Mayor Ballard Gives Pacers Eleven Million Per Year, They'll Save Twenty-Five?!?

I've written before on how my objection to the City bailing out the Indiana Pacers to the tune of eleven million per year for the next three years is informed by the fact the team's financial woes are caused by the NBA's terrible business model. I've also said NBA Commissioner David Stern is coming to the rescue.

Stern has said the NBA will pursue more aggressive revenue sharing to bring it in line with the NFL's extremely successful model. Any change to the existing revenue sharing model will put more money in the Pacers' hands as a "small market team."

But more importantly, Stern has consistently said the owners will try to lower the salary cap. He just hadn't floated a number until now.

According to Stern, the owners will ask for a thirty-three percent reduction in NBA players' salaries.

NBA owners pay their players roughly $2 billion, and the Pacers, with a payroll of $64,368,000 (19th highest of the 30 teams), account for 3.21 percent of that total.

So what would a thirty-three percent reduction ($800 million total) mean for the Pacers on a pro rata basis? An annual savings of $25,680,000 per year.

Many may rightfully contend that the players won't agree to a thirty-three percent reduction. Fair enough. But if the league gets only half of its requested savings ($400 million for a twenty-percent reduction), the Pacers still save $12,840,000 per year, or more than what the City is giving them.

Even if your goal was to keep the team at all costs, would you agree to give the Pacers taxpayer's money while knowing that a year from now they will be sitting on tens of millions more?

Here's your answer.

Not unless you were a mayor who (a) either has lousy business sense; or (b)made a pledge to GOP bigwig and Pacers CEO, Jim Morris, and/or to Bob Grand, a/k/a "the most influential man in the Ballard administration," a/k/a "the former President of the Capital Improvement Board, a/k/a "partner at Barnes and Thornburg, the Pacers' law firm."

One wonders exactly how many more times the Mayor can take an idea that is not bad in principle (see Citizens Gas sale, parking renovation) and craft lousy deals that benefit the politically influential to the detriment of average taxpayers.

Mayor Ballard Gives Pacers Eleven Million Per Year, They'll Save Twenty-Five?!?

iPOPA on Pacers's Bailout

I was invited to appear on Fox 59's first "Faceoff" segment, during which two members of the community debate "issues of the day." The topic for myself and NUVO contributor (and talented writer) Andrew Roberts was whether the City should absorb the $15-$18 million cost of operating Conseco, thereby "bailing out" the Pacers. Here's my statement, which is a bit more detailed than what any 2-minute video can allow:

I don't want the Pacers to leave. But the City should not give an extra dime to millionaire ballplayers and billionaire owners when it's on pace to set a homicide record, can't pay for basic services like libraries and transportation, and has to use deficit spending, back-door tax hikes for sidewalks and roads.

The Pacers have not even shown us their books, so we have no idea how leanly they operate. All we know is they pay more in player salaries than one-third of the teams, and the NBA will almost certainly adopt NFL-style revenue sharing when it creates a new collective bargaining agreement at the end of 2011. How foolish will we look opening up the public coffers when bad management put the Pacers in the hole via low attendance and costs, and we can see the smoke from the money train pulling into the Pacers' station?

Most observers do not believe the Pacers could find a better deal in any other small-market city, they would have to pay between $50 and $150 million to move, and every objective study shows that when a team relocates, the psychological loss is real, but the economic one isn't. You can't even call this proposal a "bailout" because that connotes an opportunity to recover the dollars government provided. So far, all the Pacers have said publicly is that the taxpayers should eat a cost the Pacers agreed to cover. Sorry, but we're stuffed right now.

Here's the video segment:
 

iPOPA on Pacers's Bailout

CIB Needs to Let NBA Commissioner David Stern Solve Pacers' Problem

It strikes me as supremely ironic that Mayor Ballard, a Republican, wants to bail out the Indiana Pacers by assuming the $15 million annual operational cost for Conseco Fieldhouse. (Doesn’t anybody remember that the Pacers demanded the right to run Conseco because they wanted to get all the non-game event revenues? But we’ll put aside the whole “living up the terms you negotiated” thing for just a second).

In December of 2009, Forbes released a report that taught us forty percent of the NBA’s franchises (12 of 30 teams), including the Pacers, lost money in the 2008-2009 season. Another league source predicted 25 teams would lose money in the 2009-2010 season.

