Sometime in the next few days, Indiana Gov. Eric Holcomb—aka the guy who took Mike Pence’s job when Pence ascended to the Old Executive Office Building—is expected to sign a bill extending the Indiana Pacers’ lease in Indianapolis through 2044. In exchange for agreeing to have his team play where it always has, Pacers owner Herb Simon—aka the billionaire developer who turned failing downtown department stores into a failing downtown mall—will accept $295 million in immediate taxpayer cash to upgrade the arena, plus a $12 million check every year for 10 years for “technology upgrades,” plus 25 years’ worth of $14.5 million annual operating subsidies. Total value of Simon’s subsidy windfall, in 2019 dollars: about $600 million.
In any universe, that would be a pretty staggering price to pay for the privilege of watching first-round exits well into Victor Oladipo’s dotage. In this one, though, it’s merely the latest and biggest payoff in a series dating back to the construction of what was then the Conseco Fieldhouse only 20 years ago:
- 1999: Simon receives $79 million in public money (or maybe $191 million, if you count all the hidden subsidies like property tax breaks, which you should) toward a new $200 million arena, for which his team will keep all revenues and pay $1 a year in rent.
- 2010: With nine years to go on his 20-year lease, Simon gets another $33.5 million to agree not to opt out of his deal for another three years.
- 2014: Simon extends the Pacers’ lease through 2024, in exchange for $160 million more in public cash.
- 2019: Oh hell, let’s just make it 2044, and you can give me another $600 million.
This, it should be immediately apparent, is a far more reliable method of making money than running half-empty shopping malls. Getting elected officials to ladle public cash over you in order to build a new stadium or arena is a well-established grift by now, but since new buildings only come along every 30 years—maybe 20 years, if you’re lucky—demanding regular payments to keep playing in them is a great way to pad your wallet in the meantime.
It’s such a great way, in fact, that more and more sports team owners have been taking a pay-to-play approach, effectively renting their teams’ services to their host cities. Phoenix Suns owner Robert Sarver just agreed to accept $168 million to keep his team in town for an additional 15 years; Carolina Panthers owner Jerry Richardson, shortly before stepping down after revelations that he was a horrible all-around human being, took $87.5 million for a six-year extension; Atlanta Hawks owner and Jami Gertz hubby Tony Ressler got $142.5 million in exchange for 18 more lease years. All of these teams were playing in relatively new homes at the time, none of which stopped their owners from demanding to be paid to play in them.
When team owners strike deals for stadium and arena subsidies in the first place, they invariably promise that this will secure the team’s future in town. For Simon’s drive for a new Pacers arena in the 1990s, this took the form of the classic non-threat threat: Even as team president Donnie Walsh promised that “we never wanted to be perceived as saying we would get up and leave if we don’t get a new building because we never had any intention of that,” team VP David Kahn was claiming Simon was losing money, and “there has to be some sort of solution, and I think people can extrapolate what that solution would be on their own.” Mayor Stephen Goldsmith was blunt: “Either we would have the Pacers and a new arena or an empty old arena.”
At the time, Goldsmith was a hotshot young technocratic “reinventor” whose signature move was privatization: Upon reaching City Hall, he promptly sold off public pools, public golf courses, and wastewater treatment plants, none of which worked out very well. For the Pacers’ new arena, he provided a 20-year lease—a good decade shorter than most arena leases—while adding an opt-out clause that would allow Simon to leave sooner if the team could show losses.
But handing a franchise an opt-out clause, it soon became clear, wasn’t just an insurance policy for the team. It was also a loaded gun: Team owners don’t have to leave town, or even break their lease, because by merely threatening to do so, they can extract ever more money. That’s how Simon kept collecting additional payments for the Pacers; it’s also how Robert Sarver raked in taxpayer cash from Phoenix despite a lease that wasn’t supposed to run out until 2032.
Goldsmith apparently really really liked opt-out clauses, in fact, because he also inserted one into Indianapolis Colts owner Jim Irsay’s lease at the Hoosier Dome. Within a few years, Irsay had converted that leverage into a new stadium with the biggest public subsidy in NFL history; he’s now talking about maybe asking for an even newer stadium, with the aid of yet another opt-out clause that would let the team bolt if they’re not among the top five NFL teams in revenues in 2030. (SPOILER: They won’t be.)
