Enron Mentions

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Ann M Schmidt
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To: Mark Palmer/Corp/Enron@ENRON, Karen Denne/Corp/Enron@ENRON, Meredith
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Subject: Enron Mentions

A Trio of Little Guys
Embarks on Wild Ride
In Global Oil Market
---
Pursuing Business With DOE,
Their Paths Diverge; One
Leads to `a Lot of Money'
By Wall Street Journal staff reporters John Fialka in Denver, Alexei
Barrionuevo in Tallahassee, Fla., and Jonathan Weil in New York
?
10/16/2000
The Wall Street Journal
Page A1
(Copyright © 2000, Dow Jones & Company, Inc.)
Lance Stroud of New York, Renard D. Euell of Denver and Ronald Peek of
Tallahassee, Fla., all had dreams of becoming oil barons. And on Oct. 4, when
the Department of Energy announced the results of the bidding for oil from
the nation's Strategic Petroleum Reserve, they thought their ships had come
in.
Two of the three black entrepreneurs were unknowns in the industry, and none
of them had ever done a major oil deal. But there they were, listed as
winning bidders alongside some of the biggest names in the business --
Marathon Ashland Petroleum LLC, Morgan Stanley Dean Witter & Co., BP Amoco
PLC and Amerada Hess Corp. Each would be given the right to withdraw millions
of barrels of oil from the reserve amid one of the most volatile oil markets
in decades. In exchange, each had offered to replace that oil, plus an
additional amount akin to an interest payment, a year later. They and the
other winning bidders, the Energy Department said, were picked soley because
they pledged to return the biggest quantities of oil to the reserve.
There was just one catch: In its rush to release the oil and so ease a price
crunch, the Energy Department had suspended its usual requirement that each
bidder supply financial guarantees. But it wanted the winning bidders to
present letters of credit, equal to the oil's market value, five days after
their bids were submitted. The big players could easily meet that
requirement. But Messrs. Stroud, Euell and Peek were men of limited means.
They needed to find someone willing to back them for tens of millions of
dollars -- and fast.
The drama made for an unaccustomed scene in Harlem, where the 35-year-old Mr.
Stroud lived with his 74-year-old mother. A heavy-set man with a goatee, Mr.
Stroud, a former Army enlisted man who had dropped out of college shy of
graduation, had held a string of odd jobs while using the Internet to seek
out a big business deal.
The aspiring oil man had entered his bid for four million barrels from the
reserve, via the Internet. He won't discuss the details of his bid, but says
he thought he could outbid the large oil companies because he didn't have as
much overhead. After the winning bids were announced, Mr. Stroud became
something of a celebrity. TV news crews arrived to interview his neighbors,
many of whom had no idea what all the fuss was about. "I thought he [Mr.
Stroud] was some kind of rap star," recalls Carline Thomas, who lives down
the hall from him.
As neighbors paused to shoot the breeze on the steps of nearby residential
buildings, most marred by graffiti, Wall Street couriers bearing fat packets
of information spent the week scurrying back and forth from Mr. Stroud's
apartment on a seedy block in Harlem's central business district.
Inside Mr. Stroud's apartment, the telephone wouldn't stop ringing, and his
mother was helping him field the calls. He says he was in serious talks with
four companies. And a movie producer was interested in his life story. Then,
amid the chaos, tragedy struck. On Tuesday night, his mother, Iris Manning,
suffered a cardiac arrest, and was taken to a hospital a few blocks south of
Mr. Stroud's apartment.
Mr. Stroud said he spent most of Wednesday running between his apartment and
the hospital, taking occasional phone calls to deal with prospective
financiers. Ms. Manning went into cardiac arrest three more times, and died
at 9:47 p.m. Wednesday evening.
Mr. Stroud was dazed by the fact that what he called the two biggest events
of his life -- the death of his mother and his selection by the Energy
Department -- occurred almost simultaneously. "I'm saying `there must be some
reason I'm here,' " he said later. "These things happening like this, the
odds must be in the millions."
Mr. Stroud won't discuss which companies were vying for his oil, but he says
at one point he thought he had an offer to buy him out for $1.50 a barrel, or
$6 million. The most serious discussions began Thursday, with a
representative from a refining company, which he refuses to name. From that
discussion Thursday until the following evening, Mr. Stroud says, he was
confident that the refiner would grant him the letter of credit he needed.
But at 9 p.m. Friday, three hours before his deadline, Mr. Stroud said he got
a call telling him the deal was off. "I was upset," he says. "I mean, instead
of wasting my time with that I could have obtained the financing quickly"
from some other source.
A spokesman for Koch Industries Inc., based in Wichita, Kan., said it was in
negotiations with both Messrs. Euell and Stroud. "We invited them to make a
deal that made economic sense." BP Amoco said it also had discussions with
