Herb Simon, 79, says the $160 million deal the city struck with the Indiana Pacers this month for operating costs and stadium improvements is an outgrowth of negotiations that began way back in 2007.
“So if you think the city was easy, or gave anything away,” the drawn-out talks suggest otherwise, Simon said in a wide-ranging interview with IBJ in which he revealed, for the first time, details of his succession plan.
Simon plans to put Stephen Simon, one of his eight children, in control, with other family members also receiving ownership. Stephen, 48, runs a private equity firm in San Francisco, though he travels to Indianapolis regularly and has an office here.
Herb Simon—who ranks 822nd on Forbes’ list of richest Americans, with net worth of $2.2 billion—said because his many children won’t have wealth on the same scale as he has amassed, his goal in negotiations was to ensure they wound up with a deal that made the team viable in Indianapolis.
The following is an edited version of the conversation:
IBJ: Were you personally involved in the negotiations with the city’s Capital Improvement Board?
SIMON: Yes, I was involved—not every day. But I would say I was the final say on this. … We were patient. They were patient. We always knew that we both had good intentions, but it wasn’t easy for the city to do. Nor was it easy for us. Good things sometimes take a long time to get done.
IBJ: Was there a point where you thought you needed to seriously consider moving the team?
SIMON: No. … We didn’t threaten anything. This team belongs in Indiana. Everything I have been doing, and we’ve been doing, is to keep the team in Indiana, in case I’m not here. That’s all it is—to make it economically viable so that my heirs and successors can keep it here, where it belongs.
IBJ: The financial outlook for the Pacers has improved, in part because of better performance on the court. The latest collective bargaining agreement also provides more favorable revenue sharing to smaller-market teams like Indiana. Given those realities, why are subsidies still needed?
SIMON: Well, you have to look over to the marketplace. We are doing much better than we did the last couple of years, but we still only average $700,000-and-change [a] game in ticket revenue.
Other cities get $2- to $3-million a game, and the interesting thing is, we all have the same salary cap. So for Indianapolis to be competitive, we have to pay up to the [threshold where the luxury tax kicks in] and that rises every year, because new arenas are coming online and guys are getting $2- or $3-million gates. Indianapolis is still a small-tier market, and we are struggling to get $700,000 or $800,000.
IBJ: Is that a ticket-price issue?
SIMON: That’s indicative of a small market. The same thing goes with sponsorships. The same thing goes with everything, on and on and on. And many big corporations [that otherwise might support the team] have left the city.
So to be economically viable, to stay locked in this city for the foreseeable future—and the fact I was getting on in years—I needed to work with the city to put us in an economic position so this thing could stay here with me or not.
IBJ: With this deal, are you confident the team will be profitable?
SIMON: A lot depends on how we perform on the court. You know, we have gotten better as operators. Our ticket department is very professional, so we are working toward being viable—maybe not making a lot of money but stopping the blood, the losses. That is what we are trying to do, basically.
IBJ: Over most of the years since the fieldhouse opened in 1999, the team has lost money?
SIMON: This is very confusing, because the season is split up over two [calendar] years. But if you take 2009 to estimated 2014, we show we lost about $44 million. A couple of years, we came close to break-even in that period of time.
And that does not include the extra $10 million I had to pay to settle the Spirits of St. Louis [litigation], and that doesn’t include the $16 million I had to lay out for a scoreboard because I couldn’t get anyone to act on it. [See graphic.] So if you think about it, there was an outlay of $70 million over these years more than we’ve taken in.
IBJ: One of the downsides of being someone who shows up on Forbes’ list of richest people is that, when you are involved in negotiations, a segment of the population will say, “He can weather some losses. Why should …
SIMON: I have! And this does not include the $150 million in debt we accumulated over the years. That’s on top of what we just talked about. Yeah, you’re right. If I couldn’t afford it, the team wouldn’t have been here.
IBJ: This is the team’s first deal with the CIB that addresses succession. What is the succession plan?
SIMON: Well, I have a son who will be taking over for me—not for a while, I hope. He follows the team and does a lot of the numbers with everybody. And he’s a good guy.
IBJ: You are the sole owner right now. Would he be the sole owner?
