Tuesday, July 14, 2009

Isn't Kowtowing to Millionaires in the Capitol City Just Capitalism?

I want people to weigh in because this is very much a "stream of consciousness." I have been thinking about the CIB, Lucas Oil stadium, the Colts, the Simon Property group, the Pacers, and the firestorm of criticism surrounding it all.

The recurring theme from critics (who seem more Republican of late than Democrat) is that "powerful interests," usually the owners, the powerful law firms who represent them, and the contractors who stand to benefit from x, y, and z have worked hypnotic magic on elected officials while the public takes a bath. A great populist sound bite for any mayoral candidate: "I won't kowtow to millionaire ballplayers and their billionaire owners when we can't get air conditioning in our schools!"

Sounds great, but isn't kissing the behinds of millionaires what elected officials do in a capitalist society? Cities do tax abatement deals and pay for new infrastructure for specific companies all the time on the taxpayer's dollar. Has anybody calculated the value of Lilly's tax writeoffs? What about what the State of Indiana coughs up for every foreign auto maker? Some may say, "Yes, but those were worth it." Okay, but now we're just negotiating over price, right? We have agreed that instead of just setting a low tax rate and saying, "Come here if you want" to all businesses while letting the chips fall where they may, our elected officials pick favorites.

I wonder if any of the outrage comes from the fact that the critics don't like who was picked. The Pacers and Colts are functionally owned by two (Herb and Mel Simon) and one (Jim Irsay), respectively. It's easier to direct populist outrage toward Jim Irsay than a Lilly CEO most people don't know. Also, does any of the outrage come from the critics' personal sentiments about the intrinsic value of the product - in both cases, a game?

That's a hard thought to shake, but when you're talking about a billion to build a stadium plus operating expenses in the millions annually, you have to give the benefit of the doubt to critics. But how can so many people be outraged when it appears that no fewer than five people in the City could give you a meaningful analysis on the pros/cons of professional sports. (Mark Rosentraub, come back!)

What is the value for a city in having a professional franchise? How much WOULD a Pacers or Colts departure hurt us? Can we do a "fair" analysis on the dollars with some sense?

Here's what we might lose:

Direct and Immediate loss:

- State and local income tax paid by people who now work for the Pacers who would lose their jobs. (This would include taxes paid by some millionaire ballplayers).

- State and local income tax paid by people who now work to support Pacer games who would lose their jobs. (This would be the concession and security people who work at Conseco).

- Sales tax revenue paid for goods purchased by the Pacers. (This would not be equal to the Pacers total expense budget, of course, because goods are probably only half of that budget, if that, and only in-state goods would result in sales tax benefits to the state). Does anybody have figures on these top three, which would seem easy enough to gather?

- Sales tax revenue lost for goods purchased in downtown after Pacers games (patrons going out to eat, for example - but more on that in a second).

Secondary Loss:

- State and local income tax paid by people who now work for businesses that benefit from downtown crowds. (This would be people like restaurant waiters, taxi cab drivers, Circle Center Mall store employees, etc.)

- State sales tax paid for goods purchases by businesses that benefit from downtown crowds.

Tertiary Loss:

- Lost state and local income taxes when businesses that benefit from downtown crowds have to either close or reduce their workforce because there isn't enough of a "downtown presence."

- Lost sales tax when businesses that benefit from downtown crowds buy less from in-state vendors.

- Payments for unemployment insurance to employees with no jobs in all categories.

- State and local income tax, sales tax, and hotel tax losses when conventions don't come here because there isn't anything to do now that so many restaurants have closed due to inconsistent downtown patronage (a/k/a "the catastrophic collapse theory").

The restaurant industry is highly competitive. It is conceivable that not having at least 10-12,000 additional people downtown at least 42 nights per year might actually cause some restaurants to collapse. (Have you BEEN to Hooters downtown? Not all that great, folks!)

But do yourself a favor and distinguish between losses for the City of Indianapolis (meaning "to the county border") from "downtown" losses. You see, the SAs act like if you don't go to a Pacer or Colt game, you'll stay home and starve. They don't seem to account for you going to a neighborhood restaurant or theater for a Sunday dinner and movie. In other words, all of the sales tax dollars might still be injected into the county economy, just in different ways. Downtown's loss might be everybody else's gain.

I'd love to look at the total sales tax revenue in the county on a home game day and compare it to the total sales tax revenue on a non-game day. What IS the non game-day drop?
If we knew that, at least we could get a rough sense of how many people from out of county drop money into the county because they come to see the Colts. (As an Indianapolis citizen, that would be a compelling argument, by the way).

The SAs also act like we couldn't come up with anything else to do with the money currently spent to manage CIB facilities. Is that the limit of our vision? If we had scrapped Conseco and built an amusement park downtown for the same cost, wouldn't anybody show up? Is professional basketball all their is to do in the United States? I'm being tongue-in-cheek, of course, but this goes to the dearth of what I call "alternative thinking" on this subject.

In fairness to the SAs though, I have to offer three countervailing thoughts.

First, there is a definite benefit to preserving a thriving downtown core because that IS where the convention business goes. It doesn't go to Clermont. If we let Indianapolis turn back into Nap-town, we lose conventioneers.

