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Paul Allens Rose Garden: Under new ownership

Good riddance, Paul Allen's people say.

For most of the late 1980s and early '90s, Paul Allen and his top executives planned for and wrangled with city officials over the construction of what finally would become Portland's state-of-the-art, $262 million Rose Garden arena in 1995.

And at one minute before midnight Friday, Allen walked away from it Ñ and the $46 million of his own money that helped build it.

At that moment, the Rose Garden became the property of a national group of insurance companies, pension funds and other financial companies that helped Allen's company build the arena, mostly for Allen's Portland Trail Blazer basketball team.

And the Trail Blazers became, for the first time, just tenants in the House that Paul Built.

Yet the people who work for Allen don't seem too brokenhearted about it.

'It made no sense for him to continue ownership of the building,' said J.E. Isaac, president of Allen's Oregon Arena Corp., which owned the building until it was officially transferred to the financial companies at 11:59 p.m. Friday.

'At the end of the day, we lose less money,' said Steve Patterson, president of the Portland Trail Blazers Ñ an entity that has been losing plenty of money apart from any arena issues.

Some suggest the Blazers may be giving up more than just a chance to lose money Ñ that, in fact, Allen's surprising decision to put Oregon Arena through bankruptcy proceedings early this year now means he and the Blazers are giving up arena revenue that many sports team owners rely on for a large part of their profits.

Still, the ownership transfer happened, the culmination of the February bankruptcy filing by Oregon Arena Ñ a company wholly owned by a man worth $21 billion, according to Forbes magazine.

Debt reckoning

The bankruptcy was driven by Allen's attempts to restructure the $15 million annual payments that Oregon Arena was required to make to the insurance and other companies who bought $155 million worth of bonds that helped Allen build the arena nine years ago.

The two sides first tried to negotiate how Oregon Arena might retire the debt without paying the 8.99 percent annual interest that Allen executives agreed to in 1995. But in the end, Oregon Arena agreed to give all its assets Ñ including the Rose Garden Ñ to its creditors.

The ownership transfer means Allen and the now-dissolved Oregon Arena Corp. are out from under their colossal annual debt payments, and means Allen is out from under a company that Allen executives have said has made money in only two of the nine years that the Rose Garden has been open.

However, the transfer also leaves the Trail Blazers in an unusual position in the professional sports world Ñ a position to get almost no revenue from the arena where they play.

The Blazers get revenue from television contracts as well as getting most of the revenue from their general ticket sales. But in an era when sports team owners make tens of millions of dollars in revenue from luxury suites and special seating in their arenas or stadiums, and additional millions from companies for the rights to display their names prominently, Allen and the Trail Blazers now will have the rights to none of that.

That's because the lease between Oregon Arena and the Trail Blazers Ñ a lease between two companies formerly owned by the same man Ñ called for Oregon Arena to get all that revenue. Allen's creditors now will assume Oregon Arena's lease with the Trail Blazers and pocket those revenues.

Andrew Zimbalist, who teaches sports economics at Smith College in Northampton, Mass., said he knows of 'no situation quite like that.'

Most professional teams either own their own arenas or stadiums or 'have what they call a master lease Ñ which enables them to behave as if they own it,' Zimbalist said. 'They completely manage it and get all the revenue from it.'

The Washington Redskins' revenue from premium seating at their new stadium, for example, was estimated to be $75 million in 2004.

In 2002, New Orleans lured the Charlotte Hornets basketball team away from Charlotte and into the publicly financed New Orleans Arena by promising the Hornets rent-free use of the facility, along with 100 percent of the advertising revenue, and 100 percent of the revenue from the arena's 56 luxury suites and 2,800 premium seats.

Zimbalist estimated that revenue from luxury suites and special club seats provides an average of about one-tenth of revenues for most professional teams.

If Forbes magazine's recent annual estimate of NBA teams' revenues is accurate Ñ it estimated Blazers' 2003-04 revenue at $88 million Ñ then Oregon Arena's revenue of roughly $34 million in the fiscal year that ended in June would represent about one-fourth of Allen's combined Blazers-Oregon Arena revenue.

Lousy lease

No one needs to convince Patterson, who became Blazers president in June 2003, that the Blazers' lease with Oregon Arena is unusual.

'The Blazers have, by far and away, the worst lease in all of professional sports,' he said, citing the revenue that the lease diverted away from the Allen-owned Trail Blazers to the formerly Allen-owned Oregon Arena. 'It's the least favorable lease to a professional sports team in all of professional sports.'

But Patterson disagreed that there would have been any advantage to Allen to keep Oregon Arena's luxury suite and other revenue streams Ñ while at the same time being saddled with the annual debt payments.

'It's like that money doesn't exist,' Patterson said of the Rose Garden revenue. After arena operations' cost, 'it all went to the debt service,' Patterson said.

'Even when the suites were 100 percent sold out, and the courtside seats were 100 percent sold out, and the preferred level seats were 100 percent sold out, it was never enough money to meet the debt service obligations.'

Sales of suites and preferred tickets, meanwhile Ñ which have been hampered for the last couple of years by the Portland economy and the Blazers' waning popularity with fans Ñ still are struggling.

Isaac Ñ among only a handful of Oregon Arena employees not hired on by the new owners Ñ said that of the 70 luxury suites, 30 remain unsold, and of about 2,500 'preferred' seats, about 1,000 remain unsold.

Those problems aside, Patterson and Isaac said they question whether Allen's former creditors Ñ who have hired arena owner and manager Global Spectrum of Philadelphia to manage the Rose Garden Ñ can make as much money from the arena as the money they could have made from a renogotiated financing deal with Allen.

'You can make some money but you're never going to make back the principal and lost interest,' Patterson said. 'And you have to assume all the risk in the meantime É and an open-ended (capital improvement) obligation for the next 20 years.'

Rich Josephson, a lawyer for the former creditors, said the creditors believe the arena is worth more money to them than Allen's last offer to settle his debt Ñ which amounted to about $85 million. Josephson said the creditors also believe Global Spectrum can help them generate significantly more nonbasketball revenue from the arena.

Oregon Arena managed the Rose Garden 'first for the Trail Blazers and then for other activies,' Josephson said. 'And we just think that Global Spectrum, with its broader contacts throughout the entertainment and sports industries, will do a better job of deriving revenue from the facility than Oregon Arena did.'

Some capital obligations, however, already exist.

The federal bankruptcy judge ruled that the new owners would need to embark on significant renovations to the Rose Garden to maintain it as the 'first-class' facility required in Oregon Arena's land lease with the city. Trail Blazer lawyers have argued needed renovations amount to more than $40 million; the former creditors' lawyers have argued the needed renovations amount to closer to $20 million.

Said Patterson: 'My focus is really trying to make sure that the bondholders will live up to the obligations they have to the city and the community and the Trail Blazers and the Trail Blazer fans to keep this a first-class facility. That means they're going to have to spend a bit of money.'

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