July 27, 2009

Portland soccer deal: Team gets profits, public gets the risk

The Portland Timbers stadium plan took another step forward last week, as the Portland city council voted 4-1 to approve the preliminary finance plan for a $31 million rebuild of PGE Park as a soccer-only facility. (This would force the minor-league Portland Beavers baseball team — also owned by Timbers owner Merritt Paulson, son of Henry — to relocate elsewhere.)

The Oregonian notes, as I alluded to earlier, that much of the $31 million consists of hidden subsidies that could come back to bite Portland in the general fund. For example, the $11.1 million in "prepaid rent," notes the paper, is actually public money, and expensive money at that:

The prepaid rent, which the city refers to as capitalized rent, is akin to Paulson providing the city with a construction loan.

In exchange for $11.1 million today, Paulson will avoid rent and ticket tax payments totaling at least $38.4 million over 18 years. That translates to some $27 million in interest payments by the city over the life of the loan -- the equivalent of paying an interest rate of 8 percent.

And while another $11.2 million would come from future ticket taxes, it's actually mostly taxes on basketball, not soccer: "The Blazers are effectively locked into their Rose Garden lease until 2025. If they left at that point, the Spectator Fund would become insolvent, unable to repay the final 10 years of soccer debt." And, of course, even without that dire scenario, it would be $11.2 million that the Spectator Fund wouldn't be able to use for other public projects.

For further analysis of the Timbers plan, see Bojack's report, which calls it "the most preposterous deal you've ever seen" and concludes: "Bottom line on the remodel: The Paulsons and their friends get all the upside, and Blazer fans and the taxpayers take a major share of the downside risk, which is substantial."