entertainment’s CEO, has insisted that the franchise has lost $200 million since the team moved into the fieldhouse. (Both Stern and the Pacers front office seem to think that the Conseco Fieldhouse is another incarnation of Tony Hayward which is not to be trusted and therefore despised.) If that number is to be believed it means that the Pacers have lost roughly $18.2 million per season since 1999. If this is true, it means that the Pacers were losing money every year they were a playoff contender for the better part of the decade. Winning teams generally do not lose such sums of money. It would be understandable that the team did not post favorable gains this last season as it was their worst since the late 1980’s as the team posted a 32-50 mark and only drew an average of 14,202 fans to their home games ranking them 27 of 30 in attendance numbers. The team appeared in the NBA finals in the year 2000. These comments lead to the assumption that they lost money that year when the spotlight of the sport was aimed directly at the Conseco Fieldhouse? Taxpayers in Indianapolis deserve a look at the books. Essentially the taxpayers and the CIB have been muscled into propping up a facility that, despite its relative youth, is looked upon unfavorably by both the commissioner and the organization that plays there. Sound investments are scares these days.

Yet, not everything about the Pacers is an unsound investment. To Herb Simon, the Pacers have been one of the best investments he has ever made. Herb, with his brother Mel, bought the Pacers in 1983 for $11 million. $11 million in 1983 equates to roughly $110 million in today’s currency. Basically this is chump change to Simon with his estimated worth being approximately $1.1 billion and being ranked 698th among Forbes’ World’s Richest People in 2006. Of course it would have been inappropriate to ask a billionaire to spend the money to invest in the future of something he owns. The Pacers financial troubles surely have not adversely affected his ranking too much. In 2009, Herb became the sole owner of the team after quietly purchasing his brother’s shares as Mel had been battling severe illness before his death. Everything Herb Simon has said about the future of the Pacers has been reassuring to the fans and the city. He has continually stated that he wants the franchise to remain in Indian. Such statements must be taken with a grain of salt. Clay Bennett also publicly expressed his intentions to keep the Supersonics in Seattle when he purchased the team. Simon is now 74 years old, he may legitimately want the Pacers to remain in Indiana but he must also weigh his options. He is not getting any younger and stands to make a considerable sum of money if he were to sell the franchise which is valued at $281 million. Selling the team would net a profit of $171 million that would go almost entirely to Simon. That is a large sum to just leave on the table especially if the product (yes, the pacers are nothing more than a product or investment in business terms) that he owns is not profitable.

Who would buy a franchise that has lost $200 million over the last eleven years though? There has been interest shown by some. Most notably, Francesco Aquilini, the owner of the NHL’s Vancouver Canucks, has floated the idea of purchasing the Pacers and relocating them to Vancouver. The city of Vancouver has been without an NBA franchise since the Grizzlies left for Memphis in 2001. As a region, the Pacific Northwest, excluding Portland, has been without a team since 2008 when the Seattle Supersonics were pilfered away to Oklahoma City. There is a large fan base in the region which has no team to cheer for. However, the fjords and forests of the Pacific Northwest are not the only region yearning for a professional basketball team. Las Vegas, where the 2007 All Star game was held and is the annual home of the NBA Summer League has a strong interest in acquiring an NBA franchise. So much so that Chris Milam, CEO of International Development Management LLC, the group who looks to bring a team to Las Vegas, has said that they have “an NBA team under contract” to move to the city. He declined to say which team however. It would not be completely impossible for the team in question to be the Pacers (possibly the Kings, Hornets, or Pistons too). The city does not have a suitable arena that fits Stern’s standards yet and the group must work out a deal with the county to fund construction of what will be the Silver State Arena on the Las Vegas Strip. As apprehensive as citizens of Indianapolis are about using public funding of the Pacers bailout the people of Las Vegas seem to have a different view. In a recent poll conducted by the Las Vegas Sun 54 percent of voters support public funding of an arena to land an NBA team. So much for Stern’s “staunch” policy against gambling as it looks like Vegas will get its team in a few years time.

Indiana is the Mecca of basketball, no offense to Madison Square Garden, but it looks as though the pilgrimages might come to an end. The Pacers will have slightly more than $30 million to spend in free agency next summer but most of the big names were free agents this summer. Carmelo Anthony stands out as one of the star names that will be available next year but the Pacers already have the position he plays filled. Funny how the money they have to spend next summer is almost the exact amount that they said they needed from taxpayers to maintain their facilities at Conseco Fieldhouse. Indiana might not even get to spend that money if there is a lockout because CBA negotiations reach a stalemate instead of a compromise. Citizens of Indianapolis and Pacers fans are stuck. None of them likely want to see their team leave but to entice them to stay they must bailout a billionaire. Blue collared Americans can only bailout so many billionaires. What do the taxpayers get in return? There is absolutely no guarantee that the Pacers will stay in Indianapolis long term. The team is ripe to be sold.

“I would say that the city is making it pretty clear of what they want us to do, and we’ll accommodate them…It’s not a very good lease, to say the least it’s the worst in the league. The city says they’re not prepared to do anything to improve it. I don’t think this is a difficult choice…I think the existing ownership has said that they don’t want to own a team that’s not in Seattle, so I know what they are in the process of doing. So we’ll just see how this play ends.”

It is eerie how those statements by David Stern about the Supersonics in 2006 closely resemble those he has made about the Pacers situation today. Indianapolis has acted, but will it be enough? Stern does not care about the traditions of a franchise he cares about his business model, his “City upon a Hill.” If he truly cared about the history and traditions of a franchise, Seattle, a city that had won and NBA championship, would still have a team. It would be just as easy for Stern to watch the Hoosier state lose its only professional basketball team. Times are growing perilous for the Pacers. Hopefully, we will never have to know the likes of a “Pacersgate” in the years to come.

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2 responses to “The Pacers’ Predicament

  1. Pingback: The Squad « The Kobe Beef

  2. Pingback: The Cowbell Tolls for Thee: ARCO Arena, Kings’ Days grow Numbered « The Kobe Beef

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