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Pacers would pay big if they moved

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Moving the Indiana Pacers from Conseco Fieldhouse to another city would impose serious financial hardship on the franchise, according to one interpretation of the team’s 10-year-old deal with the city.

The Pacers are asking for $15 million annually—or $150 million over the last 10 years of the lease deal for Conseco Fieldhouse—to operate the 18,165-seat venue. The Pacers began asking for the money almost two years ago, but city officials—dealing with their own fiscal crisis—have been slow to comply.

If team officials don’t get a deal ironed out with the city’s Capital Improvement Board by June 30, Pacers officials confirmed that they will begin examining all ways to remain financially viable—and intimated in an April 14 Indianapolis Star story that moving the team was among their options.

CIB President Ann Lathrop did not return calls seeking comment for this story, but told IBJ March 30 that city officials are continuing to work with the Pacers to resolve the issue. She was noncommittal in her support of funneling cash to the Pacers and didn’t indicate any deadline the city is working under.

Sources close to Mayor Greg Ballard said the mayor seeks more control of Conseco Fieldhouse operations, and is resisting merely writing a check to the Pacers and letting the team continue to manage the facility on its own.

Ogden Attorney Paul Ogden has written extensively about the Conseco Fieldhouse lease deal.


The notion of having Conseco Fieldhouse sit vacant in the heart of downtown is a dire scenario for Indianapolis. To prevent such a situation, city officials who negotiated the lease included several clauses to discourage the franchise from moving.

The lease for the city-owned fieldhouse stipulates the Pacers organization would have to pay at least $50 million to the city if it vacated the venue, which opened in 1999. Pacers officials have been reticent to discuss the buyout, and declined to comment for this story.

Though the voluminous contract between Pacers Sports & Entertainment and the city is difficult to understand, local attorney Paul Ogden thinks the organization could be on the hook for more than $150 million if it decides to break the lease before it expires in 2019.

“I’ve spent two-plus years trying to interpret that one paragraph about contract termination,” said Ogden, who works in the local Roberts & Bishop law office and has written about the subject extensively for his Web site, Ogden on Politics. “The Pacers and city are largely insulated from [local media and citizens] looking at this contract because the average attorney, let alone layperson, can’t understand it. Nothing in this contract is clear.”

What Ogden was able to discern is that the Pacers must sell the team to break the lease, and the penalty to break that lease is tied to the sale price. Plus, the Pacers would be on the hook for part of utilities expenses CIB paid dating back to the team’s days in Market Square Arena.

The lease, Ogden said, stipulates that an “application termination percentage” will be multiplied by the net sale proceeds to come up with the biggest chunk of the penalty.

“That applicable termination percentage starts out at 50 percent in 2009 and declines about 3 percent to 6 percent every year,” Ogden said.

Forbes magazine valued the Pacers franchise at $281 million in December 2009, which, according to Ogden, means the penalty would be $132 million. Factor in $15 million in unforgiven MSA utilities expenses, and the figure reaches $147 million.

There’s another penalty provision that kicks in after 2010 that Ogden says would cost the Pacers $234 million if the lease is terminated. But that provision is to be used only if it is less than the first penalty.

CIB Treasurer Paul Okeson said, “When you peel it all back, the penalty isn’t as substantial as you might think.” Ogden disputes that. Even officials within Ballard’s administration concede that the penalty will be in the “tens of millions of dollars” range.

City officials don’t think the penalty would be big enough to impede the sale of the team to an out-of-state group, but said penalty proceeds would be enough to operate the fieldhouse without the Pacers for at least three or four years.

City officials also could potentially go after $3.45 million annually the Pacers have not paid for parking in a city-owned garage adjacent to Conseco Fieldhouse, though Pacers officials could be exempt from that if they demonstrate they’ve not met revenue thresholds while operating the arena.

Another important point, Ogden said, is that there is no stipulation within the contract to renegotiate it.

“There is only a stipulation if the Pacers don’t meet certain revenue thresholds to terminate the contract,” he said.

Bad time to sell

There’s another barrier to the Pacers’ moving out of town, said Marc Ganis, president of Chicago-based SportsCorp Ltd., which counts NBA and NFL teams as clients.

In this economy, with the average value of National Basketball Association franchises declining, the number of buyers who could absorb the penalty and pay enough for team owner Herb Simon to recoup anywhere near his losses over the years is extremely limited, Ganis said.

According to the contract, the sale of the Pacers is subject to CIB’s right of first refusal. But city officials said, due to time constraints outlined in the contract and also due to the fact that they have no expertise running a professional sports franchise, a purchase by the city is unlikely. The city would have 45 days to react after Pacers ownership receives an acceptable purchase offer.

Morris told IBJ earlier this year that the Pacers lost $30 million during the 2008-2009 season and he expected another big loss for the 2009-2010 fiscal year, which ends June 30. A financial loss this year would mean the Pacers have lost money 10 of 11 years in Conseco Fieldhouse.

Morris said the Simon family has lost more than $200 million since buying the franchise in 1983.

“I don’t think Herb Simon is the type of guy who will sell low,” Ganis said. “Besides Kansas City and maybe Las Vegas, I can’t think of any other markets that would have much interest in an NBA franchise right now.”

According to studies conducted by Forbes, the Pacers’ value declined $22 million in the last year. In Charlotte, N.C., this year, the Bobcats sold for $275 million to $290 million, according to NBA officials. That’s less than the $300 million Black Entertainment Television founder Bob Johnson paid for the franchise in 2003. Johnson told reporters he lost another $80 million in operations expenses during that time.

Labor unrest

Another factor that will impede a sale is an uncertain labor situation and a faltering NBA business model, Ganis said.

