Friday, February 24, 2006

Friday Fallout

What the HELL? The Blazers trade the team lightning rod, a sexual , and get ready to move on. But that same day, a story from the Associated Press and Los Angeles Times says the Blazers' future "is in doubt."


My Theory
Ok.... My theory is as follows: As simplistic as it gets: The Sonics also need a new arena deal. Paul Allen lives in the Seattle area. He is a hero in that city because of the Seahawks success and he AND Bob Whitsitt built the football stadium, and PA still loves the NBA. Some have said the Sonics will leave, and Allen will attempt to move the Blazers to Seattle. HUH?!?!?
No. Too difficult. How about the easier solution. PA finds an owner for the Blazers, then buys the Sonics. Do you think he could get a new basketball arena built in the city where he is beloved? Do you think the city of Seattle or King County would help him? Yes and yes.
IF, he can find a new owner for the Blazers, with their inflated payroll, horrible lease, and brutal revenue streams (See below) then it opens up the possibility to buy the Sonics, build a new arena in time to open when the Key Arena lease runs out, the NBA keeps a team in a top 15 media market, and everyone is happy, right? Or... if you are a Blazer fan, would you really want to see a guy who will spend what it takes, even without success, to try and build a winner because HE himself is a fan.

The Lease
As many have pointed out, the Blazers and Paul Allen signed the horrible lease. At that time they were taking money from one pocket to another, bonds not included, and it probably didn't seem to matter.
Then Steve Patterson comes to town and sees the dire financial straits the building is in, the lease conditions, an inflated payroll, and he is told to do something about it. So, he starts to cut payroll and tries to re-work the lease by declaring bankruptcy. The decision is then made to go with the party line of "we will lose less money by not controling the building" even though everyone also knows that limits your potential revenue streams to standard ticket sales (not high priced premium seats), team sponsorships which don't include permanent signage in the building or luxury suites, and television and radio. Nobody buys it, and it doesn't make sense, and in the end, if the attempt was to get a better interest rate (remember he told us on the air that it was similar to when the average person tries to re-finance their house) it didn't work because the bond holders called the bluff, kept the building, and the Blazers were left muttering "we are better off and lose less money without the building." They obviously are not.
Consider the following:

1) According to one NBA Executive from elsewhere in the league I spoke to today, the average percentage of local revenue a team can expect from luxury suites, premium seating, and other items related to the revenue the Blazers no longer have access to is minimum 18% (that is for the lowest team in the league) of their annual local revenue. The Blazers gave that up with the building.
2) The NBA "will not allow a team with equity in it's market to move." I would say almost 40 years qualifies here.
3) Part of the NBA's marketing model has two big criteria for success: the first major league team in a city, and the only major league franchise in a city. Portland fits both ends. Because of this, the league office, according to my executive, feels that Portland should and will survive.
4) To move, something that is a longshot because of the lease, it would take just 11 owners to vote against the move. Do you think that David Stern has 11 votes? It won't happen.

So where are we? I have a simple solution to at least get started. The Blazers, Steve Patterson and Paul Allen in particular, have to both take some responsibility and say "We screwed up, made some financial mistakes, and now we need help." That isn't the same as saying the lease is bad, Whitsitt is to blame. This is to say show some humility for once. Patterson in particular has to stop talking down to the media and the public as a whole and admit it is HE who has failed. Under his watch, the Blazers have gone from a #5 seed losing in a seventh game, to a team that has failed to make the postseason and has lost control of the building it once operated. And one other thing, under J.E. Isaac, Steve Patterson and others, the Rose Garden lost money. Under Global Spectrum and Mike Scanlon, the building is operating in the black.

The Blazers are important to this community. Losing your only major league franchise is not a good way to get another like baseball or hockey. Losing your only major league franchise, which I don't think will happen, is a good way to not get another one to think this is a viable market.

