Rose Garden arena bankruptcy
Encyclopedia
The Rose Garden bankruptcy occurred in 2004 when the Rose Garden in Portland, Oregon
was the subject and primary asset in a bankruptcy
filing, shifting ownership of the arena from billionaire Paul Allen
to a consortium of creditors.
Allen, who owns the arena's primary tenant, the Portland Trail Blazers
of the NBA
, financed the arena's construction in 1993 with a US $155 million loan on what Allen's representatives later characterized as unfavorable terms.
As a result of the bankruptcy, the Rose Garden was operated by its creditors for over two years, during which Allen and the creditors briefly offered the team and its arena for sale. After receiving bids from several investor groups, Allen took the team off the market. By April 2007 the Rose Garden was once again owned by Allen.
. As Allen was unwilling to personally guarantee the loan, the lenders demanded an interest rate of 8.99%, with no opportunity for prepayment. Other major creditors included Prudential Insurance, and Farmers Insurance. A shell corporation
, the Oregon Arena Corporation (OAC), was chartered to oversee the construction and operation of the Rose Garden, as well as operation of the Rose Quarter
as a whole. The sole shareholder in OAC was Allen.
During the 1990s and the early 2000s, the team was successful both on the court and in the box office—twice making it to the Western Conference finals—but a series of questionable and expensive player acquisitions caused many fans to sour on the team, by then derisively called the "Jail Blazers." In addition, the team payroll skyrocketed to over $100 million.
In 2002, a collective bargaining agreement between the NBA and the players' union imposed a luxury tax
on excessive payrolls; this tax impacted the team's finances greatly. In the summer of 2003, Bob Whitsitt
resigned and was replaced as team president by Steve Patterson
; Patterson was chartered with restoring the team's image and bringing costs under control.
ordered on November 8 of that year that the OAC transfer the Rose Garden to the creditors.
Several factors contributed to the bankruptcy. Debt service on the loan was expensive due to the undesirable loan terms, the Trail Blazers were not drawing as well due to negative press and a decline in quality of play. In addition, the local economy affected ticket sales, and a lawyer for the creditors noted that OAC was ineffective in luring non-basketball events to the arena. Many of the corporations leasing skyboxes in the arena (a primary source of revenue) declined to renew leases.
For a while, the Trail Blazers (still owned by Allen) and the Portland Arena Management had a highly hostile relationship, with the two entities competing for ticket sales. Almost immediately after PAM took over the arena, the Trail Blazers demanded that new owners perform US $40 million in renovations to maintain the Rose Garden as a "first class facility."
gave an interview in which he claimed that "all options were on the table" concerning the Trail Blazers as the "economic model" was broken, and noted that without a "public-private partnership", "no businessperson can sustain losses of that kind". Conn noted that the lease agreement with Portland Arena Management gave PAM all revenue from the arena's premium seating (the black courtside seats, as well as luxury box revenue), concessions, and parking, as well as all arena-related revenue for events other than Trail Blazer games. The Trail Blazers retained the revenue for non-premium seating (the arena's red seats) for Blazer games. Paul Allen repeated the claim in an interview in March. Team officials were vague about specifics, leading to much media speculation that Allen might sell the team, attempt to move it, or was lobbying for increased public financing of Trail Blazer operations. In addition to the lease concerns, that season the Blazers posted the league's worst record (21-61), and attendance was below average.
While the financial model may have been broken for the Trail Blazers, it was anything but for Portland Arena Management. Rose Quarter GM Mike Scanlon of Global Spectrum stated that the company was "very happy with how things are going at the Rose Garden", and referred to Global's stewardship of the Garden as a "very positive experience". He noted that the arena did 45 concerts in 2005, and that same year landed another sports tenant, the Portland LumberJax
of the National Lacrosse League
.
met with both Blazer management and PAM in an attempt to repair the relationship. In the spring of 2006, Allen and PAM agreed to jointly market the team and the arena for sale. Fourteen investor groups (including one fronted by Terry Porter
) expressed interest, and paid a US$100,000 application fee. The highest initial bids were in the US$300–$325 million range. However, Allen unexpectedly pulled the team off the market.
