The “operating subsidies” epidemic: How sports teams get cities to throw good money after bad

I’m on the road the next couple of days, so posting will be lighter than usual. First, though, I’ll leave you with some reading material: My debut article for Al Jazeera America’s relaunched website, examining how teams like the Phoenix Coyotes, Indiana Pacers, and Atlanta Falcons have extracted sweetheart leases that pay them millions of dollars a year in public “operating subsidies” even as their host cities slash services and raise taxes. Here’s a sample:

To pay off the initial Pacers arena cost — plus the $650 million that it sank into a new stadium for the Colts football team — Indianapolis’ Capital Improvement Board had already cut off all of its arts and tourism grants the year before. To help fill the new gap, Mayor Greg Ballard funneled city property-tax revenues to the board, even as he asked city agencies to reduce library hours and close public pools because of budget shortfalls.

“Indianapolis might be a great place to visit, but it should be a better place to live,” says Pat Andrews, a longtime Indianapolis community activist and blogger who has closely followed the Pacers deal. In addition to cuts to parks, transit and other services, she notes, the city police force has stopped recruiting new officers because of budget cuts, and murders have risen dramatically this year. “The basic services of the city are suffering at the same time the Simons and [Colts owner Jim] Irsay are making out like bandits.”

Read, and discuss.

Sports teams can’t save a city, but if you squint hard enough you can pretend they can

You probably didn’t even know that Gary, Indiana spent $50 million in 2002 to build a sports stadium for an independent-league baseball team, theGary South Shore RailCats— I didn’t know, so I’d be stunned if you did. But now that you do, I bet you’re wondering, “Wait, are people really flocking to downtown Gary, Indiana just because there’s a minor-league baseball team in town?

Fortunately for you, the Times of Northwest Indiana has the answer, and it’s no, not so much:

Walking down Fifth Avenue, where the U.S. Steel Yard is located, it’s not hard to see how much remains to be done. The Steel City Buffet owned by the Gary Empowerment Zone across from the stadium is again in search of an operator. The barbecue joint in the same building is empty. A Bennigan’s restaurant was kicked out of the Steel Yard itself after shootings outside, rowdy nights inside and failure to pay rent…

And it’s hard not to notice the largest projects counted by the mayor as successes have all been heavily, and in some cases completely, subsidized by government. Stand-alone private investment is almost nil.

And:

“There is a lot of traffic out there,” said Christopher Maxfield, 42, owner of a small building with apartments and shop space just across from the stadium. “I just wish it would slow down a little and that some of them would stop here.”…

“The impact the stadium has had for me?” Key muses as business winds down for the day at Fresh Coast Coffee Co. “I’d say it’s more a psychological benefit.”

“It serves to mitigate a lot of the negative publicity the city of Gary has received,” Key goes on to say. “Now thousands of people have come into Gary on a summer evening and had good family fun.”

That’s all pretty typical of what one tends to hear from businesses around sports facilities — it’s nice to give people something to say about your downtown other than that it doesn’t have any doctors or dentists or Walgreens-style general stores, as is the case in Gary, but it’s really hard to catch the firehose of people swarming into games and back out three hours later to build, say, a restaurant clientele. But it’s nice to see a local newspaper interviewing actual business owners to see the impact or lack thereof of a sports facility, unlike … oh, say, Indianapolis Star columnist David Masciotra, who chimed in today with this Atlantic Cities piece about how stadium subsidies are working out at the other end of the state, in Indianapolis:

In the 1960s, visitors and all but the most loyal residents gave it the nickname “Nap Town.” The joke being that the only thing to do in Indianapolis is take a nap… Now, Indianapolis is still the host of the Indy 500, but it is also home to an NBA team, an NFL franchise, a minor baseball team, 200 restaurants, 300 retail shops, 28 museums and galleries, and 12 performing arts theaters. All of these entertainment venues and service businesses attract a growing market of Indiana visitors and out-of-state tourists…

The New York Times praised Indianapolis’ “thriving culture scene,” while the Los Angeles Times called the success of its revitalization project, “breathtaking.”

The unemployment rates in Indiana and Indianapolis are lower than the national average, and both the state and city have sizable budget surpluses.