Mr. Stroud.
Mr. Stroud now says the DOE should have given him an extension, under the
circumstances. "If your mother passes, aren't you given three days to
grieve?" Mr. Stroud asks. His mother's funeral is scheduled for Wednesday,
which would have been her 75th birthday, he says.
Mr. Euell ran a small company, Euell Energy Resources, whose 12 employees
helped him broker natural-gas sales and other small energy deals. By night,
he worked the phones from his home in a modest Denver suburb, calling oil
producers in Nigeria and energy brokers in Singapore and Sydney, always
looking for the big score that would make him rich.
A friend, Norman Early, a sometime golfing partner and a former Denver U.S.
district attorney, says the 50-year-old Mr. Euell is "one of those guys who
shoots for the stars." On Oct. 4, Mr. Euell thought he had hit one. He had
been awarded the right to withdraw three million barrels of oil from the
Strategic Petroleum Reserve, in exchange for returning 3.3 million barrels a
year later. That was enough oil to fill 14,019 conventional tank trucks.
Knowing he would need a partner to provide financial backing, Mr. Euell had
already placed a call to a man he'd never met: Kenneth L. Lay, chairman and
chief executive of Enron Corp. He said he was sure he was going to be one of
the top bidders for the reserve oil. Would Enron like to be his partner?
Within a few hours John Nolan, the giant energy company's vice president in
charge of trading, called from London. Enron , he said, was interested.
By Oct. 6, the price of oil had already fallen, making Mr. Euell's bid look
generous. Still, he felt bullish. "I'm betting on Mother Nature, that she's
coming back this winter and that oil's going to be more valuable."
It wasn't Mother Nature, but the crisis in the Middle East that turned things
around. Monday, Oct. 9, the target price for November oil futures on the New
York Mercantile Exchange, jumped a dollar to $31.86 a barrel and headed
higher. Mr. Euell flew to Houston and took a room at the Hyatt Regency, from
which he could see Enron 's 50-story office tower.
By Tuesday, the price of oil had hit $33.18. By Mr. Euell's calculations that
meant a $3 million profit for him and an equal amount for his prospective
partner just across the street. Enron 's lawyers were working on an agreement
that would substitute Enron as the major party in Mr. Euell's contract, he
said, and were drawing up the letter of credit for $93 million that the DOE
required.
Eager to close the deal, Mr. Euell called Enron trader Patrick Danaher, who
was working on the project. "I want to sign this thing up today," Mr. Euell
told him, claiming that he had received an offer from another, unnamed firm,
offering to buy his contract for $1.2 million. According to tapes of the
conversation provided by Enron , Mr. Danaher said the paperwork was under
way: "Let me see if we can do that today."
Mr. Euell called backed at 11:30 a.m. and again at 11:45 a.m. Each time, the
trader sounded more pessimistic. Prospects were "50-50." When Mr. Euell
suggested he had other offers, Mr. Danaher told him: "If you have a bid at
$1.2 million, you should take it. A bird in the hand is worth two in the
bush. I just have to tell you that." Still, he invited Mr. Euell to dinner.
Tuesday's deadline passed without dinner or any action from Enron . While it
appears from the tapes that the parties had been close to an accord, Eric
Thode, a spokesman for Enron 's trading branch, says: "At no time was there
anything remotely resembling a deal with Mr. Euell."
Mr. Euell got the DOE to agree to extend the deadline for another 24 hours
and, after a round of frantic phone calls, says he collected pledges from a
group of European banks to support the $93 million letter of credit. But,
when the new deadline expired, he still had failed to get the proper
paperwork to the DOE, which then declared his award to have lapsed. "They
played me," Mr. Euell complains, blaming Enron for the missed deadlines.
Still, he says, the experience amounted to an instant "Ph.D." in oil. Next
time, he vows, he will have his own letter of credit.
The DOE said late last week that it will accept new bids on the seven million
barrels of oil Messrs. Stroud and Euell forfeited.
As for Mr. Peek, he remains the mystery man of the three. His company,
Burhany Energy Industries Inc., was formed Aug. 21. It employs no one but Mr.
Peek himself. Staffers at the Florida Black Business Investment Board, where
Mr. Peek works as a business-development specialist, said he had taken last
week off. Shutters were drawn at his modest, one-story house in Tallahassee.
Phone calls to Mr. Peek were forwarded to an unidentified neighbor. In an
e-mail to a reporter, Mr. Peek apologized for being unreachable. He was
"working relentlessly to consummate this transaction" and couldn't "entertain
any distraction at the moment."
On Saturday, the Department of Energy announced that Mr. Peek had
successfully transferred his interest in three million barrels of government
oil to Hess Energy Trading Co. of New York, a partnership that includes
Amerada Hess. Amerada Hess Vice President Carl Tursi said he could give few
details of the deal, except to say that he believes there was an
"arrangement" that resulted in "a lot of money" for Mr. Peek.