It was speculated that Allen agreed to sell the team to learn what price Portland Arena Management would accept from a third party. Others suspected that had advance knowledge of the upcoming purchase of the Seattle Supersonics
by Oklahoma City
businessman Clay Bennett
, and that Allen saw an opportunity to move the Blazers to his hometown of Seattle
should the Sonics move to the Sooner State. In an interview, Allen indicated that the Blazers' strong 2006 draft, including 2006 NBA Rookie of the Year Brandon Roy
, caused him to change his mind about selling the team.
described the affair as a game of "chicken
" and as "bankruptcy as a business strategy", and noted Allen may have worsened his position by taking the arena into bankruptcy rather than offering a higher settlement.
Lewis and Clark College law
professor and noted local blog
ger Jack Bogdanski
was even more unkind, attacking the morality and "character" of a billionaire "weaseling" his way out of a debt that he could easily repay personally, especially at a time when the team was putting an emphasis on the off-court behavior of his players.
Claims concerning the "broken financial model" were similarly mocked. After Blazer management complained about having the "worst lease in pro sports", Dwight Jaynes
of the Portland Tribune
noted that the situation was largely the team's own fault. Helen Jung noted that teams regularly complain about losing money, and suspected that such claims were often a ruse to obtain public financing.
During the bankruptcy period, the team and the state's largest newspaper, The Oregonian
, had an especially troubled relationship. Oregonian columnist John Canzano
and then-Trail Blazers president Steve Patterson
were deeply distrustful of each other. The paper hired an outside editor to investigate the relationship between the paper's sports department and the team.
The Trail Blazers, for their part, maintained throughout putting Oregon Arena Corp. into bankruptcy was the best option for the team. Paul Allen stated that the debt service on the loan was greater than the revenues earned by the stadium, especially in the face of declining attendance. Allen also noted that the creditors, on a loan of $155 million, had recouped $195 million in cash over the years, plus the arena, which the bankruptcy court valued at US$60 million.
. Terms of the purchase agreement were not disclosed.
Portland, Oregon
Portland is a city located in the Pacific Northwest, near the confluence of the Willamette and Columbia rivers in the U.S. state of Oregon. As of the 2010 Census, it had a population of 583,776, making it the 29th most populous city in the United States...
was the subject and primary asset in a bankruptcy
Bankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
filing, shifting ownership of the arena from billionaire Paul Allen
Paul Allen
Paul Gardner Allen is an American business magnate, investor, and philanthropist. Allen co-founded Microsoft with Bill Gates...
to a consortium of creditors.
Allen, who owns the arena's primary tenant, the Portland Trail Blazers
Portland Trail Blazers
The Portland Trail Blazers, commonly known as the Blazers, are an American professional basketball team based in Portland, Oregon. They play in the Northwest Division of the Western Conference in the National Basketball Association . The Trail Blazers originally played their home games in the...
of the NBA
National Basketball Association
The National Basketball Association is the pre-eminent men's professional basketball league in North America. It consists of thirty franchised member clubs, of which twenty-nine are located in the United States and one in Canada...
, financed the arena's construction in 1993 with a US $155 million loan on what Allen's representatives later characterized as unfavorable terms.
As a result of the bankruptcy, the Rose Garden was operated by its creditors for over two years, during which Allen and the creditors briefly offered the team and its arena for sale. After receiving bids from several investor groups, Allen took the team off the market. By April 2007 the Rose Garden was once again owned by Allen.
Background
Ground broke on the Rose Garden in 1993, and the building opened two years later in 1995. The Rose Garden cost $262 million to build, $155 million of which was financed through a loan from a consortium of lenders led by pension fund TIAA-CREFTIAA-CREF
Teachers Insurance and Annuity Association – College Retirement Equities Fund is a Fortune 100 financial services organization that is the leading retirement provider for people who work in the academic, research, medical and cultural fields...
. As Allen was unwilling to personally guarantee the loan, the lenders demanded an interest rate of 8.99%, with no opportunity for prepayment. Other major creditors included Prudential Insurance, and Farmers Insurance. A shell corporation
Shell (corporation)
A shell corporation is a company which serves as a vehicle for business transactions without itself having any significant assets or operations. Shell corporations are not in themselves illegal and have legitimate business purposes. However, they are a main component of the underground economy,...
