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Plenty of venues by Kayo
Lucas Oil Stadium, Bankers Life Fieldhouse, Hinkle Fieldhouse (Butler, 9100 seats), and Indiana Farmers Coliseum (IUPUI, 6500 seats). Bloomington (IU) isn't much more than an hour away. Add another 15-20 minutes to the ride for Terre Haute and Indiana State.
Seating capacity won't matter if attendance is limited to families and AD staff, and it doesn't matter much for many of the early round games because they don't draw much in the best of times.
If the NCAA wants to pick a single city, Indianapolis is a good choice.