Sunday, April 26, 2009

Irsay Thumbs His Nose At CIB Because He Can

Jimmy Irsay is no fool. He knows that all of those hundreds of thousands of dollars in campaign contributions he has passed out to Indiana politicians like Luke Kenley and Mayor Greg Ballard have paid off. When he says jump, they ask, "How high?" More importantly, Irsay has been assured by his attorneys that the lease agreement the CIB signed with him is so blatantly one-sided in his favor that the CIB has absolutely no leverage to make him contribute more to cover the costs of Lucas Oil Stadium. With that backdrop, Irsay can say the following to an Indianapolis Star reporter when asked about contributing to the CIB bailout:

“When it comes down to it, it’s very frustrating,” Irsay said. “What you’re saying is, ‘Hey, we worked on this thing. Our word is good. We stand behind it.’ That’s what a partnership is about. It would be very hard to recruit businesses here if they thought as soon as they worked on a lengthy, comprehensive deal for 25 years or more that four or five months later people would be talking about … renegotiating.

“What’s going to happen? A year from now it’s like, ‘OK, it’s not good enough. What we agreed to in ’09 in May is not good enough. We need to talk to you again.’ ”

"People don’t want to look at the facts,” Irsay said. “Look, (former Mayor) Bart Peterson and (former CIB head) Fred Glass came to me and said we need a new stadium to go with the convention center. Will you guys take this risk? We did. It was all on our risk. If someone can show me someone else who put a hundred million into a building and doesn’t own it … that’s what I don’t understand.”

Did Jimmy Irsay put a $100 million of his inherited money into LOS? No, unless you count $50 million the CIB paid as a break-up fee to him for terminating the lease on the RCA Dome to enter into a new one for LOS, or the $50 million the NFL kicked in for the new stadium. Is Jimmy Irsay not telling the truth about wanting a new stadium. You bet. Back in the 1990s, Irsay had already been making waves to CIB insiders that the RCA Dome just didn't cut it. He wanted an open air stadium. Mayor Goldsmith had to explain to Irsay that he couldn't sell the public on a new stadium when the RCA Dome was barely more than a decade old. Goldsmith agreed to renegotiate the lease with Irsay in 1998. The deal gave Irsay's Colts $9 million a year in Dome-related revenues and required the CIB to spend about $20 million in improvements to the Dome. The Colts were required to stay in the Dome through 2014; however, beginning in 2007, the team could terminate the lease if it paid $11 million a year to the CIB to break the lease.

Soon after the 1998 lease agreement, the CIB began buying property at the site where LOS now sits. In 2002, Bart Peterson would deny that the land was being acquired to build a new stadium, but we learned that was a big lie. In fact, he began negotiating a new stadium deal as soon as word leaked out that Irsay might move the team to L.A. In 2004, the Indianapolis Star discovered through a public records request that design plans for a new stadium (sans retractable roof) had quietly been prepared at the CIB's request. When Irsay realized what a generous deal Mayor Peterson and then-CIB President Fred Glass were willing to negotiate with him, he added the demand for a retractable roof and the two dutifully complied, adding at least another $75 million to the stadium's cost.

Irsay now suggests that Peterson and Glass wanted a new stadium simply as an excuse for expanding the convention center. I'm not buying that. The two knew that convention center expansion needed to happen to generate more revenues to offset the added cost of a new stadium. They knew that conventions are what drive the hospitality taxes like the food and beverage tax and hotel taxes that support the CIB, not the stadium. If the City had a new and bigger stadium, it would need that many more conventions to provide added revenues to support the CIB. The problem is that the CIB has been operating on borrowed money for many years. When people use the term Ponzi scheme to describe what has been going on with the CIB's finances, they are not far off the mark. A series of carefully crafted financing schemes has provided the CIB with sufficient funds to operate, albeit courtesy of borrowed funds. The chickens are now coming home to roost and the CIB's back is against the wall.

Instead of doing a top-down investigation of the CIB's finances, Mayor Greg Ballard, who simply inherited the mess from the Peterson administration, is insisting on a series of new tax increases to not only help shore up the CIB's finances but provide more taxpayer-paid subsidies to the Indiana Pacers, who for the record, say they've never asked the CIB for a dime. Ballard has completely dismissed calls for an investigation, saying he doesn't want to lay blame or look backwards. That doesn't cut it for the taxpaying public. The taxpayers have a right to know why it costs four times as much to operate the CIB as it does the City's parks. When we can't even find enough money in the City's budget to open up all of the public pools at city parks, which have already been operating on a shortened season to cut costs, we can't ask taxpayers to give more money to the CIB.

Curiously, some City-County Councilors are publicly saying they won't vote for new tax increases for the CIB; however, they are wanting to give an equal amount of money that would otherwise be raised from new taxes out of state revenues by expanding the professional sports development area to include the new J.W. Marriott convention hotel complex and Circle Centre Mall. These councilors are acting as recklessly as Mayor Ballard. Either plan means taxpayers are rewarding the mismanaged CIB, which has been operating in virtual darkness for too many years. I don't care whether we're talking about state revenues or new locally-raised revenues, the notion that the CIB should receive more taxpayer dollars is simply wrong.