The essay, which features zero quotes from anyone actually in Indianapolis, is already getting shredded by Atlantic Cities commenters, who have noted errors both small — the Colts moved to Indianapolis in 1984, not “the 1970s,” and the city hosted the Super Bowl in 2012, not 2006 — and large — that “sizable” city budget surplus is actually a $55 million deficit, and comes on the heels of years of painful budget cuts to close past budget gaps. Which weren’t entirely created by the hundreds of millions of dollars spent on new buildings for the Colts and Pacers, or by the tens of millions more that the city gave to the Pacers to keep playing in their brand-new arena, but it sure didn’t help.

To be fair, by the end of the article Masciotra does credit Indianapolis’s alleged renaissance — which, as one flabbergasted Indiana correspondent wrote to me, is sourced partly to an L.A. Times article from “19-friggen-86″ — to not putting all its eggs in the basket of sports, but rather to “cross-sector partnership” that helped spur new shops and “the second largest collection of urban monuments in the country.” (And also to lowering property and business taxes and privatizing services, which also haven’t actually worked out all that swimmingly.) But that just raises the question: If you still have to build public fountains and give tax breaks to downtown businesses in order to create development, can you really claim that it was sports that provided your magic beans?

Naming-rights musical chairs!

Maybe it’s just end-of-year contract cancellation time, but this week has seen a relative whirlwind of naming-rights reversals: A national pizza chain announced it was taking its name off of FC Dallas‘ soccer stadium, while the Indiana Pacers‘ arena got a new name thanks to a corporate renaming, the Miami Dolphins‘ stadium is getting one thanks to its namesake company closing up shop in the U.S., and the Sacramento Kings‘ arena could get one depending on how its sponsor’s bankruptcy proceedings go.

All of which is pretty much old hat in the sports world by now — this will be the eighth name for the Miami stadium in 25 years — but it does make you wonder how much brand value a stadium name when nobody can remember what it’s called. (Quick, anyone: Where do the Oakland Raiders play?) So far, companies still seem willing to throw their name onto any building that might get it on the lips of national sportscasters — just look at the San Diego Chargers‘ stadium, which got a new name that will last only from last Sunday through next Wednesday in order to promote its usual sponsor’s new cellphone chip at three major football games. But how long will it last, especially if announcers stop making as many references to stadium names-of-the-week.

It’s possible to imagine, even, a world where entire articles could be written about stadiums without ever bothering to mention who has paid to advertise on their sides. But no, that could never happen.

Indianapolis businesses say sales fine during NBA lockout

Finally, somebody who reads Slate! From last night’s WRTV in Indianapolis:

Although the National Basketball Association’s players and owners have failed to hammer out a contract, downtown businesses that normally depend on traffic from Indiana Pacers games said there’s a silver lining to the lockout’s dark economic cloud…

Chris Ratay, general manager at St. Elmo’s Steak House, said the lockout hasn’t really put a dent in his pockets, RTV6′s Rick Hightower reported.

“All I can say is I’m so happy we’re up even without the Pacers. I do look forward to them getting back to playing so we can start a promotion again with the pregame dinners, and maybe even increase our sales a little more,” Ratay said.

Also reporting strong attendance during the NBA lockout: The Indianapolis Children’s Museum and the Indianapolis Symphony Orchestra.

Now, this is just as limited anecdotal evidence as some of the news stories claiming that local businesses would be devastated by the lockout — though at least this is based on actual businesses reporting their actual sales, not projections based on a team consultant’s report. More concerted studies would be great, but in the meantime, it’s nice to see the media at least acknowledging the possibility that, as the WRTV report puts it, “the lockout won’t likely affect downtown business revenues because consumers with disposable income will redirect their entertainment dollars to other venues.”

Indy to pay Pacers $33m over three years for no damn reason

It’s a couple of weeks late, but the Indiana Pacers have obtained their boodle: The city of Indianapolis has agreed to pay the Pacers $10 million a year for the next three years (plus $3.5 million for a new ribbon ad board, among other things) to play at Conseco Fieldhouse, the taxpayer-funded arena that the team plays at rent-free and keeps all revenues from. That’s less than the full $15 million in annual operating costs — the Pacers’ only arena-related expense — that the team owners said they wanted the city to cover, but not a whole heck of a lot less, especially considering that the Pacers’ lease isn’t actually up yet.

In exchange, the city gets a commitment by the Pacers to stay in town … for three years. After that, the team could break its lease and leave town with a smaller penalty, which would dwindle to zero by 2019, the year that their lease is actually set to expire. I don’t think the Indianapolis Star used my quote, but what I told their reporter was something along the lines of “This is a pretty crappy payoff for $30 million in government subsidies.”

