A Conversation With Paul Allen

Paul Allen Responds
March 11, 2006

On behalf of everyone in our organization Ė the players, the management team and all of our employees Ė Iíd like to thank all the fans for their steadfast support of the Trail Blazers.† As a fan myself, the Trail Blazers have been one of my great passions, and itís been a privilege to be the owner of the team.†

Over the past several weeks since we announced we are looking for a public-private partnership with Portland for the Trail Blazers, Iíve received a number of questions from the community.† Some of these questions are complicated, but all of them deserve answers.†

Q: Youíve asked for a public-private partnership to help fix the broken financial model.† How can you ask for help?

For the last ten years, Portland has enjoyed the benefits of the Trail Blazers through what is probably the most favorable franchise relationship with a city that has ever existed in the NBA.† Unfortunately the economic model for that type of deal is broken, and now everyone needs to pitch in and try and fix it.† If that effort fails, the team is in jeopardy, as we have invested too much to this point to continue.† We had hoped that the owners of Portland Arena Management (PAM) -- which include Prudential, Farmers Insurance, TIAA-CREF, Pacific Life and others -- would understand the model is broken too, and participate in a solution, but so far that hasnít happened.†

Getting this franchise to operate on a self-sustaining basis is not an unrealistic goal. With the right financial plan and true partnerships, we can secure the teamís future for many years to come.†

Q: In retrospect, was it a mistake to declare bankruptcy of the Rose Garden Arena and to allow it to be controlled by PAM?

No.† We've explained many times that things were financially worse before the bankruptcy of Oregon Arena Corporation (OAC).† The Trail Blazers did not lose revenues from suites, club seats, concessions and other sources as a result of the bankruptcy, as some have argued.† The team never owned those revenue streams in the first place.† They were always committed to OAC to pay off the debt.† That is why it was the worst arena deal in basketball.† Today the same revenues flow to Prudential, Farmers and the other owners of PAM that flowed to the arena and these same lenders before.

OAC's operating revenues from the Rose Garden Ė including all the revenues from suites, club seats, concessions and other sources Ė had become insufficient to pay the heavy debt burden, due, in large part, to declining attendance.† We were faced with a hard choice. The only way to keep the loan out of default would have been for me to continue with the original arena economic deal, at high interest rates and crushing annual debt service. Giving up the arena Ė and being relieved of the necessity to subsidize OAC Ė was only a very modest improvement.† By far the best scenario would have been to restructure the arenaís debt to a reasonable amount, or to buy the building for a reasonable price, so that some of those committed revenue streams could have been redirected to support the business of the team.† There have been at least three other examples of privately financed major league sports arenas where the financing has been restructured.† At the time, Prudential, Farmers and the other noteholders were not willing to entertain our reasonable offers to restructure.† To date, they have not taken a constructive approach.

Q: How did the bankruptcy affect the arena ownership group?

The arena ownership group has received much more than the amount of their original loan.† They did invest $155 million.† However, they have been returned over $195 million in cash, plus they now own the arena, which a judge has said is worth over $60 million. They are also receiving millions of dollars annually in additional ongoing revenue from suites, club seats, concessions, etc. because I have continued to fund the Trail Blazers so that the team can continue to play in their arena.†

Q: What kind of arena deals have made sense?

Publicly financed arenas work Ė and have worked in the NBA, NFL and MLB.† Through public-private partnerships, franchises earn enough money to fund operations and have a chance to meet their expenses.† When the original deal was made for the Trail Blazers, the finances of the league were different.† For example, the salary cap for the 1991-92 season was $12.5 million.† For the current season, it is $49.5 million.† In retrospect, we should have made a deal that was a sustainable one for the Trail Blazers over the long term, and that made sense for the city.

Q: Who is responsible for the structure of the original arena deal?

Marshall Glickman, a former Trail Blazers executive, put together the original deal in early 1992 using the services of a consulting company PFM.† Ultimately, I signed off on the deal.† I know that similar deals at other privately financed arenas have also been restructured as we have sought to do here.† The best way for teams to be healthy in todayís sports environment (especially and most importantly in small markets) is to have a publicly financed facility. Thatís why we have been meeting with officials in Portland and Oregon state government to determine if there is sufficient support to help the Trail Blazers achieve a better financial footing. This would involve team ownership, the public, and the owners of the arena, PAM, which is led by Prudential.

Q: What happens if a deal between the parties canít be struck?

This is unclear to everyone. The worst-case scenario is for this situation to end up in the courts, and the team is left unable to function financially.† That said, we remain hopeful that Prudential and the other PAM owners will be reasonable and that all parties will come together to find a sensible solution that is in the long-term best interests of everyone involved.

Q: Do other teams have similar problems?

They do, that's why you've seen the Sonics working so hard to get their arena deal re-done in Seattle.† Many professional sports teams are losing money now, especially in smaller markets, where local TV, gate, sponsor and other revenues are lower.† That's also why a deal was just approved for expanded revenue sharing in the NFL.†† In short, having a financially viable pro sports franchise is a challenge for any small market.

Q: What do you mean about small market team health?

If you watch different teams in different leagues (such as the NBA, NFL, or MLB) play these days, you will see some teams have lots of empty seats in their stands.† The lower revenues that small market teams are generating from the combination of ticket and suite sales, sponsors, local TV/cable broadcasts, concessions and all their other sources isnít enough, and means those small market teams could really be hurting.† In those cases, the owner has to subsidize the team.† When that gets to be too much, teams either move to new or bigger markets or the big market teams cross-subsidize them through revenue sharing.† Without such measures, small market teams canít spend enough on players to remain competitive. You end up with a huge disparity in talent between the small and big market teams at the very least, and at the worst, leagues may close teams.† The fact that almost all owners want to be competitive drives them to spend more than their franchises can justify financially.† In Portland, all these factors are at work and they are compounded by the worst facility deal in major league sports.† All of this doesnít mean that small market teams canít be successful (San Antonio is an example of a successful small market team), it merely highlights the need for all stakeholders to work together to address the issues.†

Q: Isnít everything that has happened with the players and the draft ultimately your responsibility?