As I've repeatedly explained, the CIB does not own LOS. If it doesn't have the financial means to operate the stadium within its existing budget, which it knew when it signed the lease with the Colts, then it should turn the stadium back over to its rightful owner, the State of Indiana. Gov. Mitch Daniels and state lawmakers like Sen. Luke Kenley, who crafted the stadium construction deal, knew the CIB did not have sufficient revenues to operate LOS once it was constructed. Yet these same state leaders went ahead with the plan anyway. That plan required the state to kick in $16 million a year in state income tax revenues and tens of millions more from food and beverage taxes levied on the neighboring counties and Marion County. Let's see how efficiently the state can run the stadium compared to the CIB. And remember, the Colts claimed in its letter to fans this week that the CIB exaggerated the true costs of running LOS. That's even more reason to be skeptical when CIB leaders say they need another $20 million just to operate LOS. As for the Pacers, there is no contractual obligation to pay the Pacers another $15 million to operate Conseco Fieldhouse. The CIB has plenty of leverage with the Pacers should they decide to terminate the lease, including financial penalties ranging from $44 million to well in excess of a $100 million. The fact that the CIB decided on its own to offer this up to the Pacers even before a demand had been made from them is proof of the complete incompetence of the CIB leadership, all of whom should have been asked to resign yesterday.

15 comments:

Unigov said...

Another good article. Random factoids:

Taxing people to benefit sports is immoral. Sports provide no public good. It's funny how a state that thinks of itself largely as Christian, can support such profligacy.

The 1998 Colts contract guaranteed league median revenue to the Colts. This cannot possibly be constitutional, that the government can guarantee the revenue of one private corporation. Article 1, sec 23.

The CIB itself violates section 22 of the Indiana Constitution, which prohibits local or special laws "Regulating county and township business." Every county would have to have a CIB. Note Allen county will get its own CIB soon.

The CIB was created for one reason - to increase secrecy. Which it has. The State Board of Accounts does not and can not audit the CIB as it is not a county or town.

Peterson dodn't "cave" in giving the Colts such a lavish stadium. Peterson wanted to give Irsay as big a stadium as possible, because construction unions supported the Democrats & Peterson. The whole idea was to build a mega-stadium, irrespective of the cost to taxpayers.

The Convention Center does not make any money - if you hold a convention and agree to use downtown hotels, you get whatever convention space you want for free. Another popular misconception.

On the Pacers and their lease - the CIB offered the $15 million because the only - repeat, only - thing the CIB cares about on that deal is keeping the Pacers here. Saving money, etc, is not part of the equation.

Taking into account sagging hotel occupancy, the growing recession, the Colts dynasty coming to an end, the unpopularity of the Pacers, the whole convention-sports-hotel scheme for downtown is doomed. cf - The best and highest use for MSA is a (gravel) parking lot ?

artfuggins said...

HYPOTHEICAL QUESTION

You receive a 30 year mortgage on a new home at a rate of 5%. After a few years, the bank calls and says we are having a hard time making money, we want to increase you rate to 7%. Would you agree????

I dont like the original deal but Irsay would be a fool to voluntarily agree to a less beneficial contract.

Paul K. Ogden said...

Unigov,

The CIB decided to give the Pacers $15 milion more (there has been no vote on the subject yet, by he way) because they could. There is no chance the Pacers would leave. The financial penalty for leaving would be too great.

Advance Indiana said...

Unless you were concerned that public opinion might be turning against you and that could adversely affect your franchise's return from the community.

Paul K. Ogden said...

Artfuggins,

A mortgage is secured by a lien on the property. A bankurptcy judge can't change that. However, if a person's balance is worth more than the value of the property, that extra amount can be discharged.

You're comparing apples and organges. The Colts don't have a "mortgage" and their contract can be changed by a bankrutpcy judge.

If Irsay were smart, which he obviously is not, he'd agree to tweak the contract a big to bail out the CIB and walk away with tons of good PR. Instead Irsay and the Colts organization is reviled right now. He better hope the continue to win.

guy77money said...

The Colts aren't stupid when it comes to public relations. They were quick to replace the TV's that were stolen from the fire station last week. I also suspect that the NFL is telling Irsay (well he was hanging out in New York) not to give an inch in the negotiations with the CIB. I beginning to think bankruptcy is the only true solution. To think we spend more on two pro sports teams then all of the public parks in Marion county, that boggles my mind!

varangianguard said...

Amazing that a pro sports owner thinks it odd that "players" would want to renegoiate mid-contract. Never happens in pro sports, I guess?

CIB members are likely doing exactly what they were appointed to do. If "taking care of the public trust" was one of those missions, then like as not a different set of persons would have been found to comprise the CIB's membership.

Patriot Paul said...

Excellent article. I applaud the call for resignations.
I look for an extension of the donut counties to include 3rd and
4th tier counties which would include Terre Haute, Kokomo, etc. on the basis that hotels there are also booked on game day. It will be said that those extra counties in fact benefit from the Stadium and should therefore PAY. Don't you just love their reasoning. Fire them all.

Paul K. Ogden said...

Gary, if that's the case, then the Colts' strident, arrogant tone is unlikely to work well.

Paul K. Ogden said...

Guy77,

I disagree...the Colts are very stupid when it comes to PR. Witness their letter to their fans and now this article over the weekend. There have been numerous cases where the Colts could have stepped up and gotten some good PR and decided to be cheap SOBs instead.

So they finally got one right with the TVs. They have missed countless other opportunities.

HOOSIERS FOR FAIR TAX said...

I hear on quite good authority that the Colts are VERY behind on paying invoices they owe to HH Gregg.

artfuggins said...

Paul, you missed the point or maybe I didn't write well. My point was that the Colts have a legal contract with great terms....they have no reason to reopen and agree to less attractive terms.

guido said...

Maybe the letter should have been adressed to Dear taxpayers instead of Colts fans I thought I heard only 30-40% of season ticket holders are from marion county

Jon said...

Either find a way to break the contract or file bankruptcy. As to Jim spouting a contract is a contract, I didn't hear him yelling when the city broke the contract on the Dome and paid him $48 million.

Indy Student said...

Artfuggins,

You do realize you're using a talking point put out by Irsay, right?