PDA

View Full Version : IBJ: Pacers feeling pinch



Putnam
10-10-2006, 04:47 PM
Pacers feeling pinch



Falling profit may lead team to seek new Fieldhouse deal

By Anthony Schoettle aschoettle (http://www.pacersdigest.com/forums/)@ (http://www.pacersdigest.com/forums/)ibj (http://www.pacersdigest.com/forums/). (http://www.pacersdigest.com/forums/)com (http://www.pacersdigest.com/forums/)



The Indiana Pacers’ financial performance has plummeted over the past two years, which might spur the franchise to attempt to renegotiate its lease for Conseco Fieldhouse, sports-business experts say.

Asked whether the team intends to do that, Pacers President Donnie Walsh said: “If I was going to approach [city officials] about a new deal, I’d tell them before I told you.”

While the team won’t discuss financial results, industry experts say the team last season might have posted its first financial loss since moving into Conseco Fieldhouse in 1999.

This year could be tough as well. Observers aren’t expecting the Pacers to be among the NBA’s elite teams. And the franchise is facing stiff competition for corporate support with the red-hot Indianapolis Colts, which are aggressively marketing suite and sponsorship packages for Lucas Oil Stadium.

Mayor Bart Peterson said the city and Pacers have had on-and-off discussions over the years about “tweaking” the Pacers’ Conseco Fieldhouse lease. But he said they’ve had no recent discussion about major changes.

City officials would not be eager to rework the deal, said Fred Glass, president of the Capital Improvement Board, the quasi-governmental body that owns Conseco Fieldhouse.

“These deals are done for a reason,” Glass said. “We have a 20-year deal, and negotiations can only be reopened under certain conditions.”

However, one of those conditions could be met this year. The lease states that if the Pacers experience “significant net cash flow loss for any NBA season in or after the eighth year of the initial (20-year) term,” the team the next year could begin the process of seeking early termination of its lease.

Because the upcoming season is the Pacers’ eighth in Conseco Fieldhouse, sports-business experts say that provision could open the door to renegotiation as early as next year.

According to estimates from Forbes magazine, the Pacers’ profit dropped from $10.1 million in 2002-2003 to $2.6 million in 2003-2004. In 2004-2005, the year of the Detroit brawl, the franchise earned $8.5 million, the magazine said, as the community rallied around the team and it made a playoff run.

Forbes hasn’t released estimates for the last season. However, because attendance fell to an eight-year low and the Pacers bowed out of the playoffs in the first round, sports-business experts say the team probably posted either a loss or marginal profit.

“Most NBA teams are operating on margins of 4 [percent] to 10 percent,” said Marc Ganis, president of Sportscorp Ltd., a Chicago-based consulting firm with NFL and NBA franchises and venues as clients. “There’s a fine line between profitability and loss, especially when three home playoff games can mean $2 [million] to $3 million in revenue. Not making the playoffs or not making it beyond the first round can make or break a team financially.”

Basketball prognosticators believe the Pacers will finish no higher than fourth in their five-team division this season, with little chance of making the playoffs. In the last three seasons, the Pacers have dropped from 61 wins to 44 to 41.

Attendance last year was 16,180, a 12-percent decrease from the 18,345 per game the Pacers drew in the Fieldhouse’s inaugural season, 1999-2000, when Reggie Miller led the team to the NBA Finals. And average attendance for the team’s three home playoff games last year was an alarming 15,898.

Walsh and Larry Bird, president of basketball operations, have put together a runand-gun team they hope will draw more fans and corporate interest this year.

During the off season, the Pacers shipped off veterans, including Anthony Johnson and Austin Croshere, and replaced them with a bevy of players who aren’t household names. Pacers leaders also made other changes to enhance community outreach.

Walsh and Bird, along with Coach Rick Carlisle, have been featured prominently in the team’s early-season advertising campaign, which started last month and kicked up a notch this month.