, the Oregon Arena Corporation (OAC), was chartered to oversee the construction and operation of the Rose Garden, as well as operation of the Rose Quarter
Rose Quarter
The Rose Quarter is a 30 acre sports and entertainment district located in Portland's Lloyd District on the east bank of the Willamette River, just east of downtown. The Rose Quarter is bounded on the west by NE Interstate Avenue, on the north by NE Broadway and NE Weidler Streets, on the...
as a whole. The sole shareholder in OAC was Allen.
During the 1990s and the early 2000s, the team was successful both on the court and in the box office—twice making it to the Western Conference finals—but a series of questionable and expensive player acquisitions caused many fans to sour on the team, by then derisively called the "Jail Blazers." In addition, the team payroll skyrocketed to over $100 million.
In 2002, a collective bargaining agreement between the NBA and the players' union imposed a luxury tax
Luxury tax (sports)
A luxury tax in professional sports is a surcharge put on the aggregate payroll of a team to the extent to which it exceeds a predetermined guideline level set by the league...
on excessive payrolls; this tax impacted the team's finances greatly. In the summer of 2003, Bob Whitsitt
Bob Whitsitt
Bob Whitsitt is a former sports executive in both the National Basketball Association and the National Football League. He has served as the general manager for three teams: the Seattle SuperSonics and Portland Trail Blazers of the NBA, and the Seattle Seahawks of the NFL...
resigned and was replaced as team president by Steve Patterson
Steve Patterson (sports executive)
Steve Patterson is an American sports executive and the former president and general manager of the Portland Trail Blazers National Basketball Association franchise.Patterson joined the Trail Blazers as the team president in June 2003...
; Patterson was chartered with restoring the team's image and bringing costs under control.
Bankruptcy filing
Claiming the local economy was responsible for reduced revenues which made it unable to make payments on the loans used to finance Rose Garden Construction, the Oregon Arena Corporation filed for bankruptcy on February 27, 2004. After negotiations concurrent with the bankruptcy failed to produce a settlement—Allen offered US $90 million, and creditors demanded US $198 million—the United States Bankruptcy CourtUnited States bankruptcy court
United States bankruptcy courts are courts created under Article I of the United States Constitution. They function as units of the district courts and have subject-matter jurisdiction over bankruptcy cases. The federal district courts have original and exclusive jurisdiction over all cases arising...
ordered on November 8 of that year that the OAC transfer the Rose Garden to the creditors.
Several factors contributed to the bankruptcy. Debt service on the loan was expensive due to the undesirable loan terms, the Trail Blazers were not drawing as well due to negative press and a decline in quality of play. In addition, the local economy affected ticket sales, and a lawyer for the creditors noted that OAC was ineffective in luring non-basketball events to the arena. Many of the corporations leasing skyboxes in the arena (a primary source of revenue) declined to renew leases.
Portland Arena Management
As a result of the bankruptcy proceedings, the Oregon Arena Corporation was dissolved and their assets (primarily the Rose Garden and the underyling land) became the property of the lenders on January 1, 2005. The lenders formed a new corporation, Portland Arena Management LLC ("PAM") to manage the property acquired in the bankruptcy proceedings, and hired Global Spectrum to operate the arena.For a while, the Trail Blazers (still owned by Allen) and the Portland Arena Management had a highly hostile relationship, with the two entities competing for ticket sales. Almost immediately after PAM took over the arena, the Trail Blazers demanded that new owners perform US $40 million in renovations to maintain the Rose Garden as a "first class facility."
Effects
One year after the Rose Garden was transferred to creditors, Larry Conn, an executive at Vulcan Inc.Vulcan Inc.
Vulcan Inc. is an investment and project management company founded in 1986 by Paul Allen, co-founder of Microsoft, to manage his investments...
gave an interview in which he claimed that "all options were on the table" concerning the Trail Blazers as the "economic model" was broken, and noted that without a "public-private partnership", "no businessperson can sustain losses of that kind". Conn noted that the lease agreement with Portland Arena Management gave PAM all revenue from the arena's premium seating (the black courtside seats, as well as luxury box revenue), concessions, and parking, as well as all arena-related revenue for events other than Trail Blazer games. The Trail Blazers retained the revenue for non-premium seating (the arena's red seats) for Blazer games. Paul Allen repeated the claim in an interview in March. Team officials were vague about specifics, leading to much media speculation that Allen might sell the team, attempt to move it, or was lobbying for increased public financing of Trail Blazer operations. In addition to the lease concerns, that season the Blazers posted the league's worst record (21-61), and attendance was below average.
