CIB, Pacers dancing toward a new Fieldhouse lease deal

May 11, 2010
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I’m no dance major.

But I know choreography when I see it.

After yesterday’s Capital Improvement Board meeting, I’m convinced we’re dancing toward a deal that will keep the Indiana Pacers here long term.

And I’m not saying that’s a bad thing. I’m not saying it’s a good thing either.

What I am saying is I think a deal between the Pacers and CIB gets done, and I think it gets done by June 30.

After wading through the hour-long CIB meeting Monday and a 17-page double-sided report prepared by Hunden Strategic Partners regarding the Pacers’ impact on Indianapolis, this is what I came away with.

Two quotes; one from CIB President Ann Lathrop and another from Paul Okeson, former Mayor Greg Ballard chief of staff turned CIB member and point person on Pacers negotiations.

“Having a marquee tenant benefits everyone involved,” Lathrop said as part of her synopsis of the study.

“The study bears that out,” Okeson added. “It confirmed what we knew.”

Lathrop also said the Pacers had seen the study before the meeting to see if the numbers made sense to them.

“I feel this study is very important,” Lathrop said. “It allows us to have a true benchmark.”

One thing appears clear; The study will be used as a hammer to drive home the point that the city can’t afford to lose the Pacers. After all, it says the Pacers generate $55 million annually for the local economy affecting 909 full-time jobs.

Those are big numbers. And big numbers need to be put in context. That’s not direct spending. The direct spending the Pacers generate over 365 days is $31.57 million.

This year’s Final Four, held over four days, brought direct visitor spending of $60 million to this city, according to the Indianapolis Convention and Visitors Association. The Super Bowl allegedly brings direct visitor spending of $450 million.

An event such as the FFA brings in $30 million or so in direct visitor spending in a week.

The CIB is being asked to spend $15 million annually to preserve $31.57 million in direct spending. Notice I didn’t use the term ‘visitor spending,’ because most of the spending at Pacers games is being done by Hoosiers. Some economists would argue that Hoosiers would spend that money somewhere else, if not with the Pacers. Quite possibly that money would be spent in the suburbs, and that’s a valid concern for supporters of the notion that a vibrant downtown is a good thing.

It should be pointed out, that it would cost the city nearly as much to operate Conseco Fieldhouse without the Pacers. But the city wouldn't have to share non-basketball revenue either. And the $150 million or so the Pacers would have to pay to get out of the 20-year Fieldhouse lease deal sure offers a nice transition cushion.

I have no doubt that Rob Hunden, Hunden Strategic Partners president, is well qualified to conduct such a study. But you can’t blame taxpayers if his hiring is looked at skeptically. Hunden, formerly worked for the Indianapolis Bond Bank under Mayor Stephen Goldsmith. It should be noted, it was the Bond Bank that paid Hunden his $30,000 consulting fee, not the CIB. And it should also be noted that Hunden was intimately involved in the planning and construction of Conseco Fieldhouse when he worked for Goldsmith.

I have no reason to point an accusatory finger at Hunden or his findings. But appearances of conflict of interest are just that. So I’ll let the taxpayers determine what appears to be the case.

I would have liked to hear from a sports economist. Former IUPUI dean (now a dean at the University of Michigan) Mark Rosentraub might have been a good choice. Or if you prefer someone with no connections here, Andrew Zimbalist, a nationally known sports economist from Smith College would have been a solid choice. And trust me, Zimbalist pulls no punches and he’s nobody’s shill.

While I’m convinced a deal to keep the Pacers here gets done sooner rather than later, and that commissioning this study is a key part of the process, not so much for what it uncovers but what it supports, that doesn’t mean everything has been settled.

I have some confidence that Lathrop is looking out for the taxpayers.

I think the following things are on the table. Who will run the Fieldhouse.

Lathrop talks too much about finding synergies between the Fieldhouse, Lucas Oil Stadium and the Indiana Convention Center not to be serious about exploring the possibility of the city taking over the whole shooting match. Is that the answer? I’m not sure. Taking on capital expenditures and daily maintenance of an aging building could be daunting. But if the CIB can handle the Convention Center and LOS, who not the Fieldhouse?

I think Lathrop is also negotiating to see if the city can get a piece of the naming rights money to off-set its expenses. She calls that a “deal point.”