“This advertising campaign is true to what we wanted to say to the community,” Walsh said. “We needed to let our fans know we felt what they felt over the last two seasons. That’s why we had people from all levels of the organization featured in an ad campaign for the first time.”

But marketing goes only so far. Unless the team’s on-court performance turns around, sports-business experts say, the franchise will have a strong incentive to try to renegotiate its lease.

“It doesn’t surprise me that this has come up,” said Mark Rosentraub, former IUPUI dean and author of “Major League Losers,” a book about professional sports operations.

“Below the surface, there’s always been a fear among these two teams that one could rise up and take over the other in this market. Certainly with the absence of Reggie Miller and the continued success of Peyton Manning and this new stadium, I think the scales are tipping toward the Colts.”

Pacers executives won’t discuss the Colts’ Lucas Oil Stadium lease, but sources close to the team say the executives are irked by the deal and think theirs pales in comparison.

Milt Thompson, president of Grand Slam Cos., a local sports marketing consultancy, thinks Pacers officials have little to complain about.

“The deal for Conseco Fieldhouse was crafted to assure the team could control its own destiny,” Thompson said.

He pointed out that the Pacers receive all basketball and non-basketball revenue at Conseco Fieldhouse, still vaunted as one of the nation’s top NBA venues.

The Colts will get just half of non-football revenue from Lucas Oil Stadium, which is scheduled to open in September 2008. Even so, sports marketers say the Colts could make more from that half than the Pacers do from their 100-percent share of non-basketball Fieldhouse revenue. The Fieldhouse has 18,345 seats, while Lucas Oil Stadium will have 70,000.

The Colts deal also has advantages on the expense side. The team isn’t responsible for the venue’s operating costs. The Pacers do pay operating costs for the Fieldhouse, and also pay $3.45 million annually for certain parking privileges. The Colts have no similar parking payment.

Rosentraub said negotiators crafted the Pacers deal when the RCA Dome wasn’t a major threat to take business from the Fieldhouse.

One mistake Rosentraub thinks city and state officials made was not involving Pacers officials more when shaping the Colts’ new deal.

“That new facility in many ways can be configured to compete with Conseco Fieldhouse,” Rosentraub said. “Now you have to arm-wrestle which events go where. A non-compete clause between the two facilities was never worked out.”

The Pacers contributed $57 million of the $183 million Conseco Fieldhouse price tag. The Colts paid $100 million into the $625 million Lucas Oil Stadium. But the Colts are receiving $48 million from the city as compensation for terminating the team’s RCA Dome lease.

And because a portion of Lucas Oil Stadium’s non-stadium revenue goes to local officials, the Pacers find themselves competing for events with the very people who lease them their facility.

Such issues now are simmering beneath the surface. But if the Pacers can’t improve their on-court performance, and thus their financial results, they may trot them out publicly as justification for a sweetened Fieldhouse deal, industry experts said.

“If the Pacers’ downturn extends another season or two,” said Sportcorp’s Ganis, “the Colts will suck all the oxygen out of that market.”

http://indybiznow.com/Default.aspx?TabId=391&issueyear=2006&issuemonth=10&issueday=09&page=1&article=Ar00101

Unclebuck
10-10-2006, 05:00 PM
According to estimates from Forbes magazine, the Pacers’ profit dropped from $10.1 million in 2002-2003 to $2.6 million in 2003-2004. In 2004-2005, the year of the Detroit brawl, the franchise earned $8.5 million , the magazine said, as the community rallied around the team and it made a playoff run.

Forbes hasn’t released estimates for the last season. However, because attendance fell to an eight-year low and the Pacers bowed out of the playoffs in the first round, sports-business experts say the team probably posted either a loss or marginal profit.

