PGE Park: What went wrong?
Warning signs were there for PGE Park operators and the city
In hindsight, the omens were there from the very beginning: Among the things on which Portland Family Entertainment based its lofty expectations were promises from the likes of Andrew Weiderhorn and Enron Corp.
Weiderhorn, as head of Wilshire Financial Services Group, became a disgraced example of late-1990s excess. Enron became the poster company for corruptive greed.
For its part, PFE has become an acronym synonymous with spectacular city-sanctioned failures.
For now, Portland Family Entertainment remains the official operator of PGE Park and owner of both the Triple-A Portland Beavers and soccer's Portland Timbers. But after just two seasons, it is clear that PFE and the city couldn't overcome several early missteps.
The city now is considering buying the Beavers from either TIAA-CREF, the New York-based primary lender for PFE, or the Pacific Coast League, which could take over the franchise.
If the city cannot reach a deal or find a private owner for the team, the PCL could take over the team's operations.
Sources Ñ most preferred to remain anonymous Ñ said the deal, which culminated with great fanfare in late 1999, failed for three key reasons:
• Yearly revenue projections, formulated by the city and PFE, were wildly unrealistic.
• A secretive negotiating process denied public testimony that might have inspired closer scrutiny of those projections.
• Special interests forced the endeavor to continue despite several monumental setbacks.
There's more: PFE general partners Marshall Glickman and Mark Gardiner were blasted for hiring a 55-person staff Ñ about twice as many as dictated by minor league custom.
Some thought that the number-savvy Gardiner, a longtime finance manager for the city of Portland, failed to adequately provide a voice-of-reason yin to Glickman's bombastic yang. Whereas Gardiner served as the group's financial expert, Glickman built his reputation for salesmanship while working with the Portland Trail Blazers.
And many think that while Portland isn't a bad baseball or soccer city, it's not a great one.
Debut, debt and default
Fans responded well initially when the renovated PGE Park opened in April 2001. Since then, attendance has not met Portland Family Entertainment's original estimates.
It hasn't been enough to combat PFE's debt load issues Ñ payments,
interest, lender pressure Ñ relative to the $26 million in loans it took out. The loans financed the purchase of PFE's teams and establishment of its large staff and plush downtown offices and served as the partnership's contribution to PGE Park's renovation.
In dealing with its bank lender, Portland Family Entertainment fell behind in its rent payments to the city. The city declared PFE in default last month.
PFE's limited partners Ñ including Peter Stott, chief executive officer of the forest products company Crown Pacific, and auto magnate Scott Thomason Ñ have said they'll walk away from their $10 million-plus in PFE investments.
Whereas PFE's problems certainly became more pronounced in recent weeks, the group faced huge early hurdles, sources said.
Talk of the Pacific Coast League's return to Portland began in 1998. The Metropolitan Exposition-Recreation Commission, which managed Civic Stadium, formulated a plan to renovate the structure while keeping it publicly managed.
That August, Portland Mayor Vera Katz announced that she wanted to renovate the stadium while giving its operations to a private contractor. Two days later, Glickman announced plans to bring professional soccer to Civic Stadium.
'All of a sudden, nothing happened with our plan because this other process took over,' said Gary Conkling, then a MERC commissioner.
The process seemingly sped up because Glickman, whose real intentions dealt with baseball, not soccer, had broached the idea of a Triple-A stadium with Hillsboro officials. Katz, who wanted Glickman's marketing acumen to remain in Portland, acted quickly.
Two groups responded to the city's request for proposals: the CS Group, which wanted to attract big league baseball to a revamped Civic Stadium, and PFE.
A former PFE employee said Katz 'took Marshall at his word' that he could generate huge profits for the city. Said the source, 'The rumor was that his was only the second- or third-best deal on the table.'
Yet the city quickly dismissed the CS Group and began negotiating an operating agreement with Glickman and Gardiner. Initially, the plan called for PFE to contribute as much as $22.5 million, or half the anticipated costs, for the stadium's renovation.
Dollars and secrets
Negotiations began, to the dismay of many, in secret, cloaked by a confidentiality agreement.
Said one City Hall insider: 'I think it was more poor communication than willful intent to hide anything from the council. Still, we were pretty far down the road, and by the time we found out anything, we didn't really have much of a choice.'