I think Lathrop is also negotiating to see if the deal can be extended beyond the original 20-year term. That’s a critical point in making sure the city doesn’t end up in this same mess in nine years—or less if the city gives the Pacers room to wiggle out again.

Is the game over? Not by a long-shot.

But the two-minute warning has sounded.

That doesn’t mean there still isn’t plenty of time for both sides to score some points.
 

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  • independent
    I think the CIB needs a more independent study. And why didn't the Pacers have someone at the CIB meeting to address this.
    • DONE DEAL
      I for one believe the Deal is Done. All they are waiting for is to finish the taxpayers rate increase to cover costs. In having one researcher's theory (taxpayer money based)verified by another reseacher (again taxpayer money based)to tell the taxpayer's they need to keep paying.
      The CIB is being asked (by the Pacer's and associates) to spend the $15 million to assure them of their $31.57 million of which none is returned to the taxpayer's as a whole. We do need to pay attention to the success rate of the CIB.
      In the plans the CIB would control all the revenue of the proposal. Control as the Main Library Expansion suffered. We were notivied earlier that the Library would need to close 6 branches because of a $6+million defict. As of this writing it should be noted that Ballard said the branches would stay open - for a while. Bad pubilicity to close education for professional sports.
      Forget about extending the leases out for 20 years. The Pacer's, Colts, CIB will deem the buildings outmoded and have them bulldozed to the ground all the while having the taxpayers continue to pay via taxes. Example- Market Square Area that was removed to provide a tall condominum tower but remains a gravel parking lot. Or how about the Hoosier (rca) Dome- demolished with land going to the Convention Center (another CIB project) that taxpayers are still paying the mortage on. What was the Pacer's Gross income for the Year???
    • Pacers/CIB
      Steve,

      You have not a clue.

      Goodness, what a worthless rant.
    • The Real Story
      I took out a half page ad in our local paper regarding public funding of private sports teams. A recent IBJ Editorial titled â??Shed More Light on Pacersâ?? Plightâ?? regarding the possible increase of public funding for the Indiana Pacers, the Editor states factually that â??the franchise has been an economic engine for downtownâ?? as if that was an indisputable fact.



      I had a business in downtown Indy and was President of the Downtown Restaurant Association, and had plenty of problems with the teams, the taxation on my business to support them and finally left town for greener pastures after 15 otherwise successful years at that location. I thought you might appreciate the following information.



      If that is true, then the Pacers are the only sports team that has ever been an economic engine for any city��as every independent academic study every done comes to just the opposite conclusion. So let me shed the real light��



      By way of example, Jim Irsay thought the Colts were an obvious economic engine and hired the Kelly School of Business at IUPUI to document it. So anxious was he to demonstrate this fact that he scheduled a press conference to tout the study to the tax-paying world. Problem is, he hadnâ??t read the report and when he did, the results so clearly demonstrated there was no significant economic impact that he cancelled the press conference and the study never saw the light of day. The chief author of that study later released a book titled â??Major League Losersâ?? using the Colts as one of the primary examples where he documented that any teamâ??s effect is â??minuscule on the economy of a city or even a regionâ?? and that â??they produce few jobs, little tax revenue, and a negligible positive impact even on their own immediate neighborhoodâ??. That was also a book produced by the Brookings Institute called â??Sports, Jobs, and Taxes: The Economic Impact of Sports Teams and Stadiumsâ?? which I purchased and sent to Peterson and every sitting City Council Member. Quoting from the Brookings summary; â??15 collaborators from universities across the nation, examined the local economic development argument from all angles: case studies of the effect of specific facilities, as well as comparisons among cities and even neighborhoods that have and have not sunk hundreds of millions of dollars into sports development. In every case, the conclusions are the same. A new sports facility has an extremely small (perhaps even negative) effect on overall economic activity and employment. No recent facility appears to have earned anything approaching a reasonable return on investment. No recent facility has been self-financing in terms of its impact on net tax revenues. Regardless of whether the unit of analysis is a local neighborhood, a city, or an entire metropolitan area, the economic benefits of sports facilities are de minimus.â?? (For more info check out www.brookings.edu/articles)