For its part, Deadspin, with its classic understatement, called the deal “the worst of all taxpayer-funded bailouts,” “a ransom, plain and simple,” and “a blatant cash grab by the Pacers, taking millions of dollars just to agree to live up to the terms of the deal they happily signed.”

None of which I’d argue with, though I would take issue with Deadspin’s contention that “Indianapolis needs the Pacers more than the Pacers need Indianapolis,” given that there aren’t a heck of a lot of cities with NBA-ready arenas, and certainly not with Indianapolis’ fan base. It seems like the city’s Capital Improvement Board caved to a major local business player — which may be partly explained by the fact that the CIB’s president is a former aide to this guy.

The CIB still needs to vote to cough up the dough, which it plans to pull out of its operating budget. Yes, that’s the same operating budget that ran out of money last year and had to be propped up with a $27 million state loan; with this in mind, at least one state representative says he wants to block the Pacers deal. Best of luck with that: The Pacers may not be able to beat anyone in the NBA Central, but they’re unstoppable when going one-on-one with Indianapolis elected officials.

Pacers may not get their lease subsidy before self-imposed “deadline”

It looks like talks over the Indiana Pacersdemand for an even sweeter sweetheart lease will go down to the wire — or a wire, anyway. The team’s owners set June 30 as a deadline for resolving the dispute, but Ann Lathrop, president of the state Capital Improvement Board (who was, incidentally, Indianapolis city controller at the time the original lease was signed) says there’s no guarantee a deal will be reached by then.

The big sticking point appears to be not the $15 million in annual operating-cost subsidies the Pacers want, which the CIB, despite its own budget woes, seems willing to cough up, at least in part. Rather, according to the Indianapolis Star, “the central sticking point has been who controls Conseco Fieldhouse,” with the CIB saying if it’s going to take on the cost of paying all operating expenses for a tenant that already pays no rent, it wants control of the arena back. The Pacers are reportedly “resistant” to this.

The Star article also quotes me (as saying that these kinds of talks always drag on longer than expected), but the quote of the day goes to economist Roger Noll, who told the paper: “In the absence of an active attempt by some other city to get them, deadlines like that are meaningless. The crucial issue has to do with whether they have any other options, and those don’t come overnight.”

In other words, pay no attention to the Pacers’ “deadlines,” pay attention to what’s going on in other cities. Like, say, Las Vegas, which is busily working on new arena plans to lure … um, whoops, never mind.

Pacers’ economic study: Pay our operating costs, or we won’t!

A consulting group issued an economic impact study of what the Indiana Pacers are worth to Indianapolis yesterday, an event so awaited that there were entire news articles just about the issuing of the press statement announcing the study’s release. And the findings are (drumroll, please):

  • If the Pacers left, the city would lose $55 million in annual economic activity.
  • The Pacers’ presence is worth 909 jobs.
  • The city would lose $17.8 million in annual revenue without its basketball team.

Economic impact, as I’ve covered here previously, is a meaningless figure, and 909 jobs isn’t an especially impressive number, especially if those include part-timers. That $17.8 million a year in actual revenues, though, is pretty substantial, especially on just $55 million in money changing hands overall. Does Indianapolis have a 30% sales tax that I didn’t know about?

No, as it turns out: The arena consultants estimated that the city would lose just $5.6 million in tax revenues without the Pacers (no word on whether they noticed that Indianapolitans might still spend their money elsewhere in town if denied NBA tickets), but would also lose $12.2 million if forced to run Conseco Fieldhouse, and pay its operating expenses — which the Pacers currently pay for, and are trying to get out of, which is the whole point of this exercise.

Let’s follow the bouncing logic here: The Pacers shouldn’t have to pay operating costs because if they didn’t pay them, the city would have to. So if they left, the city would be on the hook for operating costs anyway, so why not just let them stay and pretend they’d left, and have them pay nothing? I can’t wait to try this argument out on my landlord!

Of course, I didn’t agree to pay my landlord’s electric bills in exchange for getting to pay only $1 in rent and keep every penny from the basketball games I play in his backyard, but the Pacers seem to be conveniently forgetting that taking on operating costs was already a tradeoff on their part. As does the Marion County Capital Improvement Board, whose president Ann Lathrop told the AP yesterday that absolving the Pacers of operating costs is “the primary basis of a lot of our discussions right now.” It’s like taking candy from a baby…

Pacers threaten move unless city picks up $15m/year arena tab

Apparently the Phoenix Coyotes aren’t the only team demanding to be paid by their landlords for the privilege of having them play in their town: The owners of the Indiana Pacers have informed Indianapolis’ Capital Improvement Board that they want the city to pick up the $15 million a year cost of operating Conseco Fieldhouse — or else. Or else what?

