Monday, July 12, 2010

Ballard Agrees To Give Billionaire Simons $33.5 Million

Billionaire Herb Simon would have been forced to pay Indianapolis taxpayers as much as $150 $138 million in penalties if he chose to break his long-term lease on Conseco Fieldhouse with the Capital Improvement Board, sell the team and move it to another city. Simon, who recently bought out his late brother Mel's interest in the Pacers before he died last year, won't have to worry about that. Mayor Greg Ballard has agreed to give the billionaire $33.5 million over three years instead. Yes, while the City's park's department is being slashed, pools are being closed, library branches are being threatened with closure and hours of operation are being cut for those that remain open, Ballard thinks the taxpayers can afford to give tens of millions more to one of the state's wealthiest men so he can make sure his young wife has the best that a materialistic life has to offer, while average people suffer through the worst economic downturn since the Great Depression.

For the past year, the Pacers have been making an extortion-like demand that the City pick up at least $15 million in operating costs each year for Conseco Fieldhouse, or they might move their team to another city, pretending like the huge penalty clause in their long-term lease didn't exist. From the beginning of the negotiations, Mayor Ballard, who has accepted more than $10,000 in free tickets to Pacers games since taking office in 2008 and collected thousands more from the Simons in campaign contributions, has said he would do whatever it took to keep the Pacers from moving. Despite the fact that the CIB doesn't have the cash on hand to pay the costs, Ballard will borrow $27 million from the state of Indiana to pay the Pacers $33.5 million over 3 years, including $3.5 million in capital improvements to Conseco Fieldhouse.  That figure could grow to $38 million if the CIB winds up making capital improvements of as much as $8.2 million under the deal, which you can bet it will if the Simons tell the CIB to replace the current scoreboard or whatever other new toy it wants for its rent-free arena. The Star reports on this outrageous give-away of taxpayer dollars to one of the state's wealthiest men:

The Indiana Pacers are staying in Indianapolis, but it will cost taxpayers at least $33.5 million over the next three years.

Leaving town?

The city and the Pacers are expected today to announce an agreement hailed by some as an important step in protecting the financial state of the city but criticized by others as a multimillion-dollar bailout of a professional sports team and its billionaire owner.

The deal comes after months of negotiations between the NBA franchise and the Capital Improvement Board, which operates the city's sports venues. It supplements the existing contract between the parties, which lasts through 2019.

The idea of providing money to a sports franchise has incited criticism by some, but city leaders insisted they have been tough negotiators. They didn't agree to cover the full operating cost of Conseco Fieldhouse, estimated at $15 million to $18 million per year, or the roughly $25 million in capital improvements the Pacers said were needed at the fieldhouse. And they locked in what they called an important addition to the Downtown economy for three years.

"The mayor has said we need to protect the taxpayer and we need to protect the tax base," said Robert Vane, deputy chief of staff and communications director for Mayor Greg Ballard. "This agreement does both."

Under the terms, control of Conseco Fieldhouse -- and revenues from all events there -- will remain with the team, but unlike the current contract, the city will chip in $10 million per year for fieldhouse operations for the next three years. The city also will pay at least $3.5 million for capital improvements at the fieldhouse, an amount that has the potential to increase by up to $4.7 million.

In exchange, the Pacers must stay in Indianapolis through the 2012-13 basketball season or pay back the entire $30 million. The team also would be on the hook for a portion of that $30 million if it left before its contract expired in 2019.

For example, if the team left in 2016, it would pay back $19 million; if it left in 2018, it would pay back $7 million. That would be in addition to the termination fees -- estimated at $20 million-- spelled out in the existing agreement.

If the Pacers stay through the end of their current contract, which ends in 2019, they would not have to pay any of the money back.
In a complete sell out to taxpayers, under the terms of the deal, Ballard has completely let the billionaire off the hook for the tougher penalties contained in the City's current lease in exchange for this 3-year agreement to remain in the City. Strangely, the City is interpreting the current penalty provision of the lease to mean only that the Pacers would have had to pay a penalty of $20 million to break their lease and move out of the City. The billionaire will face a penalty of no more than $30 million if he leaves before the end of the three years under the new agreement, and anywhere from $28 million to $1 million if the team leaves before 2019, the last year of the current lease, in addition to the $20 million penalty, for now.