AP-Billionaire Paul Allen's spokesman said Thursday the future of the Portland Trail Blazers is in doubt after Allen's investment managers estimated the team stands to lose more than $100 million over the next three years.
Lance Conn, who heads Vulcan Capital, Allen's investment firm, told The Associated Press in an interview that "all options are on the table" because "the economic model is broken."
Allen has lost more than $12 billion on various investments in the past decade, and his NBA team has been hemorrhaging money for much of that time.

Conn told AP that Allen has decided it is time to cut his losses with the Trail Blazers — or find a new way to finance the team.
"No business person could justify these kinds of losses continuing," Conn said.
He noted that Vulcan has invested $600 million in the team and the arena since 1988 but has yet to see a profit.
Conn also said the arena lease "is recognized as one of the worst in the NBA."
In a comparison with the Key Arena lease for the Seattle SuperSonics, Conn said the Trail Blazers receive no revenue for suites, clubs, courtside seats, game concessions or parking.
The Sonics, by comparison, receive 40 percent of the revenue for suites, 60 percent for clubs, and 100 percent for courtside seats, game concessions and parking.
NBA Commissioner recently told AP that he considered the Seattle lease "the least competitive lease in the league, which is a decided economic disadvantage."
But Conn said the Blazers' lease is "far worse" than the Sonics' lease.


At 1:21 PM, Anonymous Chris Snethen said...

[U]nder J.E. Isaac, Steve Patterson and others, the Rose Garden lost money. Under the Global Spectrum and Mike Scanlon, the building is operating in the black.

In a nutshell, that is the issue across the Blazer organization.

At 1:59 PM, Anonymous Anonymous said...

Well, to be fair - the Blazers let their Fans out of their season contracts AND reduced the prices of those contracts which shows some Fan sympathy. Global Spectrum is an East Coast firm with none of those considerations for season holders - rather they are taking them to court.

At 2:11 PM, Anonymous Chris Snethen said...

It has nothing to do with the Blazers and everything to do with booking other events. I believe they're on track for over 250 dates this year. Heck, Global Spectrum booked four events in the RG in three days next weekend. Oregon Arena Management never did anything close to that. You don't make money with a dark arena. Global Spectrum knows that. O.A.M. never figured it out.

At 2:15 PM, Anonymous Chris Snethen said...

My bad. Oregon Arena Corporation, not Oregon Arena Management.

At 8:30 PM, Anonymous Anonymous said...

In business financial losses are deducted from tax liability. For example, if Paul Allen owes the government 50 million in taxes and losses 50 million, he owes the government 0. So he can pay the money to support the Blazers or pay it in income tax, either way he will write a check for 50 million. Sorry I can't drum up much sympathy for him. I live on $15,000 a year, and don't have medical or dental insurance. When he is broke like me...we'll talk.

Dian in Estacada

At 9:25 PM, Blogger BuddyJay said...

Great point Dian. A loss to offset those yearly capital gains.

The way the whole thing is going right now smells bad. Bad management and bad business dedicated to a billionaire's toy, but then one day the toy becomes a business and they want out of all the bad decisions previously made.


The best point is this. If the Blazers think the revenue streams in the Garden are so good all of a sudden, then why not buy the building back and have Global Spectrum manage it for them? It was those same revenue streams that led to bancruptcy before, the only change is better management. It all stinks!

At 11:33 PM, Anonymous Anonymous said...

Without question the end game was to lower the debt expense and in a million years Steve Patterson never thought the creditors would take the building. Well, when you take your creditors to court and make them go thru the process with major legal expenses, they are likely to view this as the 7th game of the Western Conference Final. In real life your held accountable for your actions and Paul Allen is no different. If he is smart, write the 155 million check to the creditors and keep Global for running the building. While he is at it, terminate Steve Patterson!

At 1:58 AM, Anonymous Anonymous said...

Allen is a victim of inexperienced advisors at Vulcan who told him to let OAC go into bankruptcy. Patterson had nothing to do with it. Allen's hatchet men told him to play hardball. Fire a load of people. Screw the bondholders. Now I bet Allen is wishing he hadn't screwed the bondholders.


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