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April 14, 2010

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.


Neil-Do the Colts and Pacers have contracts directly with the CIB or the city of Indianapolis? Or do they have LLC's that have the contracts, which is what the 49ers will do with the Stadium Authority here in Santa Clara, insulating the team financially.

Posted by SantaClaraTaxpayer on April 14, 2010 08:30 PM

They have leases with the CIB, that's all. And for the Pacers, at least, they have an out clause provision that they can exercise right now, which is what they're threatening to do.

This is why I always say that everyone pays too much attention to construction costs and not enough to leases. On top of the fact that hidden subsidies are often snuck into leases, when teams get out clauses it leaves them room to make new subsidy demands years later. I really don't understand why mayors ever agree to sign these.

Posted by Neil on April 14, 2010 08:36 PM

The Pacers have a 20 year contract which may be reviewed after 10 years but it is a review and not binding. Furthermore the contract termination language has a current penalty of 150-230+ million dollars if they choose to move or sell the team. They have an out clause but it does have a serious financial downside, in 2009 the net worth of the Pacers was estimated at 303 million dollars and the default is over half of their market value.
Their current contract gives them the building they play in rent free and they receive all of the revenues that passese through the doors; basketball and non-basketball. Their only payment is 15 million per year for operation expenses. The CIB built the Conseco fieldhouse for a cost around 180 million, all at taxpayers expense.
There are two reasons the Pacers are losing money; poor management and a team that is performing poorly. Feeding them more money at taxpayers expense won't solve either of those problems.

Posted by IndyRes on April 14, 2010 09:36 PM

"I really don't understand why mayors ever agree to sign these."

Our mayor is on record saying that the stadium will fulfill her (now deceased) father's dream (he used to be on our city council).

Posted by SantaClaraTaxpayer on April 15, 2010 03:07 PM

Bad management is the understatement of the year. This year they paid Troy Murphy $11 million, Mike Dunleavy Jr. $9.8 million, TJ Ford $8.5m, Jamaal Tinsley $5.2m, etc... and of course their only good player (Danny Granger, $9.9m) is disgruntled and feels woefully underpaid.

Posted by Greg on April 16, 2010 01:27 AM

IndyRes, where are you getting that $150-230m termination penalty from? The only figure I've seen is from the Indianapolis Business Journal, which wrote:

"Voiding the lease, though, would cost the team dearly. It would be obligated to pay CIB a termination fee 'based on a formula sufficient to reimburse the city for the economic effects of such early termination,' the contract says. The minimum penalty is $50 million, but the contract says the Pacers' cost for terminating the lease in 2012 could be as high as $144 million."

If anyone has the actual lease language handy, I'd love to see it.

Posted by Neil on April 16, 2010 08:38 AM

As to the figure I was quoting see for 4/16 et. al. There is a copy of the Pacers contract on the Capital Improvement Board web site; under agreements.

Posted by IndyRes on April 16, 2010 09:05 PM

And the beat goes on, in today's Indianapolis Business Journal (online) Larry Bird, the President of the Pacers states that owner Herb Simon never said he would move the team. Isn't that chapter 1, Fleecing the home city?

Posted by IndyRes on April 16, 2010 09:30 PM

I believe in basketball terms that's called a "deke."

Thanks for the Ogden and lease links. That lease is indeed impenetrable — I kept expecting it to break into "Though shalt not count past three, and upon counting three, though shalt count no further" — but I think I've figured it out: It says the Termination Fee can't exceed the total of $50 million plus the Applicable Scale Amount, which is a number that drops year to year. For 2010 it's $80 million, meaning the penalty would be $130 million.

That's a tough hit, and certainly one worth exploring whether to call the Pacers' bluff on, but something short of "ironclad." And if they dicker around a couple of years while playing footsie with other teams, the termination penalty only goes down.

Interestingly, the CIB can also prevent the Pacers from opting out by agreeing to cover their operating losses every year. That's a dangerous game to get into — remember Paul Beeston's comment that "I can turn a $2 million profit into a $4 million loss" without violating standard sports accounting — but you have to wonder if it'd be worse than absolving them of paying maintenance altogether.

Posted by Neil on April 16, 2010 10:56 PM

Having gone through this with the Blazers/Oregon Arena Corporation fiasco a few years back, this makes sense that the penalty would be so stiff.

I'm no expert or insider but I'd imagine that it would be much more difficult to bond without those penalties.

Posted by Greg on April 16, 2010 11:10 PM

In today's IBJ;, another article on the financial impact if the Pacers elect to move. And in today's Indianapolis Star an article by Bob Kravitz denounces the Pacers corporate welfare plea.
Current opinion polls in the Star, obviously not scientific, are 70 percent unfavorable to the Pacers.
And yet the mayor and the mayor's staff continue to push for picking up the maintenance on Conseco. Apparently the mayor can't tell which way the wind is blowing. See also local editorial cartonist Gary Varvel's cartoon of 4/17 in the Star;
Maybe this isn't a done deal, one can only hope.

Posted by IndyRes on April 18, 2010 02:04 PM

I wish the folks in Indianapolis would drop a set and offer to pack up the moving vans for the Pacers.

There are roughly six sick NBA franchises. The NBA has run out of out markets to play musical markets unless Des Moines is now considered an NBA city.

Posted by bevo on April 18, 2010 09:55 PM

Wow, please please, dont move the Awesome Pacemakers out of Indy.

Posted by Pace Makers on April 19, 2010 12:35 PM

Mary Milz/WTHR reports the debt on Conseco is now 214 million dollars. So after eleven years in the building, a building that cost 183 million we owe 31 million more that it cost to build!

Posted by IndyRes on April 22, 2010 09:37 AM

That says "in principal and interest" — are they just adding up all the future bond payments and calling that the "debt." Because that's not kosher — it'd be like saying that you owe $800,000 on your $500,000 house because you have 20 years of $40,000 mortgage payments left.

Posted by Neil on April 22, 2010 10:19 AM

If the Pacers played 100+ games there a year, their loss might be a significant financial detriment.

We have to factor in the recouped revenues from concessions and whatever other fees go into the Pacer's hip pocket now. They leave, they lose those dollars, and they come back to us.

Since they pay $1 rent per year, their departure doesn't cost us much. It likely would be a gain with a few other events scheduled into those 41 vacated dates.

Posted by John Howard on April 26, 2010 08:55 AM

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