Wednesday, December 26, 2012

Ballard Wants Change In Control Of Fieldhouse After Blowing $43.5 Million

The Capital Improvement Board of Managers has agreed to pay $43.5 million to billionaire Herb Simon's Indiana Pacers to help offset the operating costs for Bankers Life Fieldhouse over the past four years based on an unsubstantiated claim that the Pacers are losing tens of millions of dollars annually. As Ballard begins a push to increase taxes on admissions to sporting and other events at the CIB's facilities, along with an increase in the auto rental tax, he's now telling the IBJ that he might make a push to give operational control of the Fieldhouse to someone other than the Pacers. He floated this idea a couple of years ago but abandoned it when people started asking too many questions about the companies vying to manage the company. Pacers Sports & Entertainment submitted a proposal to team up with Global Spectrum to operate the Fieldhouse, which made little sense because the Pacers claim they are unable to manage and operate the facility currently without tens of millions in additional public subsidies, despite getting rent-free use of the facility and all of the revenues it generates. Ballard said the CIB or a private management company might be considered under such an arrangement:
“We’re going to look at taking it over to see if it makes more sense for us,” Ballard said. Potential managers include the Capital Improvement Board—which owns the arena, Lucas Oil Stadium and Indiana Convention Center and operates the latter two—or national companies that specialize in venue management.
One of the reasons I find the Pacer's claim of financial losses dubious is the fact that Kansas City was able to build a $276 million arena that has no professional sports team as a tenant and is still able to operate it at no additional cost to taxpayers after paying debt obligations on it. Kansas City partnered with AEG, a private operator of public venues, to build the Sprint Arena. AEG agreed to put up $54 million in cash to help build the $276 million arena in consideration for a long-term operating agreement. Kansas City raised its hotel tax and auto rental tax to pay bond debt service on the arena, which is close to $14 million a year. Since Sprint Arena opened five years ago, AEG has shared $7 million in profits earned by the arena after hosting more than 500 events attracting 5.6 million visitors.

Ballard and the CIB continuously beat the drum that the City would be saddled with a costly facility to maintain that would sit empty most of the year if the CIB stopped subsidizing the Pacers and Simon chose to move his team to another city. As it stands, the CIB is paying not only the debt service on the Fieldhouse but also at least $10 million a year to operate it without realizing a dime's worth of revenues from it. Kansas City's budget director notes that if an anchor tenant like a professional sports team is found for Sprint Arena, the anchor tenant would take away most of the revenues the facility currently generates, and that it's actually more profitable for Kansas City and AEG not to have an anchor tenant. That's not to say Kansas City's taxpayers are getting a deal. They're still paying $14 million a year in debt service, but that cost would likely be tens of millions more annually if it were to attract an NBA team

Kansas City sold the naming rights to the arena to Sprint for 25 year for $42.5 million, or $1.7 million a year. Sprint agreed to increase its annual payments to $2.5 million a year if the City attracts an NBA or NHL franchise. By comparison, Conseco purchased the naming rights for the Fieldhouse in 1999 under a 20-year deal for $40 million. CNO agreed to continue the 20-year agreement after changing the name from Conseco to Banker's Life and picking up the rebranding costs. The Pacers pocket all the money earned from naming rights, as well as other advertising opportunities at the venue. The CIB paid $3.5 million to install a new digital scoreboard and ribbon board at the Fieldhouse, which provide more revenue-generating opportunities for the Pacers.

Pacers Sports & Entertainment CEO Jim Morris claims they've done a "superb" job running the Fieldhouse. I found it interesting that nobody even seems to know what the true operating costs are for the Fieldhouse. He insists the company he runs is not a profit-making company. "We operate it for the well-being of the community," Morris told the IBJ. Yeah, right. Morris wouldn't say whether the team would be willing to give up control of the Fieldhouse, which is quite telling. If the building is such a money loser to operate, then why does the team insist on managing it? Morris told the IBJ he wasn't even sure what the $10 million subsidy to the team represents. “I suppose something in the neighborhood of $15 million is what it costs us to operate the core expenses of this building,” Morris said. "That’s the amount the Pacers requested from CIB in 2010. But when IBJ initially asked Morris about that figure this month, he said he didn’t know its origin." “I have no idea what that number means," Morris said. The CIB told the IBJ that it believed in 2010 it cost $12 million a year to operate. In other words, they're just pulling figures straight out of their asses as usual.

1 comment:

Jon said...

As to maintaining a costly facility without a tenant there really wasn't anything wrong with Market Square except the Pacers weren't making enough money. Sidebar, when is that property going back on the tax rolls, if ever?
Secondly, talk about a Biased Sludge comment, "we're going to look it over and see what make sense for us". There isn't anyting in the Pacer deal that makes sense. We opened up the contract to pay them to stay another three years but the current contract covered that contingency, including severe penalties for leaving Indianapolis. What was the rationale in giving 100% of all revenues from Conseco to the Pacers, shouldn't basketball revenue be sufficient. And last but not least we built a brand arena with zero dollars from the tenants.