The Simons have been miffed ever since the CIB negotiated a lease deal with Jim Irsay for Lucas Oil Stadium that allowed the billionaire Irsay free use of the new Lucas Oil Stadium, all game and non-game revenues it produces and the CIB picked up all operating and maintenance costs for the stadium. The Simons, who founded the largest mall owner in the world, Simon Property Group, were embarrassed that the pill-popping Irsay negotiated a more favorable deal than them. Their deal merely gave them rent-free use of a brand new sports arena and all of the revenues it produces from game and non-game events. Their rent-free lease agreement, however, required them to pay for the annual operating/maintenance expenses on Conseco Fieldhouse.

The Star's story falsely claims that the CIB found the money for this taxpayer give-away by cutting its budget. "For this year, the board's efforts to cut its spending and increase revenues have provided enough money to make the $10 million payment, said CIB President Ann Lathrop," the Star reports. "As of May, the CIB had brought in $3.8 million more in revenue than budgeted and spent $7.5 million less than budgeted."  In fact, the CIB can only pay this money to the Pacers because it has decided to borrow $27 million from the state under the terms of a bailout bill passed by the legislature last year that allowed the CIB to raise the City's hotel taxes to one of the highest in the nation and receive tens of millions more of state sales and income taxes from a designated sports district in downtown. The money from the state bailout approved by our City-County Council by a one-vote margin was needed because the CIB faced an inability to pay $20 million in operating costs on Lucas Oil Stadium. The CIB borrowed the first $9 million last year even though Lathrop said at the time the CIB didn't need the money. Now we know why the CIB borrowed money it didn't need. The CIB  has no means of repaying the state those borrowed funds and will likely ask the state for forgiveness of the loan, putting state taxpayers on the hook for the entire $27 million.

It is completely befuddling that the CIB never once demanded that the Pacers publicly divulge their audited financial statements to prove the team is losing money. The Pacers' Jim Morris has claimed the team has lost $200 million over the past 10 years. Yet that didn't stop the billionaire Herb Simon from buying out his brother's interest in the big-time losing team before he died last year. There has been no public disclosure of the terms of Herb's purchase of his brother's interest in the team. One can only conclude that Mayor Ballard was bought off by the billionaire team owners with free tickets and campaign contributions. Ballard promised to run a government that was transparent, more ethical and treated taxpayers more fairly, but after being elected, he has played one shell game after another with City finances, raised taxes and accepted gifts valued in the tens of thousands of dollars. Taxpayers should demand the IRS audit Ballard's tax returns and force him to pay taxes on any unreported, untaxed gifts or charge him with income tax evasion. Los Angeles Mayor Antonio Villaraigosa is under investigation for failure to report $50,000 worth of free tickets he accepted to attend various sporting and other events, including courside tickets to LA Lakers games. Mayor Ballard is often seen sitting in courtside seats at the Pacers home games. Ballard has refused to report or itemize all of the free tickets he receives to Pacers and Colts games on his statement of economic interest he files annually.

Fred McCarthy best sums of the sentiments of Indianapolis taxpayers in today's Star story. "I think we have gone so far overboard in subsidizing professional sports in this city that it's insane," said Fred McCarthy, a local political blogger and nearly 50-year Indianapolis resident. "I just think it's ridiculous that brilliant businessmen who have made themselves billionaires in the market, in the business world, can operate a business in a rent-free building and continue to lose money while they're doing it." Maybe that's because they're not really losing money, Fred. Think about that headline on today's front page of the Star again: "City Pays Pacers $33.5 Million To Stay." It could have read: "Pacers Pay City $50 Million To Leave" or some other figure correctly calculated under the lease's complicated penalty provision. I hope Herb's young wife enjoys the next new mansion he purchases for her on our dime.