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.

Financial
DEAL OF THE WEEK; Artesia Seeks a Link To Information Firms
Nicholas Johnston
?
10/16/2000
The Washington Post
FINAL
Page E05
Copyright 2000, The Washington Post Co. All Rights Reserved
Rockville-based Artesia Technologies wasn't just interested in another
venture capital investment. It wanted partners.
In its recent $26 million funding, the digital asset management company's
second round, its venture capital lead was joined by a group of "strategic
partners."
Artesia wanted to form relationships with other information management
companies, instead of working only with banks or venture capital firms. "We
wanted to make it more of a partnership with other companies," said Brian
Hedquist, Artesia's marketing communications manager.
For example, in September, Vignette Corp. of Austin announced an agreement
with Artesia to create an Internet commerce application. Now with Vignette's
investment, the relationship is strengthened. "It's not a pure financial
investment," said Hedquist of the equity stake Vignette and the other
strategic partners have in Artesia. "They have a vested interest. We're all
going to benefit."
Artesia was born last year in a management-led buyout with the help of $25
million from Warburg Pincus.
CEO Chris Veator created the company when he and a group of insiders led a
buyout of the information management division of Boston-based financial
information giant Thomson Financial Corp.
Veator's idea was to jump into digital asset management for a broad array of
clients, not just managing information for publishing companies and new
organizations.
"We found very quickly," Veator said, "that the real opportunity was not just
in the publishing community."
Company officials said the funding will help Artesia pursue more
international expansion opportunities, the primary focus of which will be
Europe, where Artesia opened a London office last June. Also, the financing
will be used to increase the sales and marketing staff. Veator expects the
staff to double and revenue to triple over the next 12 months, though he
declined to give any financial information.
Artesia Technologies
Deal size: $26 million
Investors: Led by Warburg Pincus Ventures; EA Systems Inc., Enron Broadband
Services, Vignette, Razorfish and Protege Virtual Management Solutions
Description: Digital asset manager, helps companies catalogue, search and use
stored digital information
Headquarters: Rockville
Employees: 140
Web site: www.artesia.com

Contact: http://www.washingtonpost.com
IG

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.