While the financial model may have been broken for the Trail Blazers, it was anything but for Portland Arena Management. Rose Quarter GM Mike Scanlon of Global Spectrum stated that the company was "very happy with how things are going at the Rose Garden", and referred to Global's stewardship of the Garden as a "very positive experience". He noted that the arena did 45 concerts in 2005, and that same year landed another sports tenant, the Portland LumberJax
Portland Lumberjax
The Portland LumberJax were a professional lacrosse team in the National Lacrosse League , which started playing in the 2006 season and ended operations after the 2009 season. Announced by the NLL on May 11, 2005, the LumberJax played their home games at the Rose Garden in Portland, Oregon...
of the National Lacrosse League
National Lacrosse League
The National Lacrosse League is a men's professional indoor lacrosse league in North America. It currently has nine teams; three in Canada and six in the United States. Unlike other lacrosse leagues which play in the summer, the NLL plays its games in the winter and spring. Each year, the playoff...
.
Trail Blazers and arena go up for sale
Throughout the spring of 2006, NBA commissioner David SternDavid Stern
David Joel Stern is the commissioner of the National Basketball Association. He started with the Association in 1966 as an outside counsel, joined the NBA in 1978 as General Counsel, and became the league's Executive Vice President in 1980. He became Commissioner in 1984 succeeding Larry O'Brien...
met with both Blazer management and PAM in an attempt to repair the relationship. In the spring of 2006, Allen and PAM agreed to jointly market the team and the arena for sale. Fourteen investor groups (including one fronted by Terry Porter
Terry Porter
Terry Porter is an American professional basketball coach and former player in the National Basketball Association . A native of Wisconsin, he played college basketball at the University of Wisconsin–Stevens Point before being drafted 24th by the Portland Trail Blazers in the 1985 NBA Draft...
) expressed interest, and paid a US$100,000 application fee. The highest initial bids were in the US$300–$325 million range. However, Allen unexpectedly pulled the team off the market.
It was speculated that Allen agreed to sell the team to learn what price Portland Arena Management would accept from a third party. Others suspected that had advance knowledge of the upcoming purchase of the Seattle Supersonics
Seattle SuperSonics
The Seattle SuperSonics were an American professional basketball team based in Seattle, Washington that played in the Pacific and Northwest Divisions of the National Basketball Association from 1967 until 2008. Following the 2007–08 season, the team relocated to Oklahoma City, and now plays as...
by Oklahoma City
Oklahoma city
Oklahoma City is the capital and largest city of the U.S. state of Oklahoma.Oklahoma City may also refer to:*Oklahoma City metropolitan area*Downtown Oklahoma City*Uptown Oklahoma City*Oklahoma City bombing*Oklahoma City National Memorial...
businessman Clay Bennett
Clay Bennett
Clay Bennett is an American editorial cartoonist. Currently drawing for the Chattanooga Times Free Press, Bennett is the winner of the 2002 Pulitzer Prize for Editorial Cartooning....
, and that Allen saw an opportunity to move the Blazers to his hometown of Seattle
Seattle, Washington
Seattle is the county seat of King County, Washington. With 608,660 residents as of the 2010 Census, Seattle is the largest city in the Northwestern United States. The Seattle metropolitan area of about 3.4 million inhabitants is the 15th largest metropolitan area in the country...
should the Sonics move to the Sooner State. In an interview, Allen indicated that the Blazers' strong 2006 draft, including 2006 NBA Rookie of the Year Brandon Roy
Brandon Roy
Brandon Dawayne Roy is an American professional basketball player for the Portland Trail Blazers of the National Basketball Association. He was selected sixth in the 2006 NBA Draft, having completed four years playing for the Washington Huskies. In 2009, he served as the team's co-captain, along...
, caused him to change his mind about selling the team.
Public reaction
The bankruptcy filing was widely criticized in the local media and elsewhere. Helen Jung, a reporter for The OregonianThe Oregonian
The Oregonian is the major daily newspaper in Portland, Oregon, owned by Advance Publications. It is the oldest continuously published newspaper on the U.S. west coast, founded as a weekly by Thomas J. Dryer on December 4, 1850...
described the affair as a game of "chicken
Chicken (game)
The game of chicken, also known as the hawk-dove or snowdrift game, is an influential model of conflict for two players in game theory...
