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IBJ: Conseco Quandary; Economist Questions Pacers' Loss Claims

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  • #16
    Re: IBJ: Conseco Quandary; Economist Questions Pacers' Loss Claims

    Originally posted by count55 View Post
    I, too, question this statement:



    I believe that the Pacers have had an overall loss over the last 27 years, and an overall loss over the last 10 seasons, I do not see how they could've shown losses in 25 separate years.

    I find that bothersome, because their position is strong enough with simply the net Operating Loss over the ownership. It does seem to be an odd claim to make. Either, they're making an imprudent exaggeration, or they have pretty strong data to support the claim. It simply seems foolish to me to make that specific of a statement, because they have to know it will be challenged.
    To my knowledge I think the only years they actually made money was the first 2 seasons in Conseco. They never made money in MSA

    Comment


    • #17
      Re: IBJ: Conseco Quandary; Economist Questions Pacers' Loss Claims

      Originally posted by Unclebuck View Post
      To my knowledge I think the only years they actually made money was the first 2 seasons in Conseco. They never made money in MSA
      The Forbes data says that they showed (small) operating profits from 2001 through 2005 (IIRC), though the Simons dispute it.

      The article linked here said that they had made money one year in MSA, and I find that relatively believable.

      Comment


      • #18
        Re: IBJ: Conseco Quandary; Economist Questions Pacers' Loss Claims

        It always tickles me when people say, "You can prove anything with statistics." The real you-can-prove-anything game is accounting. I think it likely that the Simons' balance sheet shows what they say it shows, but that they could have figured it differently and gotten a different result.

        The important thing is, in this case the past is not prologue to the future.


        .
        And I won't be here to see the day
        It all dries up and blows away
        I'd hang around just to see
        But they never had much use for me
        In Levelland. (James McMurtry)

        Comment


        • #19
          Re: IBJ: Conseco Quandary; Economist Questions Pacers' Loss Claims

          If we were valuing the intangible assets of an acquired sports franchise, we would look at the player contracts, (favorable) lease agreements, advertiser contracts/ customer relationships, broadcast contracts/ customer relationships, etc. There might be some others, but those are the biggies...

          For tax purposes, certain of these assets amortize over less than 15 years. This, of course, would not affect the Simons as they've owned the team for way too long to be carrying any intangible amortization. But there is a bit of a tax advantage to acquiring a business with that particular type of asset.

          You may now return to your day jobs. Mine seems to have followed me here to PD today.
          Why do the things that we treasure most, slip away in time
          Till to the music we grow deaf, to God's beauty blind
          Why do the things that connect us slowly pull us apart?
          Till we fall away in our own darkness, a stranger to our own hearts
          And life itself, rushing over me
          Life itself, the wind in black elms,
          Life itself in your heart and in your eyes, I can't make it without you

          Comment


          • #20
            Re: IBJ: Conseco Quandary; Economist Questions Pacers' Loss Claims

            So what happens should one of the Simons pass on?
            Nuntius was right for a while. I was wrong for a while. But ultimately I was right and Frank Vogel has been let go.

            ------

            "A player who makes a team great is more valuable than a great player. Losing yourself in the group, for the good of the group, that’s teamwork."

            -John Wooden

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            • #21
              Re: IBJ: Conseco Quandary; Economist Questions Pacers' Loss Claims

              Depends on their estate plan. But every sports owner is keenly aware of what happened to the Halas family because of estate tax issues. Just because "we" don't know exactly what is stipulated doesn't mean there isn't a plan.

              It is likely that the heirs would be taxed quite a bit on the increase in Fair Market Value. Of course, in the Simons' case, one would attempt to argue that the Forbes numbers are phoney-baloney and that the real FMV is much lower (thus a lower tax burden.)
              Why do the things that we treasure most, slip away in time
              Till to the music we grow deaf, to God's beauty blind
              Why do the things that connect us slowly pull us apart?
              Till we fall away in our own darkness, a stranger to our own hearts
              And life itself, rushing over me
              Life itself, the wind in black elms,
              Life itself in your heart and in your eyes, I can't make it without you

              Comment


              • #22
                Re: IBJ: Conseco Quandary; Economist Questions Pacers' Loss Claims

                Originally posted by ChicagoJ View Post
                Depends on their estate plan. But every sports owner is keenly aware of what happened to the Halas family because of estate tax issues. Just because "we" don't know exactly what is stipulated doesn't mean there isn't a plan.