Oct. 16, 2000, 11:01PM
What public gets is at heart of arena issue
By ERIC BERGER
Copyright 2000 Houston Chronicle
When Enron Field opened this spring, the Astros boasted to fans that they
were playing baseball the way it was meant to be -- on real grass, under the
open sky.
Blocks away, the Rockets and most of the city's political and business elite
are asking voters for a new basketball arena.
Yet, if voters approve the construction in the Nov. 7 election, the game
still would be played indoors on a hardwood floor. An arena is, after all, an
arena, and basketball already is played in Houston the way it was meant to
be.
The team points to such fan benefits as a flashier show, with modern video
and sound equipment, and a more competitive team funded by higher revenues.
The arena's influential backers say an arena would spur downtown development,
strengthen the economy and help affirm Houston's position as a world-class
city.
For nonfans, it's difficult to predict how many of these benefits an arena
actually would generate. More calculable is the financial effect it would
have on Rockets owner Leslie Alexander and, to a lesser extent, the city of
Houston.
Compared with his bare-bones lease at Compaq Center, Alexander and the 12
players who wear his uniform stand to benefit greatly.
Based on estimates from other new arenas, Alexander stands to reap $30
million to $45 million more a year were he to go from being a tenant at
Compaq Center to being landlord of a new arena. For about $7 million a year,
Alexander would enjoy revenue from such sources as 100 luxury suites, premium
club seating near the court, selling the building's name and even bestowing
upon Miller, Coors or some other brewer the right to sell $6 beers.
Granted, going from tenant to landlord would boost his costs. Less the rent
he now pays at Compaq Center, Alexander would spend $8 million to $10 million
a year to keep the lights on.
For players, there's no such overhead. They would share the windfall. Under
the collective bargaining agreement ratified in January 1999, most revenues
collected by NBA owners are stirred into a mythical pot, out of which 55
percent is divided by the number of teams to determine a salary cap.
For the city's part, it would spend less money buying and preparing land for
the arena under this year's deal, with expenses capped at $20 million. A
different location chosen in last year's plan would have cost the city at
least $15 million more.
Both this year and last the city was to own the land and arena after 30
years. Now the city would get a parking garage, too.
In the revised agreement, the city also would receive $200,000 a year, use of
the arena for convention-related events or fund-raisers on 20 days a year,
and a suite between the free-throw lines.
It's a "much better deal" for Houston, says Mayor Lee Brown, who, as a chief
negotiator and supporter of the previous deal, is among the least likely to
make such admissions.
City officials have valued the suite at $250,000 to $500,000 because it would
allow Houston to woo convention center customers. The Rockets plan to sell
the suites for $100,000 to $150,000 each.
The suite actually could cost more than it is worth if the city opts to cater
games for visitors. This year, the sports authority spent about $65,000 on
food for about 80 dates at Enron Field. There would be at least twice as many
events in the arena.
The public would make its greatest contribution through the Harris
County-Houston Sports Authority.
That board would sell bonds to cover the arena's $175 million design and
construction cost. Appointed by the city and county to collect hotel and car
rental taxes to finance stadium construction, the 13-member sports authority
also would repay a $30 million loan -- interest-free for the first five years
-- from business leaders earmarked for a parking garage.
What does the public get in return?
"Something much bigger," said Ken Lay, co-chairman of the pro-arena campaign.
"It's making Houston, Texas, and particularly downtown, a much more viable
economic area. Making it more attractive for business to come to town, making
it more attractive for conventions to come to town, and making it more
attractive for the best and brightest talent in the world to come here and
work with us."
Moreover, supporters say a downtown arena, with its advanced sound and video
systems, wider concourses, scores of restrooms and a constellation of
eateries, would be like going from a phonograph to a hi-fi stereo.
Some longtime Compaq Center patrons who have visited new arenas agree.
"When people go to Enron Field they've had an experience," said fan Rebecca
Tonahill, 53, who attends a couple of dozen Rockets and Comets games a year
and has traveled to Los Angeles and Indianapolis arenas that opened last
year. "You don't get an experience at Compaq Center, but I think they could
capture some of that with the new arena."
Overall analyses of the deal's bottom-line cost vary by how much the sports
authority loses, if anything, from building the parking garage.
Harris County Tax Assessor-Collector Paul Bettencourt calculates the Rockets
would pay only 30 percent of the arena's total cost, which comes to $256
million by his tally, and the public would pay the remainder. Ric Campo, the
sports authority's financial whiz, contends the team's contribution would be
closer to half of the $220 million he estimates as the total cost.
Depending on how the numbers are manipulated, both are right.
Bettencourt believes the public would pay the parking garage's entire $35
million cost.
A sore spot among tax watchdogs has been the sports authority building a
garage that Alexander will have exclusive profit from during his events,
including games involving the Rockets and Comets basketball teams and
ThunderBears arena football team.
Still, said Campo, the sports authority has use of the garage at all other
times, which he says would be enough to cover annual garage payments. The
private loan is interest-free for the first five years, which would save $9
million.
What is clear is that taxpayers would spend between $125 million and $175
million to build an arena that would create wealth for a few. Arena opponents
call it corporate welfare. Supporters say it's a good investment.
It has happened before, to an even greater extent, with the construction of
Enron Field for Astros owner Drayton McLane Jr. and the football stadium for
Houston Texans owner Bob McNair.