Second, there is an intangible benefit to having a pro sports team, in particularly, if the team does well. The civic pride that came with winning a Superbowl was major. Also, we don't know why sports stars are so adored, we just know they are, and can anybody tell me that Peyton Manning hasn't improved the city's profile more than the next 25 people of note in the city? If top-of-mind awareness means something, it has to be valuable, even if subconsciously, to have people hearing "Indianapolis" every Sunday on ESPN over and over again.

Finally, can we lie to ourselves and act like capitalism isn't about kowtowing to millionaires? When we are trying to recuit, say, a life sciences company here, do you know who is going to decide? The CEO and his board. Do you know what the CEO and his board are going to think about, all things being equal on the business deal part? Schools?!? Ha ha ha! Don't make me laugh. They'll send their kids to private schools. Crime?!?! Ha ha ha! They'll live in gated communities. No, they will think about (1) how cheap it is for the company; and (2) what THEY get to do. If I'm a CEO and my options are to go to Indianapolis where I can entertain clients in a suite at Lucas Oil and watch Peyton Manning or go to Columbus, Ohio where I can....um....yeah, I'm not real sure....where do you think I'll go? A fair rebuttal might be, "Show me a company who said it came here for football." I bet I could, and I would also bet that for every one I could find who would say it, there would be ten who would think it imprudent to publicly say so for fear of shareholder outrage.

Also, and perhaps most crucially, who would know best the "intangible" value of a pro sports franchise? Wouldn't it be the cities that have lost them? If so, why in the world would every city that played chicken with their franchise and lost pay MORE to get a team back after the fact? Seriously, cxcept for Brooklyn, I'm pretty sure there isn't a single city in America right now that once had a pro team that isn't trying to get a new one. Shouldn't that tell us that maybe we are overlooking something in the intangibles category? If we are not sold on the idea that losing a pro sports team hurts convention business (and I, for one, don't see any correlation), couldn't we just look at the convention business of a city that lost a team three years after departure to see if the city suffered any loss?

These are the very real considerations that seemingly nobody has articulated or analyzed in a meaningful (or certainly not in a persuasive) way. If we did our homework, we might realize that kissing the behinds of millionaires is just what you do because they are the engines of capitalism, and with monopolistic ventures, such as pro sports, the owners hold all the cards.

In the alternative, we might that the only difference between a brown-noser and a shithead is depth perception.



Unknown said...
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Aleea said...

I, too, miss Mark Rosentraub. Singularly one of the best professors I had in my MPA program and, ultimately, made me look at the business of sports and sports management vs. public interest in a whole new light. Cleveland State's gain is most definitely our loss.

Chris Worden said...

Chris S.:

Your comment didn't go with this story, but please repost after I get done with my revisions. (Sorry, but I'm still working how to "update" a story, and I accidentally gutted the whole thing).

Bryan said...

Capitalism does not consist of special government favors for the wealthy. Such favors are utterly and completely ANTI-capitalist. Such favors are a form of socialism. Government handouts to the rich are still government handouts and are fundamentally inimical to a free market capitalist way of doing things.

guy77money said...

My main complaint is giving the Pacers operating money (12- 13 million) that they never asked for. According to the contract if they break the lease and leave they would owe the CIB 50 million or more. The Colt's are basically saying we have a contract and lets live up to it. Turn about is fair game the city needs to tell the Pacers to bad you have a contract and you have to live up to it. I guarantee you that NBA basketball is hardly a factor in determining whether or not a convention is coming to town. Trust me the tax money coming from the Pacer organization is a pittance compared to Lilly.

jabberdoodle said...

Your linkage of more tax money to the CIB and the complete demise of professional sports teams in Indy, the convention & tourist business, and a thriving downtown are not an inevitable repercussions of a denial of those funds.

There is also another question that must be posed -- at what cost to taxpayers does all of this goodie goodness flow?

The CIB currently takes in over $100 Million each year in tax revenues. $100 Million. If they were to get all that they asked for, that number would rise to $150 Million each year. $150 Million each year. The total City-County budget is $1.1 Billion in 2009.

In addition, the CIB has other options that they prefer not to engage as part of the solution. First and foremost has already been mention in a previous comment by guy77. The $15 Million tab each year to cover the costs of operating the Conseco Fieldhouse, while all the proceeds from all events at that facility go to the Pacers -- is discretionary spending. The CIB wants to do it. It does not have to do it. As mentioned, the penalties to the Pacers for closing up shop in Indy is a hurdle not likely to be jumped by them.

Also, the CIB doesn't want to raise rates to cover costs. They would rather more and more tax money flow into their coffers to pay for the increase operating costs of Lucas Oil Stadium and the under-construction expansion of the convention center.

Not to mention between Barney Levengood of the CIB and Don Welsh of the ICVA we are looking at salary expenditures over $500,000. Just two people. So, salary should be examined against independent performance measures.

Also, there is no plan to get this industry on its own two feet. It is left to run amok, one mayor after another doing whatever that mayor chooses to do at that time. Out of respect to the taxpayers, there should be a thoughtful plan put in place.

There should also be an investigation of the policies and finances of the CIB throughout its history. We owe $70 Million on the Hoosier Dome; which cost us $55 Million to build and is now imploded. Why do we owe $70 Million still? Something has gone horribly wrong at the CIB and the public deserves to know what. The public also deserves constructive policies that will pay off all the bonds currently paid by the CIB in a timely fashion.

I could go on and on and on and on. But, I will be nice and stop here, outside of mentioning that I am a practicing Democrat and know of many others who are not happy with the CIB bailout plans.