John Hoover, the Multnomah County district attorney whose disclosure order forced the city to reveal the deal's specifics, saw no reason for the numbers to be hidden.
'It may be there should have been more public hearings on it,' Hoover said. 'I didn't see a smoking gun, except that these revenue projections were quite rosy.'
How rosy? Based on numbers that PFE supplied it, the city determined that various events at PGE Park would earn it nearly $20 million over the life of the 20-year deal. Better yet, those figures indicated that the city could reach the break-even point on bonds floated to finance the renovation in just 11 years.
Even better, PFE's partners expected to break even on their initial $12 million-plus investment after just five years. The deal was supposed to earn them nearly $48 million over the 20-year deal.
Even though the projected revenues, based largely on an estimated 6,500 fans per each of 72 Pacific Coast League games, looked too good to be true, few were willing to say so.
The Portland Rockies, a short-season Class A team that played at Civic Stadium from June until September, averaged more than 5,000 fans; a Triple-A team with the capability to sell luxury suites seemed to some, in comparison, seductive and lucrative. Plus, there would be added revenue from soccer, concessions and concerts.
'I think there were a lot of people who suspended their doubts because of the character and stature of the partners,' said Branch Rickey, the PCL's president. 'We needed to be a lot tougher taskmasters.'
According to another longtime local baseball observer, the total projected revenues for the stadium, estimated at about $12 million during the deal's second year, were about $4.5 million too high.
The city reportedly believed that the PFE revenue projection Ñ known as pro formas Ñ was validated in four ways: Conventions Sports & Leisure, a Minneapolis-based consulting firm, OK'd them; PFE's limited partners were willing to invest more out-of-pocket cash; the Pacific Coast League didn't object; and TIAA-CREF agreed to offer loans after the Wilshire connection vanished.
As the city crunched its numbers, Glickman dropped a shocker: Enron Energy Services had yanked a $5.7 million oral pledge. Glickman and Gardiner had used the promised money as an example of their ability to raise private-sector cash.
Sources said Glickman thought that Enron's money would be exchanged for various energy-related contracts within the stadium. The money actually would have been a loan, the sources said.
Around the same time, the city sought more guarantees in the deal. Its hard-line negotiators, attorney Steve Janik and consultant Larry Dully, began escalating Portland Family Entertainment's requirements.
One source close to the deal said PFE originally had agreed to pay the city $500,000 a year in rent and a 6 percent user fee on stadium ticket sales. Janik and Dully boosted those respective figures to $908,000 yearly and 10 percent.
Armed with PFE's incandescent pro formas, the negotiators may have sought more guarantees when it became obvious that PFE could not contribute half the renovation costs. Bonds backed by a lodging tax hike ultimately funded 90 percent of the renovation.
A sale derailed
In July 1999, the city and PFE finalized their plan. PFE agreed to oversee the stadium's renovation, operate the stadium and purchase minor league baseball and soccer teams.
In exchange, PFE would pay the city several fees, including rent, ticket proceeds and 18.75 percent of its gross revenues exceeding $10.7 million.
The glitches, naturally, kept coming. In November, PFE had neared a deal with Calgary Cannons owner Russ Parker to purchase the team for $8 million. An insider said that when Parker reneged, a frustrated Glickman approached Stott and Thomason about possibly starting over from scratch.
Glickman, the insider said, feared that PFE could not meet a Dec. 31, 1999, deadline for acquiring a Triple-A team.
Stott allegedly insisted that Glickman find another team before the deadline because Stott, a major Portland State University backer, wanted PGE Park renovated in time for the Viking football team's 2001 season. Stott, the insider said, feared that delaying the project would kill it altogether.
So PFE paid $11.4 million Ñ 33 percent more than it would have paid for the Cannons Ñ for the Albuquerque Dukes.
Things between Glickman and Stott remained tense during the rest of Glickman's tenure, the source said.
In the end, Conkling thinks that PGE Park is a pleasant baseball spot but struggles with football and soccer. Many of its suites sit far away from the action, in the northwest end zone corner.
Maria Rojo de Steffey, a Multnomah County commissioner and MERC's former Civic Stadium manager, agrees. She further argues that PFE's problems cast doubts on whether Portland can sustain a major league baseball team.
'I didn't believe that small facility could accommodate what people were dreaming about,' she said. 'And contrary to popular belief, I don't think we can sustain more sports in Portland.'