"This point always raises serious questions about balance in people's minds,"
said Dennis Howard, a sports marketing professor at the University of Oregon.
"Those paying the greatest share are not getting the benefit. They often
can't even afford to go."
The counter-argument from arena supporters is that visitors pay most hotel
and car rental taxes. Bettencourt has studied the issue and concluded that
locals pay at least 30 percent of the visitor taxes.
Howard's research suggests about one of every 10 people who live in a market
where a major-league sports team gets a new building ends up using the
facility in a given year. However, the study did not differentiate arenas
from football or baseball stadiums. Arenas probably would attract more people
because of the many nonsporting events held there.
Not only do fans pay for the building with taxes, they are hit again by more
expensive tickets, said Howard, noting that average ticket prices jump by 30
to 40 percent in a new building.
The Rockets disputed that, citing a study of six recently opened arenas where
prices jumped from 7 to 28 percent. The team's chief operating officer,
George Postolos, said the Rockets have not raised the price of the most
affordable tickets in five years. He said the team would remain committed to
keeping a comparable number of affordable seats in a new arena.
Customers buying expensive tickets, typically corporations, would feel the
bulk of the increase.
"Premium seat holders get more in a new building," he said, "and they pay
more for it."
Houston voters, at least, have a fairly clear idea of who is getting what in
this deal. "It's all right there on the table," notes Bob Eury, president of
Central Houston Inc.
That is not always the case when teams and governments are eager
collaborators in search of public support. In Indianapolis, for instance,
local media suggested the agreement to build the $183 million Conseco
Fieldhouse involved $104 million in private money and $79 million in public
money. One reporter writing in the Indianapolis Star's special arena-opening
section went as far as to write: "This isn't Houston or Hartford, Conn., or
those other cities that swung open the public vault when it came time to pony
up for new sports facilities."
An arena built with less public than private money in such a small market
would be something worth bragging about.
The reality in the bond documents is much different: The city's capital
improvement board sold $222.6 million worth of bonds to finance the arena and
a parking garage. Those bonds will be repaid by a dizzying array of taxes,
including a cigarette tax, car-rental tax, hotel tax, a tax on goods sold at
the arena, and a diversion of state income taxes on player's salaries.
The private contributions come from $10 million worth of donated land, a $37
million loan to be repaid by the city, and, as touted by the Star, $57
million from the Pacers basketball team.
But the Pacers' "contribution" is made up almost entirely of revenues the
city expects to generate from the arena's publicly financed parking garage
when the team is not using it, according to an attorney who worked on the
bond sale.
Advertising for the arena in Houston so far has been accurate, but there are
two sides to some of the numbers presented.
A common claim is that the Rockets would pay $8.5 million a year in rent,
appearing most recently in an Oct. 1 opinion piece by sports authority
Chairman Billy Burge. This implies that more than half the $13 million to $14
million the sports authority would pay on its arena debt each year would come
from the Rockets.
Actually, of this "rent," $1.6 million would be put into a fund for major
arena repairs. Another $1.5 million would be paid to the sports authority,
but if the sports authority could pay its annual debts, the money would be
refunded to the Rockets. The sports authority would have enough money to pay
its debt on three stadiums if its tax revenues rise at 3 percent. They have
grown at around 10 percent in recent years.
Finally, another $200,000 of the "rent" is paid to the city.
Boosters also commonly promote arenas to voters as engines of economic
development, generating millions of dollars in sales taxes.
But even if the teams left, most personal leisure spending would simply be
spent on movies, the arts or other forms of entertainment, said John
Siegfried, a Vanderbilt University economics professor.
The other major chunk, from sales taxes on corporate spending at the arenas,
often comes from advertising budgets, he said, and there are other
promotional activities where the money could be spent.
"Repeatedly, we're finding the emperor has no clothes," said Howard, of
Oregon. "These buildings are sold as economic development engines, but the
economic impact they create is negligible."
Studies by professional consultants may, and often do, find otherwise, but
they are usually commissioned by a team or government seeking to justify
public spending on a new facility, Siegfried said.
Campo countered that building Enron Field has already fueled local economic
gain from higher property tax revenues. The ballpark's 10 blocks of land were
purchased at $12 per square foot, he said. A single block across the street
was recently sold for $100 a square foot to Trammel Crow.
Land values around the arena site have likewise doubled within the last year
on speculation of development there.
"That's creating a lot of value for the city, county and schools," Campo
said.
Economists, including four interviewed for this article, argue that spending
public money in other ways, such as tax abatements to developers, would
stimulate even more activity. They point to research in respected economic
journals that has found higher high school graduation rates and more spending
on police encouraged economic growth, whereas a major-league sports team
actually put a drag on the economy.
By Texas law, the sports authority may not spend the taxes it collects on a
venue unless it is approved by voters, and it may spend its revenue only on
sports facilities or other community projects like an arts center.
Its 2 percent hotel tax and 5 percent car rental tax will not rise if the
arena proposition passes. Adding arena payments to its existing debt would
completely tap its resources, however.
The board has not addressed what to do if the arena fails. To spend money on
anything other than an approved venue, such as hospitals or schools as
opponents suggest, would require legislative action.
Return to top