                It is likely that the heirs would be taxed quite a bit on the increase in Fair Market Value. Of course, in the Simons' case, one would attempt to argue that the Forbes numbers are phoney-baloney and that the real FMV is much lower (thus a lower tax burden.)
                Almost three times revenue does seem a bit hefty.

                Comment


                • #23
                  Re: IBJ: Conseco Quandary; Economist Questions Pacers' Loss Claims

                  Originally posted by ChicagoJ View Post
                  If we were valuing the intangible assets of an acquired sports franchise, we would look at the player contracts, (favorable) lease agreements, advertiser contracts/ customer relationships, broadcast contracts/ customer relationships, etc. There might be some others, but those are the biggies...

                  For tax purposes, certain of these assets amortize over less than 15 years. This, of course, would not affect the Simons as they've owned the team for way too long to be carrying any intangible amortization. But there is a bit of a tax advantage to acquiring a business with that particular type of asset.

                  You may now return to your day jobs. Mine seems to have followed me here to PD today.
                  Since it sounds like we have the same day job, I thought I'd expound on things you already know for the benefit of those who actually want to trudge through a bunch of accounting/finance mumbo jumbo below:

                  1-I totally agree about the subsidiary shell game. The only way to know the true value/financial status of the franchise is to get the consolidated books of the franchise and associated enterainment/management affiliates. The financial books and the tax books both, because as you're painfully aware, they're going to look a lot different and the actual cash flow generated can only be determined by taking components of both sets.

                  2-There shouldn't be any (or at least too many) non-cash expenses associated w/ amortization because as you've mentioned, any amortization that comes from acquiring the franchise would have been taken years ago. Self-created intangibles that have emerged since then wouldn't be on the books as intangibles, so you don't amortize them.

                  3-I am 99.99% sure that the Pacers are taking depreciation on the building even though they don't own it. This is the source of their "loss". Every franchise leasing a facility takes this paper loss and it's huge--probably about $15 million for the Pacers per year. To put it in perspective, that's 18,000 tickets sold at $55 a pop for 15 home games. Common sense says you can't take depreciation for an asset you lease, but do not own. Until I started seeing it with clients a few years back, I had no clue this provision existed... continue reading at your own peril. There are triggering events (lease pre-payment, certain capital investment, etc) a tenant can perform (at minimal cost) to secure the future depreciation of the facility (at great economic benefit). Anonymous entertainment bizco says it better here than I ever will:

                  Due to certain structural elements installed during the construction of the space being leased and certain prepaid lease payments made by us, we are required to be treated, for accounting purposes only, as the “owner” of the [BLANK] Convention Center, in accordance with Emerging Issues Task Force Issue No. 97-10 (“EITF 97-10”), “The Effect of Lessee Involvement in Asset Construction,” even though we do not own these assets and do not participate in or control the operations of the convention center.

                  This is only on the financial reporting books, so it doesn't have an impact on what the franchise actually pays in taxes. It does have the benefit of making nice soundbytes for how much money they're "losing". Mel and Herb are the brains behind one of the largest REITs in the world. If they did not take advantage of this, then they also happen to be the luckiest self-made real estate billionaire idiots in the history of the world.

                  Originally posted by ChicagoJ View Post
                  Depends on their estate plan. But every sports owner is keenly aware of what happened to the Halas family because of estate tax issues. Just because "we" don't know exactly what is stipulated doesn't mean there isn't a plan.