On Tuesday, Pacers Sports & Entertainment President Jim Morris said if a deal isn’t inked by June 30, Simon would have to start searching for other solutions, and nothing would be off the table.

“We’ve been having conversations with the Ballard administration for two years,” Morris said, “and we’re now at the point where we need to wrap this up in the next 30, 40 days.”

If that doesn’t happen, he said, “[owner] Herb [Simon] would have to look at all of his options.”

Including moving the team?

“Herb would look at all of his options,” Morris repeated.

Morris did stress to the Indianapolis Star that “we do not want the team to move,” but that’s a typical sports owner non-threat threat, as we called it in the book. This is clearly a shot fired across Indianapolis’ bow, with the intent of getting headlines like … well, like the one that the Indy Star ran on its story.

The Pacers, you may recall, received Conseco Fieldhouse courtesy of local taxpayers in 1999, keeping all arena revenues while paying all of $1 a year in rent to play in the new facility — the one thing they did agree to pay for was operations costs, now estimated to run about $15 million a year. The team was smart enough to negotiate a lease opt-out clause for itself, though, one that it’s now threatening to invoke to get out of the lease if it isn’t renegotiated to reduce the Pacers’ costs to, well, zero, or thereabouts. Morris griped to the Star that despite the Pacers playing rent-free and keeping all revenues, “the losses have been really substantial and the only chance we have is to be able to use all the resources that are generated here to operate the basketball team.”

The stadium board, meanwhile, is running a deficit that hit $47 million last year. And at the same time as the Pacers are demanding lease breaks, they’re asking for new upgrades, including, per the Star, “a new scoreboard, floors, furniture, kitchen equipment, wireless Internet and other amenities.”

While move threats are a standard part of the sports owner playbook, it’s worth asking where the Pacers could possibly go: Before the Seattle Sonics moved to Oklahoma City two years ago, they weren’t exactly besieged with tempting offers. Kansas City has an arena but no reason to agree to an Indy-type sweetheart lease; Las Vegas has lots of talk about arenas, but that’s about it. It takes a lot of damn gall to demand rent breaks when you’re not paying rent, and threaten to move when you have nowhere to go — but if you’re an NBA team, you can probably just swing by the league offices and fill up at their gall fountain.

Indianapolis cuts arts funds to subsidize stadiums

The Indianapolis Capital Improvement Board voted yesterday to start plugging its $47 million a year operating deficit by suspending all grants to arts and tourism groups. The CIB also voted to look at renegotiating its union contracts and selling some of its assets.

The budget gap, you’ll recall, was created in the first place by the city’s sweetheart lease deals for the Colts and Pacers, compounded when the CIB agreed to let the Pacers stop paying $15 million a year in operations costs, either out of the goodness of their hearts or a sudden fear that the team would move to Kansas City otherwise. Next time someone tries to argue that stadium costs don’t cut into the money available for other public spending, remember this moment.

Indiana to stadium board: Drop dead

What if they built a stadium and nobody maintained it? The Indiana general assembly failed to agree on a bailout plan for the Indianapolis Capital Improvement Board yesterday, leaving the board that runs the Colts‘ Lucas Oil Stadium and the Pacers‘ Conseco Fieldhouse with a $47 million a year budget hole and no way to fill it.

The CIB has called an emergency board meeting for tomorrow, at which it will consider … well, no one seems to have much in the way of ideas. Indianapolis Mayor Greg Ballard “said they must do something,” according to WISH-TV, adding that the city could turn the stadium board over to the state, but he doesn’t like that idea; it’s hard to see where the state would like it either, since they already said they don’t want to be stuck with the board’s debts. Then there’s the suggestion, also from Ballard’s office, that Colts owner Jim Irsay might want to make a donation to the arts in lieu of paying rent; three guesses what Irsay’s reaction will be to that one.

The underlying problem remains the teams’ leases, which grant them pretty much all revenues from their buildings and ask them to pay next to nothing in rent ($250,000 a year for the Colts, $1 a year for the Pacers); it’s hard to find money to pay maintenance and operations when you don’t have any income. Nobody really thinks that the CIB will go ahead with its threat to close the buildings if it doesn’t get a cash infusion, it’s hard to imagine what they’ll do to get out of this one.