OUTLOOK
Editorials
FOR ARENA / Many concrete reasons to support this proposal Nov. 7
Staff

10/15/2000
Houston Chronicle
4 STAR
2
(Copyright 2000)

Houstonians are no strangers to the many arguments for and against the
building of new sports arenas. We've hashed and rehashed them often in the
past few years. We've put one facility - Enron Field for baseball downtown -
on the map, and we're erecting another - a new football/rodeo stadium at the
site of the Astrodome.
A decision on a third piece - a downtown basketball/hockey arena - is
forthcoming on the Nov. 7 election ballot.
The Chronicle urges voters to vote for the arena referendum.
It makes sense for Houston to finish the third leg of this sports facility
package as both a quality-of-life amenity and a valuable economic development
tool.
The arena proposal is essentially the same one, in terms of financing, as the
others that were approved by voters in 1996. Tax dollars will be spent
sparingly, taxpayer liability is limited, and taxpayers are even protected
from having to pick up cost overruns.
The fact there is a relative consensus on the proposal, or at least a lack of
vigorous opposition as there was on a previous proposal, is a signal that
this deal is a better one for Houston. The building's tenants, the Houston
Rockets and Comets, are paying a fair share of the costs.
Ticket and parking taxes have been eliminated from the new proposal.
Many people find the "corporate welfare" aspect of publicly financed arenas
distasteful, and some of their concerns have merit. But the reality is that
major league sports teams are amenities that help cities and all of their
residents. That's part of the reason so many cities compete to have them and
retain them.
Houstonians have debated this issue for years, and some people will adhere,
no matter what, to the philosophy that sports teams shouldn't be publicly
subsidized. Continued debate won't change their minds.
We believe the presence of sports teams and facilities such as these is a
plus for the city that far outweighs the public costs.
It's not an esoteric, theoretical discussion. The proof is concrete - as
concrete as the 18 new projects developed in downtown around Enron Field.
They include a mix of residential, office and entertainment facilities
totaling about $700 million.
The economic activity these enterprises generate is already a boon to
Houston's economy. The property value they add to the tax rolls will more
than offset the public investment costs of Enron Field.
Some critics of the arena have posited the theory that funds needed for
public safety, such as improvements to the Fire Department, will be raided or
shortchanged by the city's commitment to the arena. But that's simply not the
case. The increased property taxes and other benefits of a more dynamic
downtown will repay the city's investment many times over. That's new tax
money available to the city's general fund, which pays for police and fire
protection. So, it's not an either-or decision.
Furthermore, what the stadium and all this activity have done for downtown,
and for Houston's image as a whole, is quite remarkable.
Remember, downtown's northeast quadrant was was a virtual ghost town of
dilapidated warehouses and empty fields only a few months ago. Enron Field,
coupled with Theater District development and other projects, has put to rest
almost every argument that was made against the building of that stadium.
A downtown arena would help complete the renaissance of the area and would
put money into the public coffers.
These are all strong reasons to vote enthusiastically for the arena proposal
on Nov. 7.

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.

A
Is new arena deal a slam-dunk for taxpayers? / Houston's costs, funding for
NBA team compared to other cities
ERIC BERGER
Staff

10/15/2000
Houston Chronicle
2 STAR
1
(Copyright 2000)