                  It is likely that the heirs would be taxed quite a bit on the increase in Fair Market Value. Of course, in the Simons' case, one would attempt to argue that the Forbes numbers are phoney-baloney and that the real FMV is much lower (thus a lower tax burden.)
                  There is most definitely some sort of a plan and the FMV issue will come into play. Even if you assume the Forbes figure of $280 million is correct, that assumes the asset is fully liquid and can be sold tomorrow. As we know from other franchise sales, this is not the case. The Simons will (or have already) argued that it would take them about 2 years to find a buyer based upon prior sale attempts of franchises. During that time, the value of the franchise could go up or down, but they're stuck with it. Without getting into too much detail, they'll get a discount of roughly 25% on that $280 million in the stated value to reflect the actual FMV (marketability considered). There is probably an even chance that they're already in the process of "gifting" the shares to family right now, which comes at an even bigger discount (due to additional lack of control of a minority interest). Again, even if the $280 million total value is correct, a 1% interest in the franchise could probably be gifted for $1.7 - $2.0 million.

                  Sorry to all who fell asleep reading this.

                  Comment


                  • #24
                    Re: IBJ: Conseco Quandary; Economist Questions Pacers' Loss Claims

                    Originally posted by Ivan Renko View Post
                    Since it sounds like we have the same day job, I thought I'd expound on things you already know for the benefit of those who actually want to trudge through a bunch of accounting/finance mumbo jumbo below:

                    ---'snip'---

                    Sorry to all who fell asleep reading this.
                    Wow, that was all over my head.
                    ...Still "flying casual"
                    @roaminggnome74

                    Comment


                    • #25
                      Re: IBJ: Conseco Quandary; Economist Questions Pacers' Loss Claims

                      Originally posted by Roaming Gnome View Post
                      Wow, that was all over my head.
                      Like I said, accounting finance mumbo/jumbo. To make analogies:

                      1-You (the Pacers) give your income to your two children (named Catering and Concessions), then you tell me you're broke because you have no income in your name.

                      2-Doesn't matter in this case.

                      3-You (the Pacers) help me build a deck on my new house and rent it from me. Even though you don't own the house and the mortgage is in my name, due to some strange accounting rule, you can claim the interest expense on my mortgage even though you don't pay it. You deduct this from your income to make yourself look less wealthy. Then you tell me you want the rent reduced because you have no money left after taking my interest expense.

                      4a-something is only worth $15,000 if you can sell it for $15,000 immediately. If you have to wait a year or two to sell it for $15,000, it's worth less than $15,000 today.

                      4b-Owning 1% of something doesn't mean you necessarily get 1% of the value of something because you don't control the asset. You give me 1% of the value of my house and expect to get 1% of the gain in a year when I'm supposed to sell it. I might just decide to hold onto it for 30 years in which case your $$$ is tied up in the house for 30 years. You just gave me an interest-free loan. Thanks.

                      There are ways to combine 4a and 4b to give 100% of businesses to heirs over a number of years for much less than what 100% of the business would sell for. This is done to minimize estate taxes.
                      Last edited by Ivan Renko; 02-11-2009, 02:17 AM.

                      Comment


                      • #26
                        Re: IBJ: Conseco Quandary; Economist Questions Pacers' Loss Claims

                        It is easy in Baseball with it a much larger operation to do creative accounting. I know the Braves did this but with the team's broadcast right's in house @ TBS and owning the stadium people were skeptical of their woe is me when it came to loss claims.

                        Comment


                        • #27
                          Re: IBJ: Conseco Quandary; Economist Questions Pacers' Loss Claims

                          Not sure if this was posted yet.

                          http://www.msnbc.msn.com/id/29168291/

                          Pacers' Morris: Team has lost $200M

                          By Mary Milz/Eyewitness News
                          From WTHR-TV


                          Indianapolis - The Indiana Pacers say they are losing millions of dollars each year, far more than previously reported.

                          "Almost every year [Mel and Herb Simon] have owned the team, they've lost money. The cumulative losses probably approach something in the neighborhood of $200 million," said Pacers Sports and Entertainment President Jim Morris.

                          Morris says the team needs help. They're talking with the city's Capital Improvement Board, which operates Conseco Fieldhouse about the options, particularly who pays for maintenance of the facility. Right now the Pacers cover the cost, estimated at $15 million a year, and Morris said they can no longer afford it.