      Later, the Capital Improvement Board purchased a study at a cost of over $100,000 from Coopers Lybrand whose task was not to produce an independent analysis but rather was told by the Peterson administration to prove there was a big positive impact. That firm dutifully saluted and at an average taxpayer cost of $13,000 per page most people would take dictation. It is just a shame the press did not actually read it. The primary basis for their assertion was an exit poll of over 800 Colts ticket holders at a winning game asking the probing question, â??Do you think there is a positive economic impact by the team on Indianapolis?â?? and the resounding answer was â??Yesâ??! I donâ??t know how anyone can call a public opinion survey of the attendees an econometric study, but it sure shows you can fool all of the people at least some of the time. Unless the economic benefit the ticket holders were referring to was having the cost of a ticket subsidized through the public coffers. Never once did the study group ask any hotel, restaurant or retail establishment who was paying taxes to Irsay what their opinion was and I hope everyone remembers that Irsay also refused to open his teamâ??s books at the same time he was holding his hand out.



      Even though receipts were truly smaller than other NFL franchises, it was widely reported (except here in town) that since his team was not carrying any major long term debt load, that the Colts were actually one of the most profitable teams, if not the most profitable team, in the league.



      Now after the Conseco Fieldhouse was built, Indianapolis Downtown Inc reported in their annual reports about downtown that sales at the Top Ten downtown restaurants declined for the next three years by an average of 10% each year (they checked sales tax records) which amounted to millions of dollars in lost tax revenue to the Tax Increment Financing District.

      IDI then blamed the downturn on the economy after 9/11, but when I pointed out that in the same period the industry enjoyed an average 4% annual growth in sales nationally, in our state, and even in Marion County (according to the increases in the food & beverage tax collections), IDI had run out of excuses and got right on solving the problem â?? they stopped checking and reporting on the sales decreases in their annual report. Their answer was the traditional see no evil, hear no evil, so donâ??t report about the evil. This, despite the fact that over 3 dozen downtown restaurants, the ISO and the IRT signed a petition to the Mayor listing all the problems, many related to parking and traffic, the Fieldhouse had created for downtown which was causing a net loss of business. IDI was well aware that the neighborhood knew what the problem was and their own expert on parking agreed with us, so they fired him and got a new guy who would respect where his paycheck came from. IDI was a major roadblock and, along with the Pacers themselves, had a fully funded, independent study on the problems created by the Fieldhouse killed by Petersonâ??s Economic Director, (that would be Melina Kennedy). As an aside, will somebody please tell me why a neighborhood group like IDI continues to get $1,000,000 annually in taxpayer subsidy, especially in these times, instead of relying on the membership like for instance the Chamber of Commerce?

      The Pacers smiled politely at neighborhood meetings and said they would do anything the Mayor wanted them to do to solve any problems, while all the time insisting there was no problem and having the clout behind the scenes to make sure nothing was done, especially about some nasty parking situations they had created. To add insult to injury, this was at a time they were not paying the contracted for $3.45 million per year for the Fieldhouse parking garage so they had a free parking garage and lots of unwarranted parking profits which they somehow did not disclose and for which they are now in arrears for almost $40 million dollars. And to further add insult to injury, Melina Kennedy made sure the Simons got their own parking garage at their new headquarters so they would have free parking at a tax payer cost of another $14 million dollars. The Simons were also claiming at that time they would leave Indianapolis if they did not get a free parking garage for their employees. Will Indianapolis never learn?

      And what do you want to bet that if the teamâ??s books were examined as the IBJ suggests a big part of the losses the Pacers say they are experiencing is a line item for a $3.45 million annual cost they should be repaying to the taxpayer for that parking garage but never will? Some pretty good sums of public money have already been paid out for bouncing that big rubber ball.

      And when I pulled out of Indianapolis 4 years ago I was generating over $250,000 annually in taxes, some of which went to the Tax Increment Financing District. Many others left the district for greener pastures too, revenue the CIB could now surely use and would have had if they had listened to the neighborhood.

      I and over 20 others closed their downtown businesses citing Fieldhouse related problems as a primary reason. As a matter of fact, the IRS code provides tax relief to businesses if there is a catastrophic occurrence, such as a flood, earthquake, or Katrina like hurricane. In my filling for that relief, I extensively detailed those problems and the lack of any net positive economic benefit, and conclusively proved the many negatives in a report so thorough and complete the attorneys said it was the best documented case they had ever seen and later the hearing officer did not even question if the relief should be granted. It was just a matter of â??how muchâ??. In the proverbial â??Miracle on 34th Streetâ?? tradition, an official agency of the US Government pronounced that the Capitol Improvement Board and its facilities had the same catastrophic economic affect on downtown Indy as a hurricane did to New Orleans. It took three years, but I got the refund checks just last month.