Those who support subsidizing an arena to keep the Houston Rockets in Space
City hail the deal struck this summer. It's better for taxpayers than last
year's accord, they say. It's comparable to what the Astros and Texans got.
Perhaps more important, they say, the agreement Houstonians will vote on Nov.
7 is a "market deal" that compares favorably with other arenas built in
recent years for National Basketball Association teams.
But does it really?
A Houston Chronicle study of the seven most recently built U.S. arenas for
NBA clubs reveals that four were constructed with less tax money than will be
spent here if voters approve next month's arena proposition. One had a
slightly larger public contribution and two were built with considerably more
public money.
There are good reasons for this, arena boosters contend. Unlike Houston,
three of these four cities offering lesser subsidies provided other
incentives.
In Dallas and Los Angeles, they note, the government condemned whole blocks
of land for private development around the arena. In Atlanta, Ted Turner was
given carte blanche to develop public land.
All of the markets that received a smaller subsidy also had both major league
basketball and hockey teams, which could share the construction costs. Two
teams generate more revenue, which tends to make the public contribution less
vital.
"This is one of the largest single-team contributions to a building ever,"
said Rockets Chief Operating Officer George Postolos, whose team is paying
about $7 million a year for control of the Houston arena.
Still, there is another general rule of thumb when it comes to determining a
public subsidy. Historically, the less populous a city and its suburbs, the
more public money is needed to complete an arena project. With their bevy of
Fortune 500 companies, larger cities far outstrip the mid-sized markets'
capacity to buy the pricey suites and club seats that make new arenas so
lucrative for NBA owners.
Strikingly, an arena was built with far fewer tax dollars in one city smaller
than Houston - Denver.
Atlanta, a market comparable to Houston, built an arena with considerably
less public money.
This was also the case in two larger markets. Los Angeles built an arena with
almost no public money, and Dallas' expensive project had substantially less
public than private money involved.
Only two of the cities reviewed, San Antonio and Indianapolis, built arenas
with larger public money contributions, which is consistent with their
relatively small market stature.
"The arena deal follows the Enron Field-type of model," said Harris County
Tax Assessor-Collector Paul Bettencourt, who released a study critical of
Houston's arena plan but has not campaigned against it. "It's consistent with
how the baseball and football stadiums were built in Houston.
"But it's clearly not the model for arenas in the rest of the country, from
Los Angeles to Atlanta to Denver."
Conservative activist Bruce Hotze, who recently launched an effort against
the arena, says Houston should follow the example of other cities where the
owners of sports teams - such as the Utah Jazz in 1991 - have primarily paid
for their facilities. He characterizes anything less as corporate welfare.
The list of factors determining how far a team can dip into public coffers
goes on, from the breadth of a team's local following to its success and its
owner's popularity, said Andrew Zimbalist, a Smith College economics
professor.
But the overriding factor is probably simpler, he said.
"The best strategy for any team to follow is to ask for so much money that
the referendum passes by a tenth of a percentage point," Zimbalist said.
"Teams will get as much as they can. If it passes by 5 percent, the owner,
usually a smart businessman, has done himself a disservice."
Another big factor is a threat to move.
This has loomed over Houston since NBA Commissioner David Stern announced
earlier this year that he was "certain" the Rockets would leave town without
a new building.
When the Denver Nuggets wanted a new arena in the mid-1990s they had a decade
left on their lease. The Rockets have just three years left before they can
leave Houston. Otherwise, Denver's circumstances as its leaders began
negotiating with the team were remarkably similar to Houston's.
The city had just spent about $200 million in public money to build Coors
Field for the Colorado Rockies baseball team, and was contemplating an even
larger expenditure to replace Mile High Stadium for the NFL's Broncos.
But when it came to the city-owned McNichols Arena, built, like Compaq
Center, in 1975, the attitude was that if the team's owner wanted a new
building he would have to do it largely with public money, said Dean Bonham,
a Denver-based sports consultant. Eventually, the owner got some city
concessions totaling about $30 million but paid for all the arena's
construction costs.
A few years later in Houston, after building Enron Field and ponying up for a
new football stadium, public leaders have signed a similar, heavily
subsidized plan for the basketball team.
What was it that opened Houston's treasury when Denver's was closed?
"I can sum the difference up in one word: leverage," Bonham said. "The Denver
teams weren't going anywhere soon. The Rockets got a green light to go."
In Miami, a smaller market where a building was constructed with slightly
more public money than would be spent in Houston, the Heat's first arena was
only 8 years old when the team asked for a new facility.
At first team officials, amid threats of leaving, managed to cut a deal with
the Miami-Dade County Commission to build a $165 million arena on Biscayne
Bay with only $50 million coming from the team.
But leading up to a referendum a new county mayor, Alex Penelas, was elected
in part because he campaigned against public financing for the arena, saying
