Pacers and Professional Athletes and Pro Sports and Economic Development and Labor and Sports Business

City would take hit if NBA labor strife cancels season

August 27, 2011

lockout by the numbersIndianapolis might find out soon what life would be like without the Indiana Pacers.

It won’t be good, say downtown business owners, government officials, marketing experts and sports economists.

If the National Basketball Association lockout, which began July 1, lasts as long as many people predict, it will take some of the guesswork out of the age-old argument over the value of professional sports franchises.

The debate was replayed most recently in 2010, when the city’s Capital Improvement Board agreed to subsidize the Pacers to the tune of $33.5 million over three years. Critics advocated saving the money and allowing the team, founded here in 1967, to fold or move to another city if it couldn’t be financially viable on its own.

“I guess it’s a case of being careful what you wish for,” said Mark Rosentraub, a former IUPUI dean who has written two books about professional sports operations. “If Indianapolis loses the Pacers even for a season, it won’t be at all good economically for the city.”

Tom Penn, a former executive with the Portland Trailblazers and Memphis Grizzlies, pegs the chances the entire 2011-12 season will be lost at 75 percent.

“If the NFL [was] a badly sprained ankle, the NBA is a torn ACL, a microfracture and a ruptured Achilles,” said Penn, who now works for ESPN as an analyst covering the business of the NBA. “They face a set of very complex issues, and it’s going to take a while to sort out.”

A host of divisive issues are on the table, with perhaps one of the most contentious being revenue sharing among the league’s 30 team owners.

If the season is canceled, the city would lose about $55 million in economic activity, according to a 2010 study done by Chicago-based Hunden Strategic Partners for the city’s Capital Improvement Board, which owns Conseco Fieldhouse.

The impact would range from less money being spent at restaurants, bars and hotels to decreases to the Pacers’ payroll and less tax revenue generated for units of government. The report estimated sales taxes, admissions taxes and other taxes would be $5.5 million lower without the Pacers.

“There’s going to be a real economic hit, and we’re going to feel that pretty quickly once we start losing games,” said CIB President Ann Lathrop.

The Pacers’ pre-season is set to begin Oct. 11 with the regular season tip-off on Nov. 2.

“This city is also going to lose out on some significant branding opportunities (through television broadcasts and media mentions) without the Pacers and I think a sense of community pride,” Lathrop added. “It’s a lot more than just money.”

Missing the crowds

Downtown businesses are already bracing for a financial hit.

“For us, it would be a huge loss,” said Troy Gregory, general manager of Mo’s, a steakhouse a block north of Conseco Fieldhouse. “There are games, including those when the Pacers play teams like Miami, Chicago, Boston or Los Angeles, where we do at least as much business as we would during a Colts home game.”

On big game nights, Gregory said revenue more than quadruples compared with a normal night.

“It would be a really big impact on us, and we’re far from alone,” Gregory said. “We’re hoping games don’t get canceled, but from what we hear, it doesn’t sound good.”

Downtown restaurant oners estimated the lost revenue could be in the $500,000 range.

Parking lot operators also would take a big hit, with several around the arena saying they’d lose from $25,000 to $100,000 depending on the size of the lot and proximity to the arena, which dictates rates.

While hotels generally don’t see a lot of business from Pacers games, the Conrad does. The high-end hotel on Washington Street downtown has contracts with 23 of the NBA’s 29 teams that play here.

“It’s a good piece of business for us, and naturally, we’d hate to lose it,” said Greg Tinsley, the hotel’s general manager.

Tinsley said each team uses about 40 hotel rooms. The cancellation of an entire regular NBA season would cost the Conrad about 1,600 room nights. Though Tinsley wouldn’t say what the financial hit would be, it would likely be more than $500,000 after tallying room rates, meals and other charges.

CIB and Pacers officials haven’t discussed a contingency plan for trying to fill the dates that would be vacant if there’s a lockout.

“Due to the uncertainty of the situation, the Pacers can’t just fill the dates where games are scheduled,” Lathrop said. “As negotiations [between team owners and players] continue, they have to be ready to go with the facility.”

NBA and CIB officials are unwilling to speculate on when a labor deal would have to get done to salvage at least part of the season. During the last NBA lockout, the two sides reached a deal on Jan. 20, 1999, and the league reduced the season from 82 to 50 games. Sources close to the league think that if an agreement isn’t reached by Feb. 1, the entire season would be scrubbed.

Pacers President Jim Morris declined to discuss the lockout. NBA Commissioner David Stern has threatened to levy a $1 million fine on any team that discusses the lockout publicly.

Morris did say Pacers Sports & Entertainment is committed to making Conseco Fieldhouse “one of the busiest venues in the country.”

That won’t be easy without a Pacers season.

The Pacers play 41 regular season home games and four pre-season games. Including its playoff games last year, the Pacers drew about 620,000 people through the turnstiles.

“For those who argued this city would be better off without the Pacers, this [lockout] is going to potentially give us a pretty big view of what that would look like,” Lathrop said. “And I think everyone should stop and take some time to take that in.”

Regardless of how long the lockout lasts, the CIB in January will give the Pacers the second of three $10 million installments to offset Conseco Fieldhouse operating expenses.

“That payment is related to building expenses, not related to operating the team,” Lathrop said.

She noted that the Hunden study showed the CIB would lose $12.24 million annually if it operated the Fieldhouse on its own.

“If the team left for good, we’d have all of the operating expenses and none of the Pacers and [WNBA Indiana] Fever events,” she said. “That’s a lot of [calendar] holes to fill.”

Shifts in spending

Despite the doom and gloom, local attorney Paul Ogden isn’t convinced the economic impact of a lost Pacers season would be that great.

Ogden, who has been publicly critical of the city’s financial aid for the Pacers, said the team generates little new money in the market.

“The people that spend money going to a Pacers game are almost all local people,” Ogden said. “If they’re not spending that discretionary money directly downtown, they’ll spend it somewhere else in the metro area. That money isn’t going away. That disposable income is just moving from one place to another.”

Rosentraub, now a dean at the University of Michigan, agrees the Pacers do cause a shift in spending, but he doesn’t think that shift lacks value for Indianapolis.

“Where spending occurs matters as much as if spending occurs,” Rosentraub said. “Economic segregation leads to a wide range of social challenges. If you don’t believe that, come on up to Detroit.”

Rosentraub said downtown facilities like the fieldhouse do three important things: provide service-sector jobs in a central location, reduce the city’s energy use by keeping jobs centrally located and keep money flowing into Center Township.

There’s one more thing, he said.

“The social footprint of the Indiana Pacers is larger than a lot of other institutions,” Rosentraub said. “You can’t ignore that. People relate to and identify with Indianapolis by the institutions they know.”•

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