      Now donâ??t get me wrong, I do understand there is a big bonus to a city through any teamâ??s publicity value (at least when the team members are not pulling guns or throwing punches) but the public cost of that publicity is very, very, high. It is great to have the teamâ??s name on TV and T-shirts. A population, or at least its sports fans, can all come together and cheer, feel warm and cozy and sing kumbaya. All a public subsidy really does is free up cash for a teamâ??s owner and whichever franchise has the most free cash can afford the highest priced players. Thatâ??s it. It has been proven time and time again by every single truly independent study ever done.

      So if the publicity is really worth the price tag, pay it. If itâ??s not worth it, donâ??t. But to say that the public cost is really an â??investmentâ?? that pays for itself due to some big economic benefit is a big lie.

      You can fool some of the press all the time, and you can fool all the public some of the time, but you canâ??t fool all the Hoosierâ??s all the time, can you? I hope not, because if ever there was a big lie, this is it. Donâ??t get fooled again.

      Ted Bulthaup
      Former owner, Hollywood Bar & Filmworks
      Former President, Downtown Restaurant Association
    • Pacers
      Ted,

      Excellent piece that tells the truth for a change. And, in the good 'ol boy/girl equation, Ms. Kennedy is taking another shot at Mayor. We the people are like lambs going to slaughter because of all the greed. Same as in Washington only on a smaller scale. We can't trust elected officials to do the right thing for citizens/taxpayers. Doesn't matter whether they are red or blue.

      Truly sad situaion turning into taxpayer chaos.

      I was a huge fan of Hollywood Bar. Hope you're still doing well in Chicago and wish you were still here!

    • Ridiculous
      So, is it a coincidence when I go downtown to dinner on a Sunday of a Colts game, everything is packed and on non-game day Sunday's there is no wait? I go downtown all the time and the difference when either the Colts or Pacers are playing would be noticeable to Helen Keller. I don't need a study to tell me what I see.

      And to the people saying that money is spent elsewhere, I agree if you are including money spent at the grocery store, liquor store or dvd rentals in the suburbs. All that is far less than normally spent going to a game.
    • Studies on bad sports economics
      During discussions, also found this on line about another independent study

      The Pacers, Colts and the Impact of Professional Sports on Local Economies
      Study by Illinois University and University of Maryland
      Do the professional sports have a great impact on a local economy? The vast majority of the academic research on the subject says "no." Let's examine a couple of them.

      Brad Humphreys, a professor of recreation, sport and tourism at the University of Illinois at Urbana-Champaign and Dennis Coates, a professor of economics at the University of Maryland, Baltimore County, in 2004 studied the issue and were not able to uncover a single instance in which the presence of a professional sports team has been linked to a boost in the local economy.

      As reported by the News Bureau, a publication of Illinois University:

      â??Our conclusion, and that of nearly all academic economists studying this issue, is that professional sports generally have little, if any, positive effect on a cityâ??s economy,â?? Humphreys and Coates wrote in a report issued last month by the Cato Institute in Washington, D.C. The institute commissioned the professors to study the economic impact of a deal proposed by Anthony Williams, the mayor of Washington, D.C.; under terms of the agreement, the Major Baseball League would move the Montreal Expos to the nationâ??s capital in exchange for a new, city-built ballpark.

      The professors based their report on new data as well as previously published research in which they analyzed economic indicators from 37 major metropolitan areas with major-league baseball, football and basketball teams.

      â??The net economic impact of professional sports in Washington, D.C., and the 36 other cities that hosted professional sports teams over nearly 30 years, was a reduction in real per capita income over the entire metropolitan area,â?? Humphreys and Coates noted in the report.

      The researchers found other patterns consistent with the presence of pro sports teams. Among them:

      â?¢ a statistically significant negative impact on the retail and services sectors of the local economy, including an average net loss of 1,924 jobs;

      â?¢ an increase in wages in the hotels and other lodgings sector (about $10 per worker year), but a reduction in wages in bars and restaurants (about $162 per worker per year).

