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The Score - Anthony Schoettle

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Sports Business

Pacers fighting two wars, praying for allies on either

May 10, 2010
KEYWORDS Sports Business

The Indiana Pacers are fighting a financial war on two fronts.

Today, consultant Rob Hunden will come in to tell the city’s Capital Improvement Board about the economic impact that Conseco Fieldhouse and the Indiana Pacers have on downtown.

I’m sure Pacers officials are hoping Hunden comes up with a report that details a massive positive impact generated by this team and this facility; and more importantly, generated by this team in this facility.

Hunden, who now works out of Chicago, formerly worked for the Indianapolis Bond Bank under then Mayor Stephen Goldsmith. He has wide ranging experience in the hotel, hospitality, tourism and convention industries.

That meeting is today at 3 p.m. at the Indiana Convention Center. Hopefully the findings will contain some meaningful analysis.

Meanwhile, the Pacers’ front office is watching closely as National Basketball Association executives begin to formulate their plan for negotiating a new collective bargaining agreement with the players.

Team owners looking to reduce costs in the next round of negotiations with the NBA Players Association are proposing serious reduction in rookies’ salaries. As much as a 30 percent reduction in rookies’ first-year pay is being proffered by owners, and even bigger cuts in years two through four.

The NBA’s collective bargaining agreement with players expires June 30, 2011. So the time to get something done is nearing fast. That can’t come soon enough for the Pacers and other NBA teams.

The Pacers have lost near $30 million each of the last two seasons, and they’re not alone. NBA Commissioner David Stern said the league’s teams have collectively lost $200 million each season from 2005 to 2009, and another $400 million during the most recently completed season.

During a public address at this year’s All-Star weekend in Dallas, Stern said players’ salaries must come down significantly.

Under the new collective bargaining agreement he is forwarding, they would. The first pick of the 2011 NBA draft will earn a first-year salary of $5.3 million—unlike the NFL, most of it guaranteed. Under the NBA’s proposal, that same player would earn $3.76 million. It’s still mostly guaranteed.

Stern is also recommending salary increases during a players’ first four years of only 2 percent. That’s far, far below what most players get now—about 7.5 percent during the first year and a whopping 26 percent to 80 percent during years three and four.

Rookies aren’t the only players likely to take a salary cut. Overall, Stern and team owners want to reduce players’ salaries by as much as 40 percent, and NBA consultant Marc Ganis said one of the league’s biggest problems is what is commonly referred to as “dead money.”

Dead money is earned by players who are past their prime but still taking in huge paychecks due to the natural progression of pay under the NBA’s guaranteed contract system—and a trade system which requires teams to exchange players of equal contracts.

Let's put that 40 percent salary reduction in context. The NBA has a salary cap, but it's a soft cap. Team's can and do exceed that cap regularly. The Pacers last year paid out $66.7 million in players' salaries. A 40 percent reduction would theoretically mean a $26.7 million annual savings for the Pacers. In case you've lost track, that savings corresponds very nicely to the amount the Pacers said they lost in each of the last two seasons.

Not surprisingly, NBA Players Association boss Billy Hunter has rejected the owners’ proposal like a weak shot in the lane. Hunter is supposed to come up with a proposal of his own, though no timeline has been given for that.

If the Pacers are going to remain in Indianapolis, they’re telling city officials they need $15 million annually to run Conseco Fieldhouse.

But even that won’t be enough. To erase that $30 million annual deficit, they’ll also need serious concessions from the players’ union.

Seeking taxpayers’ support for Fieldhouse operations on one front, and concessions from an unyielding union on the other.

In the end, you have to wonder where the Pacers’ allies in this war will come from.
 

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