Goldsmith is long gone from Indianapolis now, having left for a post at Harvard, then spending a year as an undistinguished deputy mayor in New York before resigning after an arrest for shoving his wife into a kitchen cabinet, and then returning to Harvard, where he is currently director of the Kennedy School of Government’s Innovations in American Government Program, devoted to “recognizing and promoting excellence and creativity in the public sector.” But Goldsmith’s spirit remains alive, not just in the series of state legislators who have approved more and more public cash for Simon’s Pacers in exchange for a few more dribs and drabs of lease extensions, but in the state’s approach to other sports franchises as well: The Pacers bill sitting on Gov. Holcomb’s desk also contains $112 million in subsidies for a new MLS stadium for the Indy Eleven soccer franchise, which close followers of American pro soccer will note is not actually an MLS team, but hopes to be some day, and now will get to enjoy a brand-new stadium while waiting for the day that MLS deigns to accept owner Ersal Ozdemir’s $200 million expansion franchise check, because it accepts them all eventually.
So how do these terrible leases keep happening? A few years back, I asked Jim Nagourney, a former sports management executive who’d been on both sides of the negotiating table— he’d reworked the New York Islanders’ lease on Nassau Coliseum as a county administrator, then later served in the group that extracted possibly the most sweetheart lease of all time, the Rams’ deal with St. Louis that ended up allowing Stan Kroenke to move the franchise back to Los Angeles after just 20 years—why on earth local government officials kept negotiating themselves into corners. His answer: They don’t know what they’re doing, and they won’t ask for help.
“I went to a meeting in Los Angeles one morning,” recalled Nagourney. “We had a whiteboard, and we’re putting stuff down [to demand from cities]. And some of the stuff, I said, ‘Guys, some of this is crazy.’ And John Shaw, who was president of the Rams at the time—brilliant, brilliant guy — said, ‘They can always say no, let’s ask for it.’”
On the other side of the table, Nagourney explained, the city of St. Louis had to make do with staff attorneys, who weren’t versed in the details of sports finance. “A city attorney is not going to know where the money really is. They’re not going to understand advertising, they’re not going to understand concessions—just a whole range of issues that the team officials intimately understand.”
Plus, Nagourney said, city officials get “stars in their eyes. It’s their first time dealing with celebrities. They’re just so enamored with the fact that ‘I’m dealing with people who get their name on Page Six.’”
Talking to me today from his current home state of Nevada, Nagourney adds that he saw the same dynamic in action during an ultimately fruitless campaign he helped lead against the state dumping $750 million on Oakland Raiders owner Mark Davis. After one meeting, he recalls, he spotted Steve Hill, the chair of the stadium authority, and “suddenly there’s a dozen reporters sticking microphones in his face, like he’s general manager of the team. It’s a very heady feeling, for someone who’s been in the concrete business. And the teams know it.”
That’s not the case for every elected (or unelected) official, obviously: There are a handful out there who do push back against sports team demands, and learn that owners sometimes do take no for an answer. Tom Tait, who as mayor of Anaheim in 2014 successfully torpedoed Angels owner Arte Moreno’s attempt to get $235 million worth of stadium parking lot land for the price of $1, says that while some politicians may be angling for their next job in private business, most of the problem comes down to peer pressure.
“Everyone’s at the party, and you don’t really want to be the guy not at the party,” says Tait. “It’s groupthink, and you gotta really be pretty comfortable with yourself to say ‘none of this makes sense.’”
This, maybe, is what explains legislators like Michigan’s John Walsh, the architect of Detroit’s terrible Red Wings arena deal who on HBO Real Sports last week boasted of his “data-driven” analysis—then, when presented with data from actual economists, argued that ultimately “you have to have a level of faith” that goes behind numbers. Though you can’t count out the “angling for the next job” factor there: Walsh left public office to take a job at a nonprofit that lobbies for local Detroit businesses.
If you’re tempted to think that this is progress—TV newsmagazines grilling former elected officials always feels like progress, or at least schadenfreude—consider that Tait, too, is now out of public office, having been term-limited out last fall and replaced by a successor who has openly courted a new deal with Moreno. Nobody especially thinks the Angels owner will demand a new stadium, because those are expensive; but he might just accept a payment to keep playing there, perhaps in the form of discounted development rights on those stadium parking lots. Indiana may stand out as the state where generations of politicians have repeated the same mistakes time and again—blame the tight political-business complex there, or if you prefer, blame Stephen Goldsmith’s privatized drinking water. But now that team owners have latched onto pay-to-play as a means of extracting more public cash, don’t be surprised if it soon arrives at a sports venue near you.
Neil deMause has covered sports economics for more publications than even he can shake a stick at. He’s co-author of the book Field of Schemes: How the Great Stadium Swindle Turns Public Money Into Private Profit, and runs the website of the same name.