Timbers deal features fuzzy finances, dubious demolition

The Portland Timbers soccer stadium mess is turning into, well, a bigger mess, with questions about both the financing plan and the site for the new minor-league baseball stadium that would be built as part of the deal.

Starting with the financing: The Oregonian yesterday ran a wordy analysis of the economics of the twin-stadium deal, noting that while Timbers owner Merritt Paulson has promised to guarantee $31 million in rent payments and ticket taxes that are supposed to help fund the $88.8 million project even if the team (or MLS) doesn’t last another 30 years, much of those will go to pay existing debt on renovation of the team’s current stadium. That means, writes the paper, that “the city will have to rely on revenue from Portland Trail Blazers ticket taxes and parking proceeds — or, if those fail, the general fund — to cover about $20 million in baseball and soccer bonds.”

It’s of particular concern, say reporters Helen Jung and Ted Sickinger, because the city’s economic impact study of projected tax revenues from the project is “peppered with basic math errors” and “assumptions that change from page to page,” though they didn’t supply details. (Consultant Brian Harris explained — I swear, you cannot make this stuff up &mdash that this was because he was keyboarding figures into a spreadsheet during an airplane flight, and while he was sick.) Paulson’s projections — which the economic impact study was supposed to verify — include a 50% jump in attendance for his minor-league Portland Beavers franchise in their new home, as well as the Timbers clearing an operating profit in their first year, “despite the fact that 10 out of 13 Major League Soccer teams recorded operating losses in 2007,” notes The Oregonian.

On the city’s end, meanwhile, that suddenly unguaranteed stadium borrowing turns out not to be your garden-variety municipal bonds:

For a majority of the new borrowings, the city plans to issue the municipal equivalent of a subprime interest-only loan. For years, it would make no payments on the debt while interest accumulates at an estimated 9 percent. Then it would retire the loan with a series of increasing balloon payments in later years through 2035.

The structure is so unusual that the city’s debt manager isn’t sure anyone would be willing to buy the bonds. That’s where the Paulsons have stepped in again.

Paulson and his father, Henry Paulson, a former investment banking chieftain and U.S. treasury secretary, have pledged to help find a buyer.

With all this going on, the Portland city council has delayed by a week a vote originally scheduled for tomorrow to finalize Paulson’s development agreement — but not because of concerns about the financing. Rather, the council wants to consider concerns of preservationists who want to save the Memorial Coliseum. The Coliseum, former home of the Trail Blazers, is currently home to the minor-league hockey Portland Winter Hawks and lacrosse Portland LumberJax, who may have trouble booking dates at the Blazers’ new Rose Garden — and who have lease clauses guaranteeing them a year’s notice before they’re evicted, clauses that the city may have to buy out if it intends to demolish the 49-year-old arena.

And meanwhile, the $15 million funding hole remains. See why I’m always warning that stadium deals are never over until they’re over?

10 comments on “Timbers deal features fuzzy finances, dubious demolition

  1. Actually the deal looks like it is shaping up. We may have a compromise on the Memorial Coliseum and the county has been continuing discussions with the council regarding the original URD.

    Sure you have to act all doomsday and sensationalist, but this deal is almost out of the woods at this point.

    And if you know much about stadium financing plans, I’m sure you know that many of the deals that work out just fine have an initial period where not all the details are hammered out and various options are considered.

    But for some reason you are acting like this phase is not part of the negotiation process.

    Please try harder to give us a more realistic / less sensationalized view on the situation.

  2. If anything is clear about typical stadium deals, it’s that once you’re out of the woods, there’s only more woods.

    I’m not making any predictions about whether this will/won’t get resolved eventually, but it’s not there yet.

  3. “Consultant Brian Harris explained ÔøΩ I swear, you cannot make this stuff up ÔøΩ that this was because he was keyboarding figures into a spreadsheet during an airplane flight, and while he was sick.”

    Where did they find this guy? The Indianapolis CIB? Does Oregon have a Richard Brodsky that could hound this guy in hearings?

  4. If we’re going to take out sub prime loans as a city and use the general fund, let’s use it on useful stuff and not a playground for Henry Paulson’s family.

    This just doesn’t smell right. Numbers aren’t right, assumptions are goofy and wildly unrealistic, and in a state with the 2nd highest unemployment in the country we’re talking about building a stadium for two minor sports. What? Paulson’s guaranteeing money with money he’s already guaranteed, and something tells me this person he finds to finance the bonds is going to be a huge benefit to himself, and little benefit to the city.

    There’s many other things here us to spend money on – schools, bridges, mass transit. We have three bridges that desperately need replacing, and somehow that takes YEARS of debate. Two stadiums for minor sports gets pushed through in a month? We need to get our priorities straight. The Paulson’s can make their own money, they don’t need Portland to print it for them.