UPDATE: Former IUPUI Professor Mark Rosentraub agrees with my analysis of the Pacers' true financial picture according to an IBJ report today, which reads, in part:

Pacers officials said they’ve lost money in 10 of the 11 years they’ve been in Conseco Fieldhouse, including about $60 million over the last two seasons. Though the CIB declined to grant the team the $15 million in sought for Fieldhouse operations, Lathrop said she agrees “100 percent,” with the Pacers’ financial disclosures.

“We’ve seen the audited financial reports, and we have no reason to believe that those are in any way inaccurate,” Lathrop said.

But sports economist and former IUPUI dean Mark Rosentraub is less convinced.

“I’m not sure how you can operate in one of the nicest facilities in the league essentially rent free, and be so far in the red,” Rosentraub said.

Rosentraub also pointed out that eight of those 11 years were during relatively economic robust times.

“If the CIB is so convinced in the accuracy of those figures, which happened during some very robust times for the city and the state, you’d have to ask, 'Is the conclusion that the Pacers can’t be operated profitably in this city?' If that’s the case, what could possibly change in two to three years to turn this thing around, or are we looking at a long-term situation of paying to keep the Pacers here?”

While Rosentraub said he thinks the Pacers and Conseco Fieldhouse are important components to a vital downtown, he said the CIB and Pacers should put all the financial cards on the table.

“The CIB is a public agency,” Rosentraub said. “If these numbers are real, what’s the hesitancy?”

One of the financial tricks the Pacers have pulled off with their NBA franchise is to break its operations down into two separate financial entities. Pacers Sports & Entertainment, LLC operates separately from the franchise, Indiana Pacers, LLC. One would have to see the audited financial statements for both entities to make any assumptions about how well the franchise is doing. As Rosentraub says, "If these numbers are real, what's the hesitancy [for their release]?" The story makes clear that there is no assurance the Pacers will remain after the end of this three-year period. You can bet that more subsidies will be in the offing if the City expects the Pacers to remain here.

UPDATE II: An online poll at the Star asking for public reaction to the deal gets a big thumbs down. Seventy percent of the respondents called the deal a corporate bailout as opposed to the small minority who thought the deal was a good public-private partnership.A similar poll taken by WRTV asking, "Do you think the Pacers deal with Indianapolis is good for the city," got a similar thumbs down. Sixty-nine percent of the respondents there said the deal was not good for the city. I was interviewed by both WRTV and Fox59 News to give my reaction to the deal. WRTV's quote from me: "What was the sense of urgency to the city negotiating a give-away to them when they would have faced a huge financial penalty to have broken the current lease?" asked Gary Welsh, founder and editor of political blog Advance Indiana. Here's Ballard's quote on the deal: "I was very open that I wanted to keep them here, obviously. So, I think we got that done while maintaining the viability of the CIB, and nobody's income taxes are being raised. Nobody's property taxes are being raised," Ballard said. "It's not coming out of the city budget. It's a separate pool for downtown development." Ballard's comments are extremely disingenuous. He would have you believe this money is not being paid by taxpayers when it fact it is. Most of the money will come from the $27 million the CIB is borrowing from the state, which are your tax dollars. Ballard had no answer on what will happen in three years. Ballard's press secretary makes a faulty argument when he says the City will be stuck with all of the expenses on Conseco Fieldhouse if the Pacers leave. What he neglects to mention is that all revenues would then belong to the City for concerts and other events held at Conseco, and there would be far fewer expenses associated with maintaining the facility if the Pacers left, not to mention the huge windfall the City would collect from the Pacers as a penalty for breaking up the lease. Under this agreement, the CIB will have to pay at least $3.5 million in capital improvements and possibly an amount in excess of  $8 million to install a new digital scoreboard and other wish list items of the Pacers.


Downtown Indy said...

Anyone who witnesses the Lebron James sideshow can understand how this all works.

You convince the populace that they are worthless without pro sports and then you can throw money around however you like.