The contract governing NBA players’ pay expires at the end of next season, and the 30 team owners are threatening a lockout unless players agree to massive pay cuts.

The Pacers are far from the only NBA team in financial distress. NBA Commissioner David Stern said during all-star weekend in Dallas that the league stands to lose $400 million this season, and has lost at least $200 million each of the last four seasons. He said as many as nine teams are in serious financial trouble.

Stern is calling for reducing the players’ take from 57 percent to 43 percent of the league’s total revenue, with an individual player salary cap of $13 million per season.

It’s a pretty radical shift, but Stern realizes he needs to act before teams begin to fold.

To no surprise, Billy Hunter, the NBA players’ union boss, scoffed at Stern’s suggestions, but Ganis thinks eventually he’ll have to play ball or teams like the Pacers might not survive.

“There’s a fundamental problem with the NBA,” Ganis said. “The players are making way too much money for the size of business it is right now. The teams are being forced to squeeze their markets for cash, and when the corporate markets won’t wield what they need, they’re forced, as the Pacers are doing, to try to enlist government support. And that hasn’t gone down well with taxpayers.”

Sources close to the Pacers said Simon—who took over as the team’s sole owner when his brother, Mel, died in 2009—is beginning to have serious reservations about the future of the team.

In previous interviews, Simon and Morris have been steadfast in saying the Simon family has interest in retaining the team long term. But Morris’ recent public pronouncements that Pacers’ brass would examine all possibilities casts doubt on that.

“The Simon family has poured millions and millions of dollars into this franchise,” said Milt Thompson, president of Grand Slam Cos., a local sports marketing firm. “If you’re in business, you want that business to be self-sustaining. If you can’t get it to that point, you start to consider other options. I think we’re at the point where Herb Simon realizes he can’t continue under the current circumstances.”•

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  • Tenant
    If they want the City to pick the tab of running the place, then they will simply become a tenant, and the City will control the arena and receive all the non-Pacer revenue associated with it. From what I understand is, they want the City to pay all the bills, but they want to control the building and receive all the revenue generated by it. How many of their malls do the Simons operate under terms like that?
  • Pacers would pay big
    As well they should. Including taxpayer welfare received from city and state.
  • Smartest Men in The Room
    Pat Early and Luke Kenley say they have looked at the Pacers books.

    That's like Don King letting Mike Tyson look at the books when Mike suspected that his fight money was being stolen.

    Or perhaps, trusting the fox to guard the hen house.
  • You're lost!
    You have no idea what you're talking about. The Pacers rake in cash from every event that happens at that place. They make money on every event that happens in a stadium they have no ownership of.
  • the money not for pacers
    They arnt asking for money because the Pacers want it, they want it because when the city has an event at the Fieldhouse it cost lots of money to run the lights, pay emploies, and stuff like that and the Fieldhouse doesnt charge you to have something there. Guess who has to pay for the cities events, the Pacers. They want the money to pay for other peoples events.
    • Creative Accounting
      What "creative accounting," Enron? The City and the CIB have not even demanded that the Pacers open their books.
      • City shouldn't forfeit to Pacers
        Star Editorial:

        City shouldn't forfeit to Pacers

        http://www.indystar.com/article/20100417/OPINION08/4170317/1291/OPINION08/City-shouldn-t-forfeit-to-Pacers
      • Baloney
        The Simons are very smart business people.

        It is ridiculous to believe that the Pacers operations have lost money every year they have owned it. It is much more plausible that they have some very creative accounting and have been pocketing tens of millions every year until recently.
        • Use this to change how the NBA works
          Finally an article about this mess that has real facts. Like I've said in previous posts, the Pacers have no leverage; they are simply stuck between a rock and a hard spot. However, the city should work with the Pacer's on pounding the NBA's CBA reps. They have, like many unions (Auto, and soon to be Teacher's) destroyed an industry and resulted in terrible quality.

          Teams, owners and citys need to take this fight to those mob bosses called union representatives. It's truely the Pacers' and other owners' fight but the city should back them. GET RID OF THE MARGINAL PLAYERS MAKING WAY TOO MUCH MONEY$$$! Just don't hand out a bandaid when the real problem is with the NBA, Players Union, and Team Owners. NBA: FIX IT!
        • Missing the Point
          Indymoon you're missing the point. The Pacers can't pick up and move. They have to be selling the team. And the penalties would be about $150 million. The Pacers threat is a bluff. They have zero leverage.
          • Giveaway?
            Is this really a giveaway? This is the cost of operating and maintaining the facility. If the Pacers leave this expense doesn't go away. The CIB will pay this. So would taxpayers rather pay this with the Pacers or without the Pacers?

            Also, the deal required the Pacers to pay the O&M in exchange for managing the facility (and keeping all revenues). Makes sense. The problem is the CIB deal with the Colts (10 year later) is full of giveaways.
          • No Brainer: Bye Bye Pacers
            This is a no-brainer for me: bye bye pacers. Let them sell the time, move it to another city, and let's collect the 154 million or whatever is rightfully owed the city by the Pacers. And let's get some sort of objective judicial tribunal to rule/clarify on the terms of the lease to set that penalty. This means no CIB/City/Pacers/Simon participation on this ruling.....The penalty that the city receives can go to IndyGo/Library's/Infrastructure etc. And I think the downtown area is vibrant enough to withstand the 41 dates that we will lose. I was a half-season ticket holder for two years, and I never ate out when we went to games -- like most people. But enough is enough. The Pacers have squandered the good will they built up from the 1990's Reggie Miller era, and times have changed. The city can ill afford this form of corporate welfare: other priorities are far more important.

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