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Sports Business

George injury will cost Pacers plenty of money

August 6, 2014
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If rising star Paul George is lost for the entire 2014-2015 season, his absence will likely trigger an eight-figure loss for the Indiana Pacers.
 
Part of that loss will be determined by how local basketball fans—and corporate sponsors—respond to the loss of George and the resulting on-court fortunes of the Pacers.

Financially, the Pacers’ blow should be cushioned by an insurance policy which will cover part of George’s salary. He is owed $15,937,290 for next season. George’s contract with the Pacers is guaranteed, meaning he gets it whether he can play or not.

NBA bylaws stipulate that every team has to pay for insurance for their five highest-paid players, if offered by the league insurance policy issuer, MetLife.

Given George’s age, 24, and his history—or lack thereof—of injuries, he’s almost certainly covered by MetLife. Pacers officials declined to confirm that.

That doesn’t mean the Pacers are off the hook if George is out all of next season.

According to the collective bargaining agreement hashed out by the NBA Players Association and team owners, the MetLife insurance policy takes effect after a 41-game deductible. That means the Pacers are on the hook for the first $7,968,645. But that’s not all.

After that, MetLife will pay 80 percent of George’s salary while he’s recovering from his injury. That means the Pacers will cover the other 20 percent, or another $1,593,729 of his remaining salary for the 2014-2015 season. The Pacers will pay $9,562,374 for a player that likely won’t play a game.

And, NBA officials said, George’s entire salary will count against the salary cap—even if he doesn’t play a single game. The NBA has a soft salary cap, meaning teams can exceed that cap under certain circumstances. There’s a luxury tax for teams that exceed the cap by about $14 million or more, but the Pacers are never going to do that.

The collective bargaining agreement does have a disabled player exception that is more than a little complicated. It will allow the Pacers to replace the injured George with another player. There are a number of governing parameters per the collective bargaining agreement.

In any event, adding a player to the roster to replace George could cost the Pacers another $8 million next season.

Pacers owner Herb Simon has been adamant in the past that the franchise will remain fiscally conservative when it comes to exceeding the salary cap. He’s been clear that he has zero intention of paying a luxury tax.

If the Pacers are going to compete for a playoff spot in the NBA's Eastern Conference this upcoming season, Simon’s fiscal restraint may have to loosen.

Here’s what’s even less clear than all that. How will Pacers fans respond to George’s injury?

Indianapolis is not exactly known for its die-hard sports fan base. Basically, the fans’ rule here seems to be ‘win and we’re in, lose and we’re outta here.’

Some call Indy a bandwagon town.

There have been exceptions to that, of course. Pacers fans rallied behind the team immediately after the 2004 brawl in Detroit. But when the Pacers faltered in subsequent years, the team’s attendance sunk to the lowest in the NBA.

When the Colts have faltered, fans stayed away too. Most recently, when the Colts lost quarterback Peyton Manning for the entire 2011 season and his long-term prospects here looked dubious, the team’s season ticket renewal and waiting list shrunk dramatically.

Pacers’ attendance has been on a big upward trend the last three years—as the team has excelled on the court. Last year, the Pacers averaged 17,501 for 41 home games, and season ticket renewal for the upcoming season is well over 90 percent. Season-ticket sales as of mid-June were running 15 percent ahead of where they were a year ago, according to Pacers officials.

Simon was pushing Pacers sales boss Todd Taylor and his staff to sell out the 18,165-seat Bankers Life Fieldhouse for every home game this season. While Taylor told IBJ in June that was a tall task, he didn’t discount the possibility.

But a lot has changed since then. Last month, starter Lance Stephenson left the Pacers for what he considered a better contract in Charlotte. Then George went down on Friday with a broken leg. Many speculate he’ll miss all—or at the very least the vast majority—of the upcoming season.

The Pacers have gone from a team that was projected to be second or third best in the Eastern Conference to one that will be fighting for a playoff spot.

While many Pacers fans are upset that basketball operations chief Larry Bird let Stephenson get away, they can hardly blame him—or anyone else within the organization—for what happened to George.

Either way, an attendance decline of 1,000 to 1,500 per home game would cost the Pacers another $1.5 million to $2 million in ticket revenue alone. Including parking, concession and merchandise sales that those fans would contribute and the financial hit could exceed $3 million.

As the Pacers attendance has risen, so has the team’s sponsorship revenue. Sponsorship sales increased 10 percent last season from the year previous, and in June Taylor said they were trending in that same direction for the upcoming season. Again, that was before the Stephenson departure and George injury.

It’s unclear how sponsors will respond, but it’s safe to say fewer fans in the stands won’t help sell any new sponsorships. It wouldn’t be a stretch to say the Pacers could lose another $1 million in lost sponsorship sales opportunities.

Factor in what they’re paying to bring in another player and the loss could easily exceed $12 million.

Pacers officials remain upbeat.

"Season-ticket holders, sponsors and fans in general have responded in an overwhelmingly positive tone since the (Paul George) injury. We believe the community will rally behind the team Larry Bird has put together," said Pacers spokesman Bill Benner.

For the team and its fans, however, putting a price on the lost opportunity the upcoming season could represent is impossible.
 

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