Pacers and Pro Sports and Herb Simon and Mel Simon and Family Business and Sports Business

Simons won't discuss succession plans for Pacers ownership

March 31, 2008

Recently announced changes to the Indiana Pacers' front office leave questions about the team's long-term ownership unanswered.

While Larry Bird, Pacers director of basketball operations, is set to take over for CEO Donnie Walsh at season's end, there is no indication what succession strategy, if any, exists for replacing team owners Mel Simon, 81, and Herb Simon, 73.

Herb Simon reiterated at a March 24 press conference announcing Walsh's departure that he and Mel have every intention of maintaining ownership for the foreseeable future. But the Simon brothers, who bought the team from California millionaire Sam Nassi for $11 million in 1983, have refused over the last year to address publicly who is in line to inherit or purchase the franchise. Given their ages, that is becoming a growing concern to city leaders and the team's corporate partners, who are eager to secure the Pacers' future in Indianapolis.

Even with lagging attendance, the Pacers are an important component of downtown's economic vitality. And as the main tenant of 9-year-old Conseco Fieldhouse, the franchise is a key to the venue's economic viability.

"Sports have been the engine that revitalized this city's core," said Milt Thompson, president of Grand Slam Cos., a locally based sports marketing consultancy. "The Pacers and Colts are a critical part of that."

The Pacers lease Conseco Fieldhouse from the city's Capital Improvement Board for $1 a year. They're about halfway through a 20-year lease, which has some escape clauses if the team is losing money and the Simons pursue a sale outside the family. Under the agreement, CIB would have the first right of refusal to buy the team.

Staffers for Mayor Greg Ballard said they have not discussed the lease or the brothers' succession strategy with the Simons. But sources close to the mayor admit it's a concern.

Plan or no plan?

"Given that the city has a lease deal with the Pacers, I would think city officials would be owed some answers," said Rick Horrow, a sports business author and CEO of Florida-based Horrow Sports Ventures.

Sports business experts and estate planners speculate that, at the very least, the Simons have a buy-sell agreement in place that stipulates that if one of the brothers dies, the other has the option to buy the decedent's half of the team.

"That's a very common way to handle these matters," said Marvin Frank, an Indianapolis estate attorney who has no business involvement with the Simon family.

But that wouldn't address concerns about the team's ownership long term.

Despite Herb Simon's assurance that there will be no ownership change as the team contemplates overhauling its player roster, Frank said businessmen with the level of assets the Simons have amassed are surely prepared for the unexpected.

"This is an extremely complex area, especially when you're talking about these kinds of assets and this kind of money," Frank said. "If they did the right kind of planning, the Pacers should be secure. The Simons are very bright people, so I'm sure they've done a great deal of planning."

But the Simons wouldn't be the first successful businessmen to get caught without proper planning. Former Conseco general counsel Lawrence Inlow, who died in an accident in 1997, had no will. The family of former Miami Dolphins owner Joe Robbie--also an attorney--had to sell the team because they couldn't afford the estate taxes required to transfer the team from one generation to the next.

Forbes Magazine recently valued the Pacers at $340 million, and Frank said the Simons could pay as much as 45-percent federal estate taxes to pass the franchise to their children. That would amount to $153 million, a significant hit for an operation making little or no profit.

Likely prospects

Herb, who, according to Forbes, is worth $1.3 billion, and Mel, who is worth $2.6 billion, both have children who could take over the franchise. Mel's son, David, who is CEO of publicly traded retail real estate empire Simon Property Group Inc., is a capable candidate, but he has shown little interest in running an operation that has posted multimillion-dollar losses over the last two years.

"I have nothing to do with the team, although I am a great second-guesser," David Simon said at a recent business conference in Indianapolis.

Mel's daughter Cindy Simon Skjodt is married to former professional hockey player Paul Skjodt, who has a background in professional sports operations and owns and operates the Indiana Ice hockey team.

Herb's son Steve might be the best candidate. He is managing member of Simon Equity Partners LLC, a San Francisco-based private equity firm. Steve also serves on the Pacers' board of directors. Even though he is familiar with the Pacers operations, he is less visible in the community than his father and uncle.

Bird himself might be in line. Shortly after leaving the Pacers as coach in 2000, Bird made it known he wanted to run and acquire an ownership stake in an NBA franchise. He was on the brink of putting together a group to buy a Charlotte franchise. That deal unraveled, and he came back to Indiana to direct basketball operations.

Mark Rosentraub, a noted sports economist and former IUPUI dean, would be surprised if the Simons speak publicly about a Pacers succession plan.

"They're not going to talk about the internal dynamics of the family," Rosentraub said. "That's a personal matter."

Secrecy is risky

Being open about long-term plans can strengthen relationships with fans and sponsors, sports marketers said.

"Look at George Steinbrenner and the New York Yankees," said Larry DeGaris, director of academic sports marketing programs at the University of Indianapolis. "He made it very clear with his sons Hank and Hal what the plan is."

In Dallas, Cowboys owner Jerry Jones is grooming his 38-year-old son, Jerry Jr., to take over, and in New Orleans, 31-year-old Rita Benson LeBlanc, the granddaughter of Saints owner Tom Benson, has become the team's executive vice president and is positioned to take the reins.

The absence of a Pacers heir apparent could lead to some concerns about franchise stability, sports marketers said.

"I think in this era of professional sports teams' portability, those kinds of questions will always exist," Thompson said. "The key is not to let them become a seed of doubt in the mind of fans and sponsors."

Under a plan sources close to the team said has been crafted by newly hired public relations guru Myra Borshoff, the Simons--or at least Herb Simon--are taking a more visible role in addressing the team's constituents. Borshoff declined to comment on the Simons' plans.

"The Simons need to talk to the public," DeGaris said. "They're the strongest part of the Pacers brand right now. If you go on a downward spiral, there's always fear from fans and sponsors that the wheels will fall off and the franchise will move. The Sonics were once a solid team in Seattle; now they're moving to Oklahoma City.

"For the fans to make a commitment to this franchise, they have to believe this franchise is going to be here. That's why it's important for [the Simons] to make a statement now."

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