the county had "given away the kitchen sink."
Later, a deal was struck in which the team paid for the arena's construction
and the county bought bayfront property and helped the team with annual
operating costs.
This dramatic game of building publicly backed sports stadiums with
questionable public support is so familiar throughout the United States that
it has practically become the fifth major league sport.
More than $21.7 billion has been spent or committed on 95 built or planned
big-league stadiums since 1990, and, according to several economists'
calculations, two-thirds of that money comes from public sources.
In Houston, more than two-thirds of the nearly $1 billion in built, planned
or proposed stadiums since 1996 has or would come from public sources.
In spring 1996, citing aging facilities and unprofitable leases, the Oilers
had left town and the Astros were making threats. The still-champion Rockets
were bound here into the new century, but would soon sue to break that lease
and were making no promises beyond 2003.
The Astrodome and Compaq Center had lost their sheen amid a nationwide tide
of stadium building that is only now ebbing. Political leaders decided they
must do something to stop the defection of Houston's pro sports teams.
For several months, a blue-ribbon commission chaired by Pete Coneway and Ben
Love tackled the issue, ultimately deciding, as elsewhere around the country,
that the city and county should help build new facilities for baseball,
football and basketball.
From this blueprint arose the Harris County-Houston Sports Authority, which
has helped fund two of those facilities and is seeking voter approval to
spend its remaining tax revenues on a new downtown basketball arena.
The Astros hit the jackpot with Enron Field, which has propelled their
attendance to more than 3 million for the first time. After the Oilers made
good on their threat to move to Nashville, it took Bob McNair's $700 million
and Texas charm, as well as a $367 million football stadium, to bring the NFL
back.
Sports authority members say that if McNair's experience teaches Houston
anything, it will take a far greater investment than the proposed arena's
costs to return the NBA should the Rockets leave.
They point out as well that in building both the baseball and football
stadiums, although each cost more than the arena, Alexander would pay more
than has either McNair or Astros owner Drayton McLane Jr.
Houston's arena deal, as complicated as it appears, lacks the hidden value
attached to some other deals, which Rockets officials say makes sports team
owners in the other markets appear less mercenary at first blush.
More than two years ago Dallas voters approved a $125 million public
contribution to a new arena by a handful of votes in a citywide referendum.
A scrappy coalition of opponents, which had only $75,000 to spend, tried to
point out that the public was giving up much more than the $125 million.
Beneath that widely reported figure was essentially freedom for the arena
developers, Dallas Mavericks owner Ross Perot Jr. and Dallas Stars owner Tom
Hicks, to proceed with an 18-city block, $1 billion overall development with
the city's blessing.
In January, Perot sold the Mavericks basketball team to Internet billionaire
Mark Cuban.
Perot, who had bought the team only four years earlier, said he was
interested in the new arena largely for the related development
opportunities.
"A lot of people look at a basketball team as an anchor tenant for an arena.
I look at an arena as the anchor tenant for a much larger program," he said
upon selling the Mavericks. His Hillwood Development Corp. retained the
development rights.
To aid the development, the city of Dallas condemned much of the land and
offered as much as $30 million for infrastructure work to spruce up the
property.
The city also let both the Stars, a hockey team, and Mavericks out of their
Reunion Arena leases several years early and went so far as to ensure no
other sports referendums would be on the same ballot. Hillwood also got a 4
percent construction management fee and Hicks 1.5 percent as part of the $325
million in public and private money spent on the arena.
"Oh sure, there were kickbacks and all that," said Sharon Boyd, co-
chairwoman of the opposition group It's a Bad Deal!
"It was like all of a sudden there were five men in Dallas that got free land
and didn't have to pay taxes. That's a sweet deal."
Like Dallas, Atlanta offered Ted Turner a plush real estate deal to keep the
Hawks basketball team in the city, freeing up the NBA team to pay more than
half the arena's actual construction cost.
Hawks' owner Turner Broadcasting Co. was given 10 years to add development to
the public land the arena was built on, with streets, roads, sidewalks and
other needed infrastructure paid for with tax money.
In Los Angeles, the city condemned most of about 30 acres surrounding the
privately developed Staples Center for a hotel, restaurants and an
entertainment district.
"The subsidies take all kinds of forms," said Robert Baade, an economics
professor at Lake Forest College in Illinois.
"The cities and teams have become much more clever about how they finance
these things and hide the public subsidies."
Monday: Who would pay, who would benefit from a new arena.

Graph: 1. Basketball arena deals (p.18); Photos: 2. Houston Rockets Proposal
arena (p.18); 3. San Antonio Spurs: SBC Arena (p. 18); 4. Dallas Mavericks:
American Airlines Center (p.18); 5. Atlanta Hawks: Phillips Arena (p.18); 6.
Denver Nuggets: Pepsi Center (p.18); 7. Los Angeles Lakers, Los Angeles
Clippers: Staples Center (p.18); 8. Miami Heat: American Airlines Arena
(p.18); 9. Indiana Pacers: Conseco Fieldhouse (p. 18)

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