UPDATE: CIB wringing money from general operating fund to pay Pacers

July 12, 2010

The Capital Improvement Board is hoping to squeeze the more than $30 million it has promised the Indiana Pacers over the next three years out of its general operating budget. The money will come from a combination of existing taxes aimed at downtown visitors and users of the city’s professional sports complexes, with a state loan being the last resort.

CIB and Pacers officials are set to announce their three-year deal at 2:30 p.m. Monday on the 25th floor of the City-County Building.

The CIB has also agreed to pay for at least $3.5 million in capital improvements at Conseco Fieldhouse, which sources in the mayor’s office said would include a video ribbon board circling the interior of the venue. That ribbon board, city officials said, will help the Pacers raise sponsorship revenue to become more financially self-sustaining.

CIB President Ann Lathrop is hopeful that increases in revenue from things like hotel and restaurant taxes along with savings in the CIB’s general budget will help the agency come up with the cash needed to subsidize the Pacers. The city recently agreed to expand the downtown sports taxing district and to increase the hotel tax by 1 percent, which Lathrop said should help raise CIB revenue.

She noted that CIB revenue in the first five months of 2010 is running $3.8 million ahead of the same period a year earlier. Expenses, meanwhile, have declined $7.5 million during the same period.

Lathrop is also hopeful that more revenue will come in after the Indiana Convention Center expansion opens late this year.  A few months later, a 1,005-room JW Marriot hotel is scheduled to open on downtown’s west edge.

But Lathrop said if all that isn’t enough, the CIB could use part of a $27 million three-year loan from the state to pay for the Pacers deal.

During negotiations, Pacers Sports & Entertainment—which is owned by retired real estate executive Herb Simon—contended it has been in the red every year but one since moving into Conseco Fieldhouse and could no longer afford to pay to operate the facility.

A CIB-commissioned study concluded that the Pacers along with the Indiana Fever contribute an estimated $55 million a year to the Indianapolis economy.

The CIB’s first priority in negotiating the deal, Lathrop said, was to keep the Pacers in Indianapolis. Though she said Simon voiced his desire to keep the team here, city negotiators received little assurance that would be the case after the three-year deal is complete.

As part of the deal, the Pacers would have to pay back part of the $33.5 million if the team leaves before 2019, which marks the end of the city’s original 20-year deal with the team.

CIB officials discussed Simon’s long-term ownership plan for the Pacers with the team’s ownership, Lathrop said, but she declined to divulge details of that discussion.

Lathrop said a short-term deal was secured because city officials need time to evaluate the economy and see what happens with the NBA’s collective bargaining agreement. The deal that governs players’ salaries expires July 1, 2011, and team owners are trying to reduce players’ pay.

Currently, players receive 57 percent of all of the NBA’s basketball related revenue. Owners are seeking to reduce that amount to 50 percent. NBA Players’ Union President Billy Hunter is fighting that proposal, and league sources say a 1-percent to 3-percent drop in the players’ take is more likely than the 7 percent sought by team owners.

Pacers officials said they’ve lost money in 10 of the 11 years they’ve been in Conseco Fieldhouse, including about $60 million over the last two seasons. Though the CIB declined to grant the team the $15 million it sought for Fieldhouse operations, Lathrop said she agrees “100 percent,” with the Pacers’ financial disclosures.

“We’ve seen the audited financial reports, and we have no reason to believe that those are in any way inaccurate,” Lathrop said.

But sports economist and former IUPUI dean Mark Rosentraub is less convinced.

“I’m not sure how you can operate in one of the nicest facilities in the league essentially rent free, and be so far in the red,” Rosentraub said Monday morning.

Rosentraub also pointed out that eight of those 11 years were during relatively economic robust times.

“If the CIB is so convinced in the accuracy of those figures, which happened during some very robust times for the city and the state, you’d have to ask, 'Is the conclusion that the Pacers can’t be operated profitably in this city?' If that’s the case, what could possibly change in two to three years to turn this thing around, or are we looking at a long-term situation of paying to keep the Pacers here?”

While Rosentraub said he thinks the Pacers and Conseco Fieldhouse are important components to a vital downtown, he said the CIB and Pacers should put all the financial cards on the table.

“The CIB is a public agency,” Rosentraub said. “If these numbers are real, what’s the hesitancy?”


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