Can I ask a silly question? If "companies" that lose money are unsustainable, and forty percent of the NBA’s “companies” are in the red, is there any way to contend the NBA business model is not completely broken?

Of course not.

This is why Commissioner David Stern has said two things need to happen:

(1) Players need to be paid less (look at these salaries); and

(2) The league needs to adopt a revenue-sharing scheme closer to what the NFL employs so that small market teams can stay competitive and profitable.

While the first proposal is obviously controversial with the players union, the second one isn’t.

From NBA Fanhouse:

At least the union and the owners agree revenue sharing is needed to help small-market teams. Hunter was receptive when speaking about revenue sharing Friday, and Stern said it will be part of the next CBA, although it won't be negotiated until after a document is in place.

(As a quick aside, is anybody else amazed some Republican somewhere hasn't tried to grandstand on pro sports' revenue sharing models by claiming they're socialist?)

But I digress. Think about this. Mayor Ballard’s wants his CIB to bail out the Pacers even though they haven’t appreciably cut back their payroll while allegedly losing money every year they've been here and while some type of revenue sharing proposal is almost a certainty in the next collective bargaining agreement?

When Mayor Ballard bails out the Pacers, will it be just for this year? No, because it legally can't be. So if a revenue-sharing agreement is subsequently passed in late 2010, will the Pacers pay us back (with interest) for covering them for this year and into the future, just like the banks who got money from the federal government or will it just be a giveaway?

While I’m on the CIB issue, the Mayor has repeatedly stated that no dollars from the Cit Gas transfer will be used to pay the Conseco operating costs and no dollars from his administration will go to the Pacers. His comment is completely disingenuous, but I can’t technically say it’s a lie because money is a fungible good.

Say I have mentally earmarked $15 million for abandoned homes because I said I would do something about them during my campaign, but I still haven’t. When Cit Gas money comes in, I mentally unmark the abandon homes dollars and move them into the CIB. Then I take $15 million from the Cit Gas deal and tell everybody, “Look at me! I’m using Cit Gas money for abandoned homes!” In other words, unless CIB comes up with $15 million more in cuts, Ballard HAS bailed out the Pacers the minute we agree to pay for Conseco. The Mayor can't spin out of that reality.

I say "bailed out" because the company has a legal obligation to make the payments, says it can't, and we let them off the hook. According to the Hunden Strategic Partners report prepared for the CIB to provide political cover for Ballard's upcoming bail out, we should go along because the Pacers generate $55 million for the local economy per year. But as GOP blogger Paul Ogden writes, this report does not address the $150 million penalty the Pacers would have to pay to move the team.

I do not want people to misunderstand me. The Simon family have done some great things for this city, and the Pacers have brought me some of my greatest personal memories. But, in fairness, the Simons have always used the Pacers as a loss leader. When I hear Jim Morris say how many years they've lost money, it doesn't make me sympathetic. It makes me say, "Then it was really stupid of them to assume responsbility for Conseco knowing they were already losing money, wasn't it?" They gambled, and they lost.

Can anybody envision a professional sports team telling its host city, "Hey, we see you're struggling, so we're going to go ahead and pay more taxes?" The Colts sure didn't. Remember when GOP State Senator Luke Kenley floated a plan that would have the Colts giving the CIB just $5 million. Jim Irsay crushed that idea in a heartbeat because it wasn't "part of the deal." We can't get $5 million from a team riding high when we're in trouble, and yet, when this city is struggling, we'll pick up a $15 million tab?

Yes, I love the Pacers, but when libraries are allegedly closing (more on that later), our murder rate is on record pace, and Indianapolis has suffered disproportionate job losses, you can't let nostalgia make you soft in negotiations.

iPOPA, you say, if the Pacers go, we'll lose jobs. None of those popcorn sellers will be making their $10/hour for two hours per game. But that's if the Pacers go. And no matter what Jim Morris says, they won't. They won't pay $150 million in penalties when they can wait until the new revenue model is put in place later this year.

Make no mistake about it, if Mayor Ballard doesn't bail out the Pacers, they'll be living at David Stern's door to ensure the business model gets fixed.

In short, the best approach is to make sure the Pacers management team is highly motivated to change, not how the City of Indianapolis treats them, but how the NBA does.

CIB Needs to Let NBA Commissioner David Stern Solve Pacers' Problem