  5. A lot of Portlanders are behind this because of the construction jobs this will provide. Job creation is an important benefit of this in these tough times.

    Also, the money used for this cannot be used for other things like bridges, potholes or services for the poor. The stadiums do not detract from that in anyway, but opponents are trying really hard to make that claim, using Bush-Administration like repetitive talking points with no facts to back them up. Just repeat and reapeat and repeat until the lie becomes perceived as true.

    That’s what makes me sick. Not some private investor who is contributing $65 million of his own money, part of which goes into construction on a stadium he doesn’t own.

    Keep in mind that the intial funding agreement and MLSs selection of Portland was – in their own words – due to the broad support for the plan in Portland.

    Outsiders cannot get a sense of what half a million Portlanders think from just a few editorials and poorly informed articled designed for shock value to sell papers. Real Portlanders are behind this because it is one of the few plans that has any chance to turn around our economic fates.

    Nobody believes that ‘do nothing’ is a solution.

  6. I read the article. I find it strange that Randy Leonard says that “the Blazers revenue is safe” even though the NBA is staring down the barrel of a prolonged lockout.

  7. @Mary-Beth

    You are confusing a lot of different things. Good ideas can have broad support but so can bad ideas. The key thing is informed support and judging by your post you are not thinking this through (and your “Bush adminsistration tactic” of rallying around loaded terms like “Real Portlanders” is proof).

    Portland could build giant monkeys, huge arches, a quilting museum, or giant holes and they would all create “construction” jobs. But the view has to be much more long-term than that and creating fiscally irresponsible bond structures is a really bad idea for the future of Portland.

    The only thing that increases the economic well-being of an area is an increase in productivity (you do not get that by temporarily creating decent construction jobs and permanently creating low-wage temporary jobs). To make a full estimation of the benefit for Portland you would have to know the long-term impacts of the alternate uses of the city’s money. I would imagine any investment in schools would bear much more productive fruit in the future (but there are a lot of other things that would as well).

    I have no idea why you think that the money cannot be used in other areas.

  8. I’m not sure which Portland Mary-Beth lives in, but her assertion that “Real Portlanders” support this deal is total hot air… like most of the claims made by the pro-MLS forces.

    Let’s see: they’ve claimed that Paulson is “guaranteeing” the costs. Which would be a lie.

    They’re claiming that this will create jobs. Now we know that’s a lie too.

    The reckless soccer proponents claim that these two projects are “shovel ready,” a phrase that normally means plans and approvals are in-hand. Another lie.

    They’re maybe most careless with issues surrounding use of urban renewal bonds. They claim that this project doesn’t impact other programs, and that this is just “free money” intended for precisely this sort of thing. Wrong on both counts.

    But hey, let’s get past the timber fans’ inability to tell truth from fiction. Let’s look at the big issue here: Timber fans are willing to mortgage this city’s future on a silly and probably doomed project.

    I hope it’s THEIR street that doesn’t get paved and THEIR kid who gets to sit on a box in a 50-kid classroom that was designed for 20.

    If these people really gave a rats-#@# about jobs and economic development in this city, they’d ask the question: what ELSE could be bought for $88M? What jobs would be created if we put the same amount into something else?

    If we can stretch the definition of “urban blight” so far as to include a soccer stadium in the richest part of the city, why can’t we stretch it to include creating the best science and engineering high school in the world? Why not create an alternative transportation partnership that will pool public and private R&D resources for the benefit of companies locating here? How about $88M in small business startup grants?

    Come on, people. There are some serious problems in this city, and your frivolous and selfish attitude about this project is helping to turn this city into a %$#&hole. (Please resist the urge to turn this city into whatever %$#&hole you lived in before you came here.)


  9. Yes, Paulson is so gracious to put up his own money for a stadium he doesn’t own. So much that he’s guaranteeing to pay money he already guaranteed to pay. Wow. He will, in essence, own the buildings. Why? What else do you use a baseball stadium for? It’s good for hosting baseball games and…taking up space. Same with a soccer stadium.

    I’m not 100% against these projects, but let’s at least plan this out. The city council takes YEARS to plan out bridges, MAX lines, streetcar lines, schools, and other public works, yet is willing to spend $100 million (and it will hit $100 million with cost overruns) for a private company in a month? Who would do that with their own finances?

    Portland’s better than this. Let’s not fall into the same trap that every other city that’s paid for stadiums has.

  10. There are many questions left to be answered for sure… and I always remember what my friend Maury Brown says, “It’s not over until the shovel hits the dirt” (and even then it’s not over).

    That being said, a lot of the reporting on this has been dubious. When pressed about the supposed “math errors”, the only specific item the reporter could come up with was that an estimated attendance figure (at PGE Park I assume) changed from 210,000 to 210,900. Who cares.

    Also, to Jimmy P’s comment – Paulson is on the hook for cost overruns exceeding $2.5 million, so your comment is inaccurate.