SIMON: It’s not finalized yet, but my plan is for him to control it, and the rest goes to the family.
IBJ: Someone I was talking with said Stephen’s temperament is similar to yours. If Stephen were in charge, what should we expect?
SIMON: He’s very generous. He’s very community-minded. He is a little more fiscally responsible than I am, I would say. And I think he will work very hard to make it profitable. He’ll do a good job.
IBJ: The CIB agreement goes into a lot of detail about what would happen if a Pacers loan were called upon your death. It says the CIB would help try to line up refinancing. But if that were unsuccessful, the CIB could line up a purchaser that would have the “right of first offer” to buy the team.
SIMON: Well you see, I personally guaranteed the loan. Even though it is a Pacer loan, it could be an issue for my children—they are not worth as much as I am. The city has a lot of means [to help refinance the debt] where the kids can still continue [and not have to sell the team].
There is money to pay off the loan, and we will try to pay it down before then.
The city has all the rights. All they have to do is make sure we get a loan on the team.
By the way, the team now will probably increase in value. So the $150 million which was choking us for many years will be less of a problem, and they should be able to get a loan with very little help from the city.
IBJ: Is $150 million the amount of the debt?
SIMON: It’s actually $154 million, but it varies. It’s been up to $175 million. You know, it just goes up and down depending on the time of the year, depending on what’s happening.
IBJ: From the outside, I wouldn’t think the loan would be a problem. Forbes in January valued the Pacers at $475 million, and another small-market team, the Milwaukee Bucks, which had the worst record in the NBA this year, just sold for $550 million.
SIMON: It’s just extra caution. I don’t think it’s a problem at all.
Early in 2007, it was more of a problem, and certainly in 2008 and 2009, it was a problem. It is much less of a problem today.
IBJ: When the Pacers signed the original fieldhouse lease in the late 1990s, the agreement included references to Larry Bird building up an ownership stake in the Pacers. Is that still a possibility?
SIMON: At one time, Larry had a small piece, and when he left [as coach in 2000], we bought him out. In his new contract, he does not have that. So it’s really in the family.
IBJ: That agreement also said the parties would make their best efforts to attract an NBA All-Star Game. That push never happened. The topic came up again at the press conference announcing the new CIB deal. Pacers executive Jim Morris says Mayor Greg Ballard is championing the idea.
SIMON: The funny thing is, we were the first ones to have a real good All-Star Game [at the Hoosier Dome in 1985]. We showed them how to do that. I don’t want to take credit, but at that time, I had a big marketing department over at Simon, and we really had a nice thing.
For some reason, I never really asked for it again, and no one from the city said to me we should get it again. So I didn’t know. If that is a priority, I’ll be on the phone and put my name on the list.
IBJ: One of the most exciting aspects of the team this season has been Lance Stephenson. He’ll be a highly sought-after unrestricted free agent after the season. Do you envision Stephenson as someone the Pacers can afford to keep?
SIMON: Yes, I can envision it. Whether it is going to happen or not, I don’t know. I’m sure Larry will be talking to him.
IBJ: I think there have been times that the Pacers payroll was so high that the luxury tax kicked in.
SIMON: Maybe one year. I wasn’t paying attention [chuckling].
IBJ: Would you be willing to go that far to keep a player like Stephenson? Or is that just not smart fiscal management?
SIMON: For a small market, that’s not a good thing. Not only would you pay a tax, but you lose other income. And it would have to be an incredibly special situation for the Pacers to do it.
But I have always allowed Larry to spend up to the tax. The answer to your question is, we don’t plan to go into the tax, but you can never tell. You can’t say never ever.
IBJ: The average fan measures the success of the Pacers in wins and losses. But of course, it’s more complicated than that. What are some aspects that are misunderstood?
SIMON: The confusing thing is, it is a sport, and it’s a business. The sport does not have business principles, necessarily. Winning is not the same as having cash flow and things like that. So there is a dichotomy between business and basketball. My job is to make sure that split is not too dramatic. My job is to keep the two working together.
If business is working together with basketball, with basketball taking the lead usually, you get a much better working atmosphere around here than if they are not working together.
We had them both under Donnie [Walsh, who stepped down as CEO in 2008]. When Donnie left, my job was to come in and put it together again.•