Of course.† Ultimately, all major decisions are approved by ownership.† I, more than anyone else, feel badly that certain trades didnít work out or that we didnít win an NBA championship.† In fact, we undertook what in retrospect was an overly aggressive spending approach without the proper consideration for character.† The need for change became very apparent, so I made changes.† We are still only part way through the rebuilding process, which is even more painful.† And believe me, I regret taking prior managementís recommendations to trade for Shawn Kemp and trading away Jermaine O'Neal.

Q: But why donít you just propose a plan?

We continue to share ideas with other stakeholders.† But we are only one of the major stakeholders Ė† the public and Prudential and the other PAM owners have to participate to fix the broken model.† We have some optimism that a solution can be found, but we need to hear more from the other parties as to what they are willing to do to save the franchise.† We donít want to rule anything out at this point. However, time is obviously very short.

Q: Why did you announce this right at the trade deadline?

The timing was a coincidence, despite some of the unusual theories some people have voiced.† We informed the league months ago of the scope of the problems.† In the end, we felt time was running out with only a few months left in the season, so we needed to make sure everyone knew the seriousness of the problem.

Q: Was the trade that brought Brian Skinner to the Trail Blazers made just to shed expenses next year?

No, we needed backup at the 4/5 and Brian Skinner has been a good fit there. Whenever possible, the franchise tries to strike a balance between talent and payroll.††††

Q: Don't you dictate drafting certain players?

No, I rely on the scouts and player personnel staff.† I did push to draft a larger point guard in the last draft in Jarrett Jack, and the scouts liked him too.

Q: So as a fan, is there any reason for optimism?

All of us -- the NBA, the fans and I -- want the franchise to continue, so I'm hopeful something will get worked out.† I believe that I've invested more in the Trail Blazers than any other NBA owner has ever invested in their team.† However, this is a bigger issue than my ownership.† This is about the long-term viability of the NBA in Portland and the need to get like-minded people to the table to fix this problem.† The central question now is whether we will have help from the other stakeholders to save this franchise.

Q: How do you feel about the fans in Portland?

The fans are great. You have to remember I've probably gone to close to 700 games in Portland since I became owner.† I canít tell you how many times fans would say to me after a loss, "We'll get them next time, Paul."† Iíve appreciated that the fans have stuck with the team as we've made the transition to rebuild it.† I hope that my ownership history and willingness to have funded losses is a clear signal to our fans that I care deeply about this franchise.†

Q: How do you feel about the recent reporting, columns and other press coverage?

I am surprised that I havenít seen more coverage in the press advocating support for the long-term health of the team.†

Q:† How has it felt to go to games this season?

Itís hard.† As a businessman, Iím out of pocket hundreds of thousands of dollars Ė each and every game.† Thatís brutal.† As a fan, I like watching players develop.† Nate is a great coach, and I donít think he gets enough credit for keeping the team playing as hard as it has been playing, especially given injuries and other adversities.† I'm patient because I know that once you start to bring your payroll down itís a real challenge to keep your talent level up.† You have to try to make the right changes on the court happen over a period of years, which is why I said in the past that patience is required when turning things around.† On the business side though, you just canít be patient with huge financial losses like these. The broken economic model has to be fixed.

Q: Canít you afford the losses?

While I have deep pockets, itís sickening to know the model is broken, hemorrhaging money.† To ignore a problem of this magnitude is unacceptable.† I would rather that money go to community charities, education or health and science research.

Q: How can you ask for public support when we have so many other problems to solve here in Portland, including public education?

I understand that there are many significant issues confronting Portland at this same time.† But as the editorial writers have already correctly noted, we can support both the Trail Blazers and the schools Ė and we should support both.† I care deeply about education.† My mother was a public school teacher and my father was a librarian.† We need to support our public schools.† Iím proud of the strong corporate partnership the Trail Blazers have had with the Portland Public Schools and other school districts across the region.† We want to continue being a partner in improving education throughout Oregon.

Q: You've made other bad investments in the past, isnít this just one more?

The whole community gets financial and community benefits from a healthy sports franchise.† The team has helped support thousands of jobs, created billions of dollars in direct and indirect revenues and generated hundreds of millions of dollars in taxes.† Have the Trail Blazers been a great financial investment? No. But weíve had a lot of thrilling moments:† two NBA finals with Clyde and Terry, Buck, Jerome and DuckÖand three other conference championship series.† Maybe I put too much money into the team trying to bring a title to Portland.† Financially, we are trying to do everything in a much more rational and prudent way than we did, say, five years ago.†

Q: Do you care if the team moves?

I want the team to stay in Portland.† If this all ends up in the courts or someone buys the team and moves it, it would be a shame.

Q: So what is your bottom line?

I've really enjoyed being the owner of the Trail Blazers.† I've tried hard to bring the city a championship.† Now we are in a tough rebuilding process with a broken financial model. We have asked for help in fixing it.† If I have to sell the team or if it canít continue, that will be sad.† But sports franchises really only work if the community and ownership are in a mutually beneficial partnership.

My original belief in Portland as a worthy market has not changed.† Our fans have proven they are among the best in the NBA.† With the help of everyone interested in forming a public-private partnership like those in other NBA cities, I believe we could rebuild and ultimately regain our place as one of the best teams in the league.