There will be enough people convinced it's necessary to maintain their self-worth that you are safe from repercussions.

They are quick to explain this deal doesn't cost tasxpayers anything, that the money comes from 'CIB revenue.'

This, from the CIB which has drastically curtailed its operations, to the point where an armed gunman was able to threated and rob a female member of the housekeeping staff and make a clean getaway. A spokesperson noted that 'some' of the video security cameras are always not working. That 'some' included the ones which could have captured a picture of whomever committed this assault.

That's just one example of how taxpayers are 'not' paying the price for this new deal.

Jon said...

Enough is enough, it is time to take control of our city and our finances and the the first step should be to disband the CIB.

M Theory said...

All this extortion done without an audit of the Pacers? We go through more scrutiny to get a mortgage for $100,000.

The city should be ashamed.

This makes me want to move from the city.

M Theory said...

Am I missing something? Doesn't the city council have to approve this? And if not, why?

Gary R. Welsh said...

Nope, Melyssa. They don't have to approve the change in the lease agreement because the CIB says it won't require additional funds. We know that isn't true because otherwise they wouldn't be borrowing $27 million from the state. Don't expect any accountability from our City-County Council though. They've been bought off with free tickets to Pacers again.

Downtown Indy said...

But we now have parity on both LOS and Conseco - we don't get any measurable revenue from either.

Paul K. Ogden said...

That $20 million penalty claim is outrageous. I would like to know who it is coming is an outright lie. My guess is Okeson. In 2009, the penalty would have been about $150 million. In 2010, it dropped to only about $138 million.

M Theory said...
This comment has been removed by a blog administrator.
Gary R. Welsh said...

Melyssa, I'm deleting your comment about the Pacers' CFO. You'll need more proof of that to state that allegation on this blog.

Blog Admin said...

Paul, they say this agreement supplements the original. My guess is any penalty clause is overwritten with this agreement.

Gary R. Welsh said...

It absolutely does override the current language of the lease agreement.

Paul K. Ogden said...


The override is my concern. I'm afraid that not only did they give away $35 million more of our tax money, but that they altered the contract to actually give the Simons the right to move the team with little if any penalty.

Gary R. Welsh said...

Yes, Paul, that totally eliminates the bargaining chip the City had with the Pacers and leaves us in a position to continue making these extortion payments through the end of the lease or the team will leave.

Concerned Taxpayer said...

Let's see...Lilly CUTTING more jobs...Indy home sales DOWN 10%...Herff Jones CLOSING plant...taxpayers gouged for $$33.5 MILLION MORE to support a BILLIONAIRE.
What's wrong with this picture?
The Republicans in this county have all gone far stupid.

Southsider said...

What's next.... the Colts asking for more after they redo Peyton's 'Colt forever' contract???

Anonymous said...

This makes me want to move from the city.

When I was buying a home, I made sure of two things:
#1: The area I would buy a home in had a decent public school system. Though we didn't have kids at the time, and still don't have kids, I wanted to make sure we were covered with decent schools in case our family planning didn't work out as planned.
#2: Don't move into the People's Republic of Marion County unless the deal is so good, it amounts to tens of thousands of dollars in savings to my personal financial picture. There were no deals near that sort of benefit, so I didn't buy a home in Marion County, which is a blessing.

Your comment also needs a little more clarification: One really needs to move away from all cities. I believe that any close to the size of Indy is horribly corrupt. Especially given the layabout and bum mentality that most folks have here (comes from union parents/grandparents if you ask me).

I am planning for possible moves to Rapid City, Cheyenne, Kalispell, or Boise. While I am sure they all have their own problems with hack politicians, the shear fact of their size means they can only take sooo much of the citizens money. Plus, smaller, rural cities of 100K or less usually have less welfare types, so you don't have that burden as well.

Downtown Indy said...

I noticed you said Herb bought out Mel's share of the Pacers. I wonder how he found the money for that? Or was it one of those $1 sham sales?

Indy4U2C said...

I'd like to show the Pacers the road out of town. With their history of bringing violent thugs into town, gunfire, they want government funding.

