Bird, perhaps the most respected and beloved basketball figure in a state obsessed with the sport, will leave his job as the Pacers' president of basketball operations at the end of August. He spent four years building the team into an Eastern Conference contender and was this season's NBA executive of the year, but is instead moving on after saying just a month ago that he was willing to stay.
Bird said health issues were among the reasons for his departure. He said he may need shoulder surgery and cited longstanding issues with his back.
"I just think it's time," he said at a news conference Wednesday as the team announced an executive reorganization.
Bird said was prepared to leave last year with the organization headed in the right direction. He and owner Herb Simon had discussed his eventual departure for a few years. Bird also said that payroll issues with the small-market Pacers did not affect his decision.
"(Simon) knows to get to the next level we're going to spend some money," Bird said. "Every time I went to Herb about a player or about money to spend, he questioned it. And he should. At the end of the day, he always said go ahead and do what you have to do to make this team better. That's the support you need. ... We're going to spend money."
Bird said he plans to take a year off and get healthy before he evaluates his situation. He did not rule out a return to basketball. Owning a team used to be a goal, but he said he no longer has that interest.
Simon said he had hoped to keep Bird, who will stay on for the draft when the Pacers are scheduled to pick No. 26 overall in the first round Thursday night. His contract expires Aug. 30.
"I feel sad (with) the announcement that Larry's going to be leaving us," said Simon, who continued to talk to Bird about staying as late as Monday. "Larry could have stayed here as long as he wants, but he has his own reasons. The Pacers organization appreciates everything he's done for us in his nine years. We wish him the very best and hope that we can still be associated with him in the coming years."
The 55-year-old Bird was the Pacers coach from 1997-2000, taking the team to its only NBA Finals appearance that final year before he returned to the team's front office in 2003. He took full control as president of basketball decisions after the 2007-08 season, when Donnie Walsh left to become the New York Knicks' president.
Walsh is returning as the Pacers' president. Kevin Pritchard, the director of player personnel, is being promoted to general manager, replacing David Morway, who resigned Tuesday. Walsh said he won't travel the country to evaluate collegiate prospects, leaving that to Pritchard.
Simon first seriously talked to Walsh about the job two weeks ago.
"It was a good fit," Walsh said. "When Larry decided to go, it was easy for Herb to look at me and I felt natural in coming back here. I had gotten used to, hey, maybe I won't do it again. So, I had to rethink that again. "(I would have been interested in another team) only if it was a real situation for me where I knew I'd fit. I'm not just throwing my name out for jobs. I wouldn't do that."
Bird had said just a month ago that he wanted to stay and expressed interest in a three-year deal rather than the annual "handshake" agreements he had with Simon.
It wasn't to be, and now the Pacers will look to continue their resurgence. Under Bird, the Pacers went 36-46 in 2008-09 and 32-50 in 2009-10 and then, two seasons ago, the Pacers were 17-27 when Bird fired coach Jim O'Brien in what proved to be a spark.
Interim coach Frank Vogel then took a young team with core players Danny Granger, Roy Hibbert, Tyler Hansbrough and Darren Collison and guided it to the playoffs. The Pacers challenged the Chicago Bulls before losing the first-round series 4-1. This year, Indiana beat Orlando easily in the first round before falling to eventual champion Miami in six games.
Bird, of course, is as well known in Indiana as John Wooden or Bob Knight. The former Indiana State star from tiny French Lick won three MVP awards and three NBA titles during his Hall of Fame career with Boston.
As the Pacers' president, he took a franchise humbled by the brawl between Pacers players and Pistons fans in 2004, made a series of difficult trades to get rid of troublemakers, rebuilt through the draft and returned the Pacers to the Eastern Conference semifinals this season. It was Indiana's deepest post-season run in seven years.
The franchise with a tarnished image is now one of the league's most promising teams despite its small-market status. Bird built the team the old-fashioned way — by drafting players (Paul George and Hansbrough) and developing them through the team structure, making shrewd decisions to trade for others (George Hill and Collison) and finding affordable free agents (David West).
The Pacers, well under the salary cap, are expected to be a significant player in free agency.
Freelance writers Kareem Copeland and Cliff Brunt in Indianapolis contributed to this report.