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.
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.
Indianapolis Colts owner Jim Irsay has made clear that he’s not willing to pay more rent or ticket taxes to help bail out the city’s stadium board, despite dire warnings that it might have to close his new stadium if it can’t fill its $47-million-a-year budget gap. Said Irsay:
“I’m not going to renegotiate. That’s the bottom line. All we did was negotiate in good faith. We’ve done everything we can to have a great organization. We’ve lived up to our part. We’ve exceeded our part.”
Irsay’s part, you’ll recall, was to kick in all of $100 million toward a nearly $700 million stadium project — $48 million of which he got back via a “lease termination fee” from the city. Meanwhile, Irsay is getting $6 million a year in naming-rights money from Lucas Oil, while paying all of $250,000 a year in rent. I wouldn’t want to renegotiate either.
WRTV News reports, somewhat dramatically, that Lucas Oil Stadium could close if a state bailout deal is not reached for the Indianapolis Capital Improvement Board. The CIB, which operates the Indianapolis Colts‘ one-season-old stadium along with Conseco Fieldhouse, home to the Indiana Pacers, is facing a $47.4 million operating deficit, after failing to budget properly for $26 million in annual operating costs for Lucas Oil Stadium.
The consequences of financial failure for the CIB remain unclear. CIB President Bob Grand sounded pessimistic, if vague, saying, “If you want me to give you worst-cases, I mean the worst-case scenario is we could be out of money and the facilities would be, arguably, closed.”
The bailout plan includes annual $5 million payments from both the Colts and Pacers, which neither team has agreed to as yet (UPDATE: Since the Pacers would be absolved of about $15 million a year in operating costs, this would actually save the team $10 million a year. -ND), as well as tax increases on alcohol, restaurant meals, hotel stays, and sports tickets.
Politicians are not yet on board with the plan, either. NWI reports that Thomas McDermott Jr., Mayor of Hammond in northwest Indiana, is incensed that a similar finance plan for flood protection levees in his district was blocked in December. “It seems to me that it’s more important to build football stadiums than it is flood walls,” he said on Thursday.
I’ve read a bunch of good reporting from Baltimore Sun writer Childs Walker, and even been interviewed by him, so I’m not happy to have to nominate him for dumbest observation of the day on the 25th anniversary of the Baltimore Colts moving to Indianapolis:
With 25 years of perspective, however, it’s possible to argue that March 29, 1984, was actually a good day for Baltimore sports. It allowed the city to cut ties with a desperately flawed franchise and a deeply unpopular owner. It spurred elected officials to get serious about plans that would keep the Orioles in Baltimore and attract a new NFL team. Those plans bore fruit in Camden Yards and M&T Bank Stadium, beloved facilities that are now as intrinsic to downtown as the Inner Harbor. The Ravens arrived in 1996 and won a Super Bowl six years before the Colts brought Indianapolis its first Lombardi Trophy.
Uhhhh, so let me get this straight: It’s good that the Colts moved and left the city without an NFL team for a decade because it ended up forcing the state to spend $330 million on two new stadiums? Isn’t that a bit like saying the economic crash was good because it forced the government to increase unemployment insurance?
Also nowhere to be found in Walker’s article: Any mention of the fact that the Ravens, after all, “arrived” from 50 years of being the Cleveland Browns, a move that forced that city to pony up $283 million for a new stadium to get football back. Though I guess when the thesis of your article is “Hey, it worked out okay, we ended up with a better team and all it cost us was $330 million!” there’s no room to worry about how things worked out for the next guy.
With Indiana facing a $43 million a year operating deficit on its sports facilities, there’s increasing talk of a ticket tax hike on sporting events to help close the gap. “Of all the potential funding sources, the ticket tax makes the most sense to me,” said City-County Councilwoman Joanne Sanders told the Indianapolis Business Journal. “I think true users of the facility should have to pay. The direct use is an important thing to look at.”
Both the Indianapolis Colts and minor-league baseball Indianapolis Indians have come out against the tax, and little wonder: Most economists agree that ticket tax money mostly ends up coming out of team owners’ pockets, as they’re forced to scale back their ticket prices to keep the ticket-plus-tax price within the bounds of what consumers will pay. The Colts, for example, just hiked their cheapest ticket price by 42% – if there were a ticket surcharge in there as well, they’d have to be more concerned about driving fans away. (Though not all that much more concerned, given that at most, we’d be talking about a 3% tax hike from the existing 6% ticket tax.)
Of course, there’s also the problem that even a 3% ticket surcharge would bring in only about $2 million a year – and, as noted, the state stadium authority is facing a $43 million a year deficit. Somehow I don’t think a 60% ticket tax is going to fly, no matter how fair the “users should pay” argument may be.
Hey, remember that $20-35 million a year operating deficit Indianapolis’ stadium authority was projecting to run? Turns out it’s now $43 million a year – and the city or county may have to consider new taxes to help stem the flow of red ink.
Among the options being considered, according to the Indianapolis Star, are a food and beverage tax hike, a hotel tax hike, a sales tax increment financing district (which would just divert sales taxes that would otherwise go to the state treasury), a ticket surcharge (which, contrary to what the Star claims, would mostly come out of the pockets of the Colts and other local teams, who would be limited how much they could raise ticket prices, not local fans), and lease concessions from the Colts and Pacers. Noting that the Pacers are expected to demand a sweetheart lease akin to the Colts’, U of Indianapolis sports marketing professor Larry DeGaris remarked, “On one hand, the city has already played its hand by building the stadiums — it would be a shame to have these two huge white elephants Downtown (if the teams, in particular the Pacers, opt to move to new cities). But the teams don’t have the same leverage now, either. Where are the Pacers going to go that can help them?”
All this, on top of the $715 million that local taxpayers spent to build the Colts’ new stadium in the first place, could leave the public on the hook for more than $1 billion in construction and operation costs. But then, it’s not like anyone could have predicted that the stadium would lose money for its public owners once it opened – oh, wait…
Remember how the public’s costs of operating the Indianapolis Colts‘ Lucas Oil Stadium were running $10 million a year over initial projections? Well, now it’s $20 million. Or maybe $35 million.
“I’m hoping it’s a first-year cost and … not an ongoing type of cost,” state senator Luke Kenley told TheIndyChannel.
Kenley probably shouldn’t read today’s Bond Buyer, then, which mentions: “Part of the problem is the possibility of $15 million in increased costs for the Conesco (sic) Fieldhouse as the National Basketball Association’s Pacers renegotiate their lease this year.” The Pacers’ lease gives them the right to renegotiate after this year; why the city is already anticipating giving them a $15 million a year rent break is beyond me. Even if they are losing money, what are they going to do, move to Kansas City?