Wednesday, April 16, 2014

Despite $160 Million Deal Pacers Will Be Free to Terminate Deal and Leave Indianapolis

Reading the news coverage, it would appear that the $160 million deal approved Monday by the Capital Improvement Board means that the Indiana Pacers cannot move the team until 2027.  These bullet points are from the CIB press release:
• The extension locks in the premier tenants of Bankers Life Fieldhouse—the Indiana Pacers and the Indiana Fever—for up to 13 years; that term coincides with final debt service payments due on the Fieldhouse in 2027.
• The extension also removes the ability of the teams to leave Indiana due to economic losses.
Pacers Owner Herb Simon
But if the first bullet point were true, why would there be a need to include the second?  If the agreement truly locked into the Pacers until 2027, there would be no reason to specifically say the Pacers gave up the team's right under the old contract to move for economic losses.  (Not like the Pacers would ever open up their books to show this.)

The fact is the Pacers aren't locked at all.  Buried in the middle of the new agreement is a provision that deals with the situation when Pacers' sole remaining owner, Herb Simon, who is 79 years old, dies.  (pages 43-47).  In that case the heirs who inherent the team through the Simons Trust may well need to obtain financing to continue operating the team or to refinance existing debts of the franchise.  The Simon Heirs under the provision can demand the CIB assist them with the obtaining "non-recourse" financing, which is a loan the collateral for which is income from the operations of the franchise, i.e. not the assets.  Presumably this would be done by using the CIB's ability to borrow at a lower cost or to loan money directly to the Heirs.

In the event the CIB chooses not to help the Simon Heirs with the debt, the Simon Heirs can issue a Notice of Intention to Terminate the new Agreement.  In that event, the CIB would have the first right, and 45 days, to, purchase the team.  Of course, there is a catch to that.  The Agreement specifically acknowledges several times that current NBA rules would not permit the CIB to own the team. 

If the CIB's offer to buy the team is rejected, an appraisal of the team is done by three appraisers.  If the appraised value of the Pacers is 110% or more of the CIB's offer, the Simon Heirs would be free to terminate the new Agreement.  According to Forbes, the current value of the Pacers' franchise is $475 million dollars.   That is more than 3 times the budget of the CIB.  The odds that, even if the NBA rules allowed the CIB to purchase the Pacers, the CIB could do so is pie-in-the-sky stuff.


Gary R. Welsh said...

CIB President Ann Lathrop was very proud of the fact that the agreement addressed the issue of Simon's succession planning during her brief presentation of the new agreement at Monday's CIB meeting before the board unanimously approved it without asking any serious, substantive questions about it. It should be fun dealing with Herb's young trophy wife he found in Thailand a few years back, who could care less about Indianapolis.

Anonymous said...

We taxpayers should sue to void this contract (and most of the Pacers' perks) as unconscionable.

Unknown said...

"If the proposal of the CIB to buy the team is denied, the assessments were made by three appraisers. If the appraised value of the Pacers is 110% or more of the proposed CIB, Simon heirs will be free to terminate the new Agreement. "glad this news, although I do not understand the content of the event free of yourself .. want to do.