Thursday, April 23

Pacers, Sonics: Owners Cut From Same Cloth

“I don’t think it’s right for an entrepreneur to ask another entrepreneur for a gift.”
Herb Simon, 1997

This past weekend, Cory Schouten put together an insightful story for the Indiana Business Journal about the Simon family’s close-knit relationship with Indianapolis and the massive piles of money they have received in the name of urban renewal.

In many ways, you get left with the question: Where does Indianapolis end and Herb Simon’s family begin?

Schouten impressively details how the Simons:

- Received an estimated $400 million from the city for various real estate projects over the course of the past decade.

- Use the maintenance of Conseco as an excuse for financial help, while the city is actually the one footing the bill, to the tune of $3.45 million per year. (Of note, the city paid $62,000 to outfit the Pacers’ employees and $15,000 on NBA Fastbreak pinball machines).

- Artfully dodged the truth about their lease when they went to the press this past month. In reality, the Pacers’ renegotiation of their current lease is not as trouble-free as they would lead us to believe. According to Schouten, the team is able to renegotiate only if the team fails to meet certain profit margins, and the team would only be able to leave if it paid a substantial penalty.

How substantial? Try anywhere from $50 million to, gulp, $144 million, depending on when the team decides to pack up. (As an aside, I urge you to read this article from the Ogden On Politics blog, detailing the fleecing of Indianapolis taxpayers by the Simon family, a prediction from five years ago about how this year’s events would transpire, and how Herb Simon’s continual lying about the economics of Conseco Fieldhouse are all too familiar to those of us in this region). ((I’m not sure where else to put this, but this second aside is as good as any. Herb Simon is currently working on wife number three, a former Miss Universe 1988 from Thailand. They were introduced by Simon’s niece, who was once her, yep, college roommate. Her first name is Porntip. Yes, Porntip. Back to the story)). (((One last note – guests at the wedding included George Hamilton and Rob Lowe – who gave a speech. I’m unaware if Simon requested funding from Indianapolis for the construction of the buffet table.)))

Schouten’s piece is thoroughly researched, and indicative of the situation in a large number of cities across this country. I find it promising that Seattle, Indiana, and now Milwaukee (hat tip, True Hoop) have taken a different approach to the inevitable city-vs-team thunderstorms. Rather than capitulate the instant team ownership threatens to move, these cities asked for an honest discussion of the economics. Sure, Herb Simon may be able to convince cities to erect new buildings for his minor-league baseball team, but the number of cities willing to fork over hundreds of millions for an NBA arena are dwindling faster than a pile of chicken wings at a Fortson family barbecue.

Interestingly, Simon had a conversation with the IBJ last year, at which time he announced his intention to take over the reins of the team. At the time, the Journal asked him what he considered the “tipping point” for when the team began to run into trouble:

IBJ: Can you identify a tipping point where things started to go south for the Pacers franchise and its relationship with the team’s fans?

Simon: Well the tipping point everyone points to—and we don’t like to talk about it anymore because we want to talk about positive things—was probably the Detroit incident and the incidents that followed. That seems to be the tipping point.

And yet, one year later, Simon told the Indianapolis Star that the Pacers had lost money “9 of the last 10 years,” meaning that the Malice at the Palace was, essentially, irrelevant, in that it occurred far after the financial problems began. Simon, or, rather, his spokesman, also claimed the family had lost $200 million during their ownership tenure, further indicating that these problems had taken root far in advance of Ron Artest donning a Pacers jersey.

Incredibly, Simon even commented that he would like to go back to 2000, as “the year 2000 is a good year for me.” And yet, in comments his spokesman made to the Star, the Pacers claim to have lost money in 2000, making me wonder: Were the losses offset by the glory of the Finals, or were there ever any losses to begin with?

Later on, Simon – and, remember, he said this in 2007, less than 12 months before his spokesman told the media the Pacers had lost money nearly every year they’ve been owned by the Simons – told the IBJ:

We face the challenge of a small market. We always will. But we’ve been profitable before and we hope to be profitable again.

Look, Simon is married to a former Miss Universe, has at least six houses on three continents, and had his honeymoon (for his third marriage) in Switzerland, Bora Bora, and Thailand. And he’s crying to the city that he needs help to keep the Pacers afloat? At what point do cities start to say, “You know what? Bite me. If you don’t like how things are going here, sell the team. If no one steps up to buy them, then we’ll talk. But if you put them up for sale and a half-dozen buyers show up, then you figure it out.”

In the past, teams treated cities like a star player treats his groupies. Free to extort cities at their whim, they knew all along that other cities were lined up, just drooling to take them in. These days, in tougher economic times, those extortion tactics no longer work so well, and NBA team owners are finding the situation is a bit stickier than the one to which they have grown accustomed. With decreasing tax revenues comes increasing budget scrutiny, and just as Clay Bennett found the Washington legislature less than thrilled with his $500 million arena boondoggle (whether because of budget constraints or inherent hebetude), fellow NBA owners may find other legislatures equally thrifty when it comes to throwing tax dollars at similar projects.

It’s about time.


Anonymous said...

Simons says... "we've lost $200 million"

What he means is "I've used creative tax treatments (including writing off the salaries of players who leave the team as depreciation) to get $200 million in tax writeoffs against my other tax liability.

And of course he neglectd to mention probably well over $200 million in capital appreciation over the same time frame or at least the life of the investment.

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