The millionaires make millions. They use OUR facility and make money from the events held there, parking revenue, and concessions.

I wish the Pacers would pack up & leave.

Marycatherine Barton said...

I am glad that Channel 6 asked for your reaction, Gary, and SO AGREE with the majority responders to the STAR poll about this immense gift to Simon. What a creepy jerk is Ballard, and what a laughing stock has Indianapolis become!!!

Had Enough Indy? said...

The structure of the CIB bailout (was it really just last year??) included the 1% increase in hotel tax and the size of the downtown sports tax district - and the offer of a $9 million a year for 3 years loan from the State.

The way things were structured, the City-County Council would be forced to increase the remaining two taxes integral to the bailout, in order to repay the loan. Those two taxes were a 4% hike in the ticket tax and a 2% hike in car rental taxes. The legislature gave the Council a window within which it could raise those two taxes - only between January and March of 2013. That would translate into enough money to repay the State loan and to continue the $9 million extra funding to the CIB.

So, a three year payment to the Pacers of $10 million for three years (do you hear an echo from the $9 million for three years to the CIB?) - 2010 2011 and 2012. Then in 2013, safely after the next Council election and the financial fallout from the superduperbowl, they will be forced to raise the ticket and car rental tax.

Why its almost like "found money". I hope more than a few legislators are casting aspersions on the CIB and Mayor Ballard for bastardizing their bailout plan for new purposes while leaving the CIB in the same old financial mess.

Had Enough Indy? said...

Its sort of like 'repurposing' a gift, by wrapping it again and giving to somebody else. You can get away with it if you keep it to yourself. But, if you let the giver of the gift know what you've done - well, they might not think very highly of you.

Gary R. Welsh said...

Pat, both the Colts and Pacers balked at the admissions tax because it would hike ticket prices, hurting their ability to raise ticket prices higher. Neither of those two taxes can raise enough money to provide a long-term solution. Remember, the CIB still has about $23 million in deferred debt, in addition to the new state debt it is taking on. Contrary to the CIB's claims, their financial picture has not improved. Check out their latest financials and you'll see what I mean.

Had Enough Indy? said...

The City has no choice but to raise those two taxes so that the State loan can be repaid. It was a done deal as soon as the loan was obtained. Repayment to the state begins in 2013, as well.

Had Enough Indy? said...

You're right that the State loan was not going to be the final fix, not by a long shot. And, now that the ICVA's tax windfall has been increased, expect that part of the CIB budget to increase by millions a year, as well.

Hope everyone plans on attanding the CIB budget hearings this August and September. Won't be dull.

dcrutch said...

We can't graduate half the kids downtown. In the top dozen in forclosures across the country, sidewalks needed, motorcycle and horse patrols threatened or gone, parks and pools reduced, arts and recreation funding for schools lacking, libraries that have to be more closed than open......

We have REAL problems. We're going to spend millions more for grown adults to chase balls? For their rich owners?

I really like rooting for the Pacers and Colts. But, theoretically, these entities were to be big moneymakers. Lots of jobs. Maybe in a large, media-rich market like Boston where the owner can buy the stadium, this IS a sweet deal. Indianapolis is NOT Boston.

How about this: If I'm so wrong, if the Pacers are such a fabulous deal- when, quanitatively
WHEN, do they ever NOT make sense? How much is TOO much?

Gary R. Welsh said...

Those tax increases won't even come close to closing the impending budget shortfall at the CIB. The other downtown hotels are already distressed about the new Marriott Hotel coming on line later this year because it will draw so many customers away from their hotels in this down market. Ann Lathrop is such a liar. It's unbelievable. But don't forget she is getting all kinds of business from the Ballard administration for her employer, Crowe Horwath, in consideration for all of her lying and cooking of the books at the CIB.

Joe said...

i don't think the colts get all non-game revenue.

Citizen Kane said...

As long as we (the 800,000 citizens en masse) sit back and take it; they will keep sticking us with the shiv again, and again and again.