      The News Bureau article continues with Humphrey's challenge to the flawed statistics used to support professional sports subsidies:

      â??The wonder is that anyone finds such figures credible,â?? Humphreys said. â??Yet decade after decade, cities throughout the country have struggled to attract or keep professional sports teams, and the idea that a team brings with it large economic gains invariably arises. As it turns out, claims of large tangible economic benefits do not withstand scrutiny.

      â??Thatâ??s because such impact studies often are based on skewed data. For instance, when citing multipliers â?? the ripple effect that each dollar spent on professional supports is projected to have on the communityâ??s wider economy â?? impact studies often overstate such contributions and fail to differentiate between net and gross spending.

      And, Humphreys added, such studies typically donâ??t consider what economists call the â??substitution effect.â?? As sport- and stadium-related activities increase, other spending declines because people substitute spending on sports for other spending,â?? Humphreys said. â??If the stadium simply displaces dollar-for-dollar spending that would have occurred otherwise, there are no net benefits generated.â??

      In 2008, Economic Professors Robert A. Baade, Victor Matheson and Robert Baumann, reached the same conclusion as Humphreys and Coates. In their lengthy report, they explain why professional sports don't raise the revenue claimed and how supporters play fast and loose with the economic figures supporting taxpayer subsidies:

      Even when ex ante studies are done in a carefully considered manner, they suffer from three primary theoretical deficiencies: the substitution effect, crowding out, and leakages. The substitution effect occurs when consumers spend money at a sporting event rather than on other goods and services in the local economy. A local resident who goes to a baseball game is spending money at the game that likely would have been spent at local restaurants, theaters, or retail establishments in the absence of the game. Therefore, the local consumer's spending on a sporting event is not new economic activity; rather, it represents a reshuffling of local spending. For this reason, most economists advocate that spending by local residents be excluded from any economic impact estimates.
      ...
      A second source of bias is "crowding out," which results from the congestion caused by a game that dissuades local citizens from venturing near the playing venue during the game and thereby reduces economic activity.
      ...
      A third source of bias comes from leakages. While money may be spent in local economies during sporting events, this spending may not wind up in the pockets of local residents. The taxes used to subsidize these events, however, are paid for by local taxpayers. The income multiplier for sporting events is likely to be much lower than for general expenditures as a result of the specialized nature of the service provided. In the NBA, for example, only 29% of players live in the metropolitan area in which their team plays (Siegfried and Zimbalist 2002).

      The economics professors conclude their study:

      Professional sports leagues, franchises, and civic boosters have used the promise of sports franchises, new stadiums and arenas, and all-star games or league championships as an incentive for host cities to construct new stadiums or arenas at considerable public expense. In the past, league- and industry-sponsored studies have estimated that mega-events such as the Super Bowl and all-star games increase economic activity by hundreds of millions of dollars in host cities.

      Similar studies claim that new stadiums or franchises also can have hundreds of millions of dollars of annual local economic impact. Our detailed regression analysis of taxable sales in Florida over the period from 1980 to mid-2005 fails to support these claims. New stadiums, arenas, and franchises, as well as mega-events, appear to be as likely to reduce taxable sales as to increase them. Similarly, strikes and lockouts in professional sports have not systematically reduced local taxable sales. While these results, like any econometric estimates, are subject to some degree of uncertainty, they clearly place doubt on boosters' claims of huge economic windfalls. Cities would be wise to view with caution economic impact estimates provided by sports boosters, who have a clear incentive to inflate these estimates. It would appear that
      "padding" is an essential element of many games both on and off the field.


      While it can certainly be argued that having a professional sports teams brings with it the positive (usually) intangible benefit of raising the profile of a city, the argument that those teams have such an economic impact on the local community that they deserve hefty public subsidies is simply not at all supported by academic studies. However, locally raising the food and beverage tax and innkeeperâ??s tax so that we have some of the highest of such taxes in the country, would do more to hurt tourism and the local economy than if we have to say "goodbye" to the Pacers. Yet that appears to be the unwise direction the CIB is heading in.



      Ted Bulthaup

      Former Owner, Hollywood Bar & Filmworks (15 years)

      Former President, Downtown Restaurant Association (3 Years)

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