Tuesday, March 10, 2009

Can You Believe What Simon Says?

CIB Vice President Pat Early stated at yesterday's CIB meeting that the Pacers are losing $30 million this year and have lost money in all but two of the twenty-five (25) years the Simons have owned the Pacers. Pacers' President Jim Morris claimed the Simons have lost over $200 million over the years. Pacers' co-owner Herb Simon says he can't afford the team any more. “There comes a point when you can't do it any more," Simon said. “We have to straighten this thing out if we can.” He told the Star editorial board today the team has lost money nine of its ten years in Conseco Fieldhouse. Can we believe what we are being told? The answer is an emphatic no.

The IBJ's Anthony Schoettle observes that the Pacers' claim that its annual loss exceeds $30 million is "more than triple any published estimates." Schoettle says in his discussion with Pacer fans, they are telling him they want to see Pacer officials stand up in public and make their case. "Pacers officials have not spoken at a CIB meeting since this issue erupted early this year," Schoettle writes. "Before I joined the IBJ in 1998, I covered politics for a decade." "During that time, I found what taxpayers wanted most was a thorough debate of the issues." "Not scripted dialogue, but honest debate by the people asking for money or relief and the elected officials (or their appointees) who have the power to grant it." "Even though not everyone agreed with the outcome, most were willing to accept it as part of the process."

Schoettle is absolutely right. We deserve an honest debate, but that's not what we're getting from the CIB, Mayor Greg Ballard and state lawmakers who are brokering a backroom deal to benefit the CIB and the billionaire sports team owners. The Pacers' loss claims are completely at odds with the only publicly-available revenue analysis, which was prepared by Forbes magazine. Forbes 2008 analysis of the Pacers franchise suggests the team has made money or broken even in 7 of the past 10 years. If the Pacers disputed those estimates, they weren't saying so publicly. The Forbes analysis showed team revenues increased dramatically in the period following the construction of Conseco Fieldhouse, growing from $34 million in 1999 to $110 million in 2006. Revenues declined to $107 million in 2007 and to $101 million in 2008 following the infamous Detroit brawl involving several Pacer players and a string of players having serious run-ins with police in Indianapolis and a precipitous drop in attendance. During that same period, player expenses grew from $34 million a year to $70 million a year. The Pacers are currently paying $15 million to Jamaal Tinsley for the balance of his contract, even though he has been ordered to stay away from the team. That same analysis shows a decline in the number of wins per player payroll to the rest of the NBA from a high of 168 in 2004 to 79 in 2008.

Equally important as the team's profitability is its worth. Forbes pegs the team's worth at $303 million. That compares to the team's purchase price for the Simons in 1983 for $11 million. What that means is that the value of the team has averaged an increase in value during the past 25 years of $11.68 million, or a better than 100% return on investment in every single year that the Simons have owned the team. Taxpayers spent close to $200 million to build Conseco Fieldhouse for the Simons' Pacers in 1999. In 2000, Forbes' rated the Pacers as the eighth most-valuable NBA franchise, worth an estimated $232 million thanks to the construction of Conseco Fieldhouse. Prior to the construction of Conseco Fieldhouse, the team's value was pegged at less than $80 million. Herb Simon is individually worth $1.6 billion according to Forbes, while Mel Simon is estimated to be worth $2.8 billion.

It's worth observing that the New York Knicks is usually ranked as the NBA's top franchise in value and revenues. Nonetheless, even the Knicks organization has claimed losses in excess of $40 million in recent years. Also, the Pacers got a big assist from the NBA in the form of additional revenue sharing. The NBA, which essentially operates as a cartel in American professional basketball, agreed to increase sharing with smaller teams like the Pacers by 63% at the urging of Herb Simon. That change would allow the Pacers to get up to $6 million a year from the NBA.

The NFL also operates as a cartel over professional football in America, enjoying an exemption from the anti-trust laws just like the NBA. Colts owner Jim Irsay's father, Bob Irsay, bought the Colts franchise in 1972 in a trade with Carroll Rosenbloom for the LA Rams, a deal estimated at the time to be $19 million. The Colts franchise like the Pacers has increased in value dramatically over the years first after Indianapolis taxpayers built the $70 million RCA Dome to lure the Colts to move their team from Baltimore and then again this past year with the construction of the $720 million Lucas Oil Stadium. Forbes valued the Colts franchise at $715 million in 2004. By last year, that figure grew to $1.076 billion. That means the Irsay family has enjoyed an appreciation in the value of the team of $29.6 million a year on average, or a better than 50% a year return on their original investment.

Both team owners have used their power and prestige to extort public benefits from Indianapolis since owning their Indianapolis teams. Irsay demanded more concessions from the public a little more than 10 years after coming to town to stay in town. The team again threatened to move a few years ago unless the City agreed to build the Lucas Oil Stadium, originally expected to cost $500 million. Costs soared after Irsay demanded the original open air stadium be modified to include a retractable roof. The Pacers got their new Conseco Fieldhouse in 1999 and 10 years later they are threatening to leave town unless the public agrees to shoulder nearly $15 million a year in operating costs for Conseco Fieldhouse. They figure Jim Irsay got a $720 million stadium and pays no operating or maintenance expenses so why shouldn't they get free use of Conseco Fieldhouse. Lest we forget that taxpayers spent $320 million building Circle Centre Mall, which the Simons operate for their personal benefit but pay zero rent to the public. Or the nearly $25 million in public assistance we had to give them to build their new corporate offices--on a public park--to avoid a threat to move their offices to Carmel! Yes, they demanded and got the only green space facing our State Capitol building, along with a free parking garage for their employees. Their building now shadows our most important government building and destroyed the south vista known as Capitol Commons.

As others have observed, mafia bosses have better ethics than professional sports team owners when it comes to negotiations. If they decide they want more money, they hold a figurative gun to our heads and demand more money from the public, either through borrowed funds or new taxes and fees on taxpayers and users, or they will pack up their teams and move to another city. They can continually shake down city leaders across this country because we've created a one-sided set of rules which are not allowed in the every day business world. When will the public say enough is enough and put a stop to this madness? Our priorities are so out of whack when we place a higher value on having a professional sports team in our community than good schools, clean and working parks and green spaces, decent streets and sidewalks, sewers that don't overflow and flood our streams and enough police to keep our community safe. Something has got to change before it's too late.


Citizen Kane said...

Actually, there threat was to move to Keystone at the Crossing. They received a height variance to build a structure there before they stole more money from the taxpayers to get their downtown headquarters.

Downtown Indy said...

No, I can't

Downtown Indy said...

Incidentally, about the Simon building, does anyone else remember the stink it caused because the building would obstruct the view of the Statehouse? At the time, that was quelled by a promise of designing a see-through atrium which was supposed to not completely wall-off the convention center view looking northward.

Go down there and have a look. That promise was not kept.

Concerned Taxpayer said...

According to the graph in today's Indy Red Star Rag, they made a profit almost every year except the last three.

Sean Shepard said...

AI (and the IBJ) have nailed it on this. Matt's article in the Star today did a great job saying what the rest of us are thinking.

Enough is enough. No.