                          "The Pacers are not asking for help for the team. That's our responsibility to operate the team, but the team does not have the financial capacity to operate the building," Morris said.

                          Morris said there were at least a dozen other issues it needed to address, including the revenue the city now gets from the Virginia Avenue garage. He attributed the Pacers' financial troubles to a number of factors, including the 2004 brawl in Detroit and several off-court incidents that followed hurt attendance. While Morris said it's up about 1,500 per game this season, it still lags.

                          "The average gate revenue for an NBA game this year is in the neighborhood of $900,000, our average is something below $500,000," Morris said.

                          Morris said NBA salaries have "gone up substantially." He also said NBA revenue sharing is limited and the Pacers TV revenue has been well below the NBA average.

                          Even though the Pacers get all the revenue from all the other events at Conseco Fieldhouse concerts, Morris said, most events are "tightly controlled by the promoters...the margins are very, very thin and not significant in the overall operation of the enterprise."

                          The Pacers and CIB are reviewing the team's contract at what CIB board member Pat Early calls "an extremely hard time."

                          The CIB finds itself millions in the red.

                          "It's a lot of things hitting us at once," Early said. "We've dealt with issues like this before but they're all stacking up."

                          The CIB is looking at everything from raising hospitality taxes to opening a casino to plug its deficit. As for the Pacers' future?

                          Morris stressed, "There's never been any suggestion the team would leave Indianapolis. No one wants the team to leave Indianapolis."
                          Ash from Army of Darkness: Good...Bad...I'm the guy with the gun.

                          Comment


                          • #28
                            Re: IBJ: Conseco Quandary; Economist Questions Pacers' Loss Claims

                            Damn!
                            Last edited by Roaming Gnome; 02-13-2009, 01:09 AM.
                            ...Still "flying casual"
                            @roaminggnome74

                            Comment


                            • #29
                              Re: IBJ: Conseco Quandary; Economist Questions Pacers' Loss Claims

                              "The average gate revenue for an NBA game this year is in the neighborhood of $900,000, our average is something below $500,000," Morris said.
                              So basically enough with the "attendance is up" crap. Just to fill seats they've slashed prices a ton, so even if it looks full they are way below on actual income. Go compare average attendance to Pacers attendance and see if butts-in-seats matches this 9 to 5 ratio, I'm betting it doesn't.

                              Comment


                              • #30
                                Re: IBJ: Conseco Quandary; Economist Questions Pacers' Loss Claims

                                Originally posted by count55 View Post
                                It is a true and relevant point that the nature of the agreement between the City and the team could result in some different "rules" for the reporting of income. The old MSA agreement dictated that the Pacers share half of the profits with the city in any year that there were profits. While I stop well short of saying that the Pacers reported false losses, I will say without reservation that I'm sure that they presented the financials in the manner most advantageous to them within the auspices of the agreement. That is to say they probably reported the minimum revenues and the maximum costs allowed. How materially different that is from what would be considered "normal" reporting, I cannot tell you.
                                Many a film investor has found out the hard lesson between front end and back end shares of earnings too. It's amazing just how many films "lose money" when it comes time to pay out from the final "profits".

                                It's funny because I see my previous post as being sympathetic to the Pacers, and to a degree I am. I do think the fanbase has over exaggerated their outrage regarding team behavior and the cost of attending games. I do think that the team deserves more actual support and interest and that it should be on par with the Colts, mainly because the Pacers have already put up a huge history of winning and had the love of the fanbase way back when the Colts couldn't get a whiff of interest themselves.


                                But at the same time there are plenty of very rich people asking a bunch of very poor people for financial help here, and that makes me extremely wary. I know they are getting hit, but we live in a world right now where car manufacturers are offering to let you out of your deal if you get laid off just to sell cars and where local property taxes just instantly doubled or tripled for many people (including me).

                                If they did not take advantage of this, then they also happen to be the luckiest self-made real estate billionaire idiots in the history of the world.




                                Wouldn't we all like to see the books if the city suddenly announced a multi-billion dollar reward/payout for any local businesses well in the black. You give the Pacers an incentive to report a healthy state of business and they'll give you one...by magic.

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