Tony Cook

tony.cook@indystar.com

Experts say a $160 million deal to keep the Pacers in Indianapolis for at least another decade is a good one as far as NBA deals go.

What's less clear is how the city will pay for the deal without seeking new revenue sources such as tax increases.

The city's Capital Improvement Board is expected to vote on the agreement Monday.

The agreement locks the team into Bankers Life Fieldhouse for 10 years, with three one-year renewal options, according to documents obtained by The Indianapolis Star. In exchange, the city will provide $160 million to cover operating costs and facility upgrades.

"That's not a large number," said Robert Boland, a professor of sports management at New York University. "In fact, that's a fairly modest number if you think about what the arena means to the city of Indianapolis."

Other observers agreed.

"It's a competitive market," said Larry DeGaris, a sports marketing professor at the University of Indianapolis. "You have to decide if you want a team, and if you do, then you have to recognize this is the cost of entry."

Still, the new deal appears to be more costly for the city than the current agreement with the team. Subsidies under the new deal amount to an average of $16 million a year. That's higher than the $11.2 million average annual subsidy under the current three-year deal. That agreement called for an initial $3.5 million in upgrades and $10 million a year in operating costs.

The higher costs could put new strain on the CIB's already stressed budget.

KRAVITZ: $160 million deal to keep Pacers good for Indy



The semi-independent municipal corporation, which owns the city's professional sports venues and the convention center, has seen expenses outpace revenues since last year. The CIB has a projected $33.1 million budget deficit this year.

"The budgets we've considered did not include these sizable and sustained amounts," said City-County Councilman Brian Mahern. "It wouldn't be surprising to see that the CIB needs more money, be it tax increases or new money from tax increment financing."

Mahern and some other council members question whether the deal is too expensive given the city's other needs, such as road repair and an understaffed police force.

"I love having professional sports in town, but there comes a point in time when you have to ask yourself what you can afford," Councilman Zach Adamson said. "Is it something we can obligate the taxpayers to fund when we don't have enough to fund the things we are obligated to pay for, like road repair and police officers?"

But supporters say the deal ensures a continued $208 million economic impact and vibrancy for Downtown.

"The Indiana Pacers and Indiana Fever attract hundreds of thousands of people to Indy on an annual basis," Mayor Greg Ballard said. "Many Downtown workers and businesses rely on those fans for their income. Amenities like professional sports, art and museums make our community a more vibrant and attractive place to live and do business."

Many sports economists doubt claims that stadium deals provide an economic boost, since people would still spend their entertainment dollars at other venues.

But DeGaris, the University of Indianapolis professor, notes that there is a less direct, but still measurable branding advantage to having a pro sports team.

"In Indianapolis, professional sports are a big part of our national and cultural identity," he said. "It's one of the things that distinguishes us from Louisville."

CIB officials did not return calls from The Star on Friday.

Bill Benner, a spokesman for Pacers Sports & Entertainment, said the organization isn't commenting until Monday.

The agreement locks in the Pacers through the 2023-24 basketball season, and possibly through the end of the 2026-27 season. That coincides with the final debt service payments on the fieldhouse.

The deal sticks even if the Pacers begin to lose money.

The CIB will subsidize fieldhouse operating costs to the tune of $3.7 million a year. That will cover things such as liability insurance, security and utilities. The CIB also will pay the fieldhouse's manager $7.1 million a year, with that amount rising 3 percent each year.

In addition, the CIB will provide $26.5 million to the Pacers for upgrades to seating, new paint and improvements to locker rooms and concessions.

The CIB also will pay for $7 million in improvements directly to replace the floor, upgrade the cooling tower and improve the facility's steam pressure control system. About $3 million of those improvements are expected to be completed in 2014 and are already budgeted.

Finally, the CIB will pay $8 million over 10 years for the scoreboard and sound system and will take title of the equipment at the end of the deal.

When the Pacers bought the scoreboard and sound system for $16 million in 2012, city leaders said the purchase wouldn't affect negotiations with the team.

"Licensing the scoreboard — that's offensive," Mahern said.

The new deal also makes provisions in the event of the death of the team's billionaire owner, 79-year-old shopping mall magnate Herb Simon.

If the team's lenders call its current loans due, or if those loans mature, the Pacers must seek replacement financing that is secured by collateral, likely real estate. The CIB would have time to ask state lawmakers and the City-County Council to help the Pacers obtain such financing. If the team can't obtain such financing and the Pacers' parent company, Pacers Sports & Entertainment, decides to sell the team, the city is entitled to a right of first offer.

Forbes puts the value of the team at $475 million. The Pacers brought in $121 million in revenue and $12 million in profit for the 2012-13 season, the magazine reported.

The city leases Bankers Life, which opened in 1999, to the Pacers for $1 a year. The Pacers keep all game and non-game revenue.

Despite the seemingly generous terms of the arrangement, sports business experts say the average annual subsidy of $16 million for the team and the fieldhouse is typical, especially for small-market teams.

"It's not out of line with what we see in professional sports," said Victor Matheson, an expert on sports economics and a professor at College of the Holy Cross in Massachusetts.

It's tougher for owners in big markets such as New York and Los Angeles to move their team to places with smaller revenue pools. But Indianapolis faces competition from a variety of other cities — some of which have NBA-ready arenas just waiting for a tenant.

Matheson said he views claims about the economic benefits of pro sports teams with suspicion. Without a team, the city wouldn't necessarily lose money, because residents would simply spend their entertainment dollars on other events.

"Professional sports may make us happy," Matheson said. "But there's not a lot of evidence they make us rich."

Call Star reporter Tony Cook at (317) 444-6081. Follow him on Twitter: @indystartony.

Highlights of the agreement

Term: The agreement locks in the Pacers for 10 years, or until the end of the 2023-24 basketball season, with three one-year renewal options.

Funding: The city would pay about $160 million over 10 years, including $10.8 million a year for operations and $33.5 million for facility upgrades.

Termination: The Pacers would not be allowed to terminate the agreement because of operating losses.

Ownership: If team owner Herb Simon dies and the Pacers' loans come due, the team will be required to seek replacement financing. If the team can't get it and is put up for sale, the city would have the right of first offer.

Source: Capital Improvement Board