“http://indybiznow.com/Default.aspx?TabId=391&issueyear=2006&issuemonth=10&issueday=09&page=1&article=Ar00101



There is no way that could be true. They made 8.5 million during the 2005 season and then lost money in the 2006 season? I don't buy that. Attendance fell what 600 per game and most of those were in the balcony. I just don't see how there can be a swing of that much from one season to the next.

ChicagoJ
10-10-2006, 05:11 PM
Yeah, that can be true.

This business is highly leveraged (the fixed costs like arena rent and player/coach/front office salaries are very, very high vs. the variable costs.)

Each extra home playoff game is like a million dollars of "free" profit. 1,000 tickets at an average of $25 per ticket over 45 games is a million dollars.

The difference between breaking even and turning a nice profit is a few hundred seats per game, or an extra round or two in the playoffs.

Unclebuck
10-10-2006, 05:23 PM
Yeah, that can be true.

This business is highly leveraged (the fixed costs like arena rent and player/coach/front office salaries are very, very high vs. the variable costs.)

Each extra home playoff game is like a million dollars of "free" profit. 1,000 tickets at an average of $25 per ticket over 45 games is a million dollars.

The difference between breaking even and turning a nice profit is a few hundred seats per game, or an extra round or two in the playoffs.



I was under the impression that the league gets a greater % of playoff profits than they do for regular season games and and the league gets even less for preseason games. That is why the Pacers have had 4 home preseason games every season

Jay in your scenerio, maybe the Pacers lost $750,000 from loss of attendance. Last season the pacers had 3 home playoff games the year before they had they had 6. OK, so that 3 million. OK so maybe the Pacers profits last season were almost $4 Million dollars less than the year before. But the article suggests that there was more than an 8.5 million dollar difference.

Jay, I know numbers and finances are your business so you are more of an expert than I am, but I just don't see a $8.5 Million dollar difference from one year to the next. I suppose corporate sponsorship could make up the other $4.5 M drop. (I admit I don't know what the pacers get from corp sponsors)

Sollozzo
10-10-2006, 05:28 PM
There is no way that could be true. They made 8.5 million during the 2005 season and then lost money in the 2006 season? I don't buy that. Attendance fell what 600 per game and most of those were in the balcony. I just don't see how there can be a swing of that much from one season to the next.

You have to keep in mind that the Pacers sold out every home game after Reggie announced his retirement that season.

Sollozzo
10-10-2006, 05:29 PM
Yeah, that can be true.

This business is highly leveraged (the fixed costs like arena rent and player/coach/front office salaries are very, very high vs. the variable costs.)

Each extra home playoff game is like a million dollars of "free" profit. 1,000 tickets at an average of $25 per ticket over 45 games is a million dollars.

The difference between breaking even and turning a nice profit is a few hundred seats per game, or an extra round or two in the playoffs.


It's odd then that they had 10.1 million in profit in 02-03, a season when they were bounced in the first round in 6 games, but just a 2.6 million profit in 03-04, when they went to the ECF's.

PacerMan
10-10-2006, 05:38 PM
There is no way that could be true. They made 8.5 million during the 2005 season and then lost money in the 2006 season? I don't buy that. Attendance fell what 600 per game and most of those were in the balcony. I just don't see how there can be a swing of that much from one season to the next.

It's not just tickets. There's all the other $$ that gets spent if you go. Not to mention merchandise sales OUT of the arena. If attendence is down then interest is down. THen advertisers don't want in as much. It affects everything.
It's entirely possible.

Unclebuck
10-10-2006, 06:06 PM
You have to keep in mind that the Pacers sold out every home game after Reggie announced his retirement that season.

I don't recall if that was the case. He announced it in late January.

But even if it is correct, that is figured into the attendance drop of 600 per game

kybjones
10-10-2006, 06:19 PM
Not completely shocking. Let's just pray the brown curtain from Market Square doesn't reappear any time soon.

BillS
10-10-2006, 06:21 PM
Maybe this <i>is</i> a Big Conspiracy to make the team and its players more attractive to Las Vegas?