" and as "bankruptcy as a business strategy", and noted Allen may have worsened his position by taking the arena into bankruptcy rather than offering a higher settlement.
Lewis and Clark College law
Law
Law is a system of rules and guidelines which are enforced through social institutions to govern behavior, wherever possible. It shapes politics, economics and society in numerous ways and serves as a social mediator of relations between people. Contract law regulates everything from buying a bus...
professor and noted local blog
Blog
A blog is a type of website or part of a website supposed to be updated with new content from time to time. Blogs are usually maintained by an individual with regular entries of commentary, descriptions of events, or other material such as graphics or video. Entries are commonly displayed in...
ger Jack Bogdanski
Jack Bogdanski
Jack Bogdanski is a professor of law at Lewis & Clark Law School in Portland, Oregon, in the United States. He has taught at Lewis & Clark since leaving practice as a partner with the law firm Stoel Rives LLP in Portland in 1986. In the fall of 1992, he was a visiting professor of law at Stanford...
was even more unkind, attacking the morality and "character" of a billionaire "weaseling" his way out of a debt that he could easily repay personally, especially at a time when the team was putting an emphasis on the off-court behavior of his players.
Claims concerning the "broken financial model" were similarly mocked. After Blazer management complained about having the "worst lease in pro sports", Dwight Jaynes
Dwight Jaynes
Dwight Jaynes is a journalist and sportswriter in Portland, Oregon. He was a sports columnist with The Oregonian newspaper for several years. In 2001, he left to write a column in the fledgling Portland Tribune and to do a daily radio show for KPAM, a talk radio station owned by the same company as...
of the Portland Tribune
Portland Tribune
The Portland Tribune is a free weekly newspaper published each Thursday in Portland, Oregon, United States.The Tribune is part of the Pamplin Media Group, which publishes a number of community newspapers in the Portland metropolitan area, and also owns and operates the talk radio station KPAM, and...
noted that the situation was largely the team's own fault. Helen Jung noted that teams regularly complain about losing money, and suspected that such claims were often a ruse to obtain public financing.
During the bankruptcy period, the team and the state's largest newspaper, The Oregonian
The Oregonian
The Oregonian is the major daily newspaper in Portland, Oregon, owned by Advance Publications. It is the oldest continuously published newspaper on the U.S. west coast, founded as a weekly by Thomas J. Dryer on December 4, 1850...
, had an especially troubled relationship. Oregonian columnist John Canzano
John Canzano
John Canzano is an American sports columnist, radio talk show host on Portland's 750 AM "The Game" and sports columnist at The Oregonian newspaper in Portland, Oregon. He hosts a daily radio show called The Bald Faced Truth.-Career:...
and then-Trail Blazers president Steve Patterson
Steve Patterson (sports executive)
Steve Patterson is an American sports executive and the former president and general manager of the Portland Trail Blazers National Basketball Association franchise.Patterson joined the Trail Blazers as the team president in June 2003...
were deeply distrustful of each other. The paper hired an outside editor to investigate the relationship between the paper's sports department and the team.
The Trail Blazers, for their part, maintained throughout putting Oregon Arena Corp. into bankruptcy was the best option for the team. Paul Allen stated that the debt service on the loan was greater than the revenues earned by the stadium, especially in the face of declining attendance. Allen also noted that the creditors, on a loan of $155 million, had recouped $195 million in cash over the years, plus the arena, which the bankruptcy court valued at US$60 million.
Paul Allen re-acquires the arena
On February 2, 2007, Allen (through his subsidiary Vulcan) and PAM announced that the parties had signed a letter-of-intent for Allen to repurchase the arena. On April 2 of that year, the deal was completed. At that point, a new Allen-owned corporation, Vulcan Sports and Entertainment, was chartered to operate Allen's sports-related properties, including the arena, the Trail Blazers, and the Seattle SeahawksSeattle Seahawks
The Seattle Seahawks are a professional American football team based in Seattle, Washington. They are currently members of the Western Division of the National Football Conference in the National Football League . The team joined the NFL in 1976 as an expansion team...
. Terms of the purchase agreement were not disclosed.