I've been curious about this operation for some time, have seen a game live, have seen a lot of things about it.
I'm actually somewhat surprised that Indiana is giving up, from appearances. http://www.indystar.com/articles/6/177214-1556-036.html
I say somewhat surprised. Many moons ago, Boise's sports talk radio hack had this dream of bringing an AFL team to Boise, until he talked to an official for the then Portland Forest Dragons. What was described was a break-even attendance of 12,000 at the average ticket prices, which were a little higher than what the league liked to let on when the Forest Dragons played in Portland. (The hack was thinking of the covered pre-fab Idaho Center, nominally a rodeo arena, west of Boise, seats 13,000)
That description was prior to the labor negotiation that threatened to cancel a season a handful of years back. The players won some concessions in that negotiation. Ticket prices may have increased as well, so I've only got a vague idea that the break-even number probably hasn't gone down. We just know that Indiana never broke 12,000 per game in any year.
AFL expansion has worked fairly well the last two years, with Denver selling every seat in 2003 and Philly, Columbus, and New Orleans leading in attendance in 2004, but the team in Denver already dropped about 2K per game in 2004 (the indoor lacrosse team in Denver outdrew the Crush). The history for the league is that the first year defines how long it takes for the team to slide down to inevitable doom, except for the small handful of teams that have maintained crowds through thick and thin. The league survives by constant re-expansion.
The NBC TV contract seemed to help matters for the league, except there were concerns that NBC would not renew because the ratings were, well, about what you'd expect (1-ish after the initial curiosity). Then NBC renewed, and for four years, but one of the staff at NBC issued a bit of a warning that things must improve- a weird little mixed signal in my book.
In this environment, Indiana folding isn't reassuring, especially at this point. There are rumors flying about Detroit right now, Carolina seems to be in a position to fail any time now, Grand Rapids had to make a point to their fans to say that they'd be around in 2005, and Georgia is moving back to Philips Arena (Georgia was drawing 2K better in suburban Gwinnett than they did in their first year or two at Philips).
Does this league keep on keeping on the way it always has? Or are rumors of the demise of this league taking hold?