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The Paulsons' Edifice Complex
For Henry Paulson and his son Merritt, the taxpayers of Portland, Oregon, must look like geese with an infinite supply of golden eggs.
The Paulsons own the Portland Timbers, a second-division soccer club that was recently allocated a much-coveted slot as an expansion team in Major League Soccer (MLS). Merritt, the 36-year-old son of the former treasury secretary, owns 80 percent of the team, while his father owns the other 20 percent.
In a story that has had more twists than a David Beckham corner kick, the Paulsons have doggedly pursued public financing to renovate PGE Park, the mass-transit-friendly stadium in the heart of downtown Portland, in order to make it soccer-specific.
Initially they demanded $85 million to revamp the stadium and build another one for their other team, the AAA-baseball Portland Beavers. An economic meltdown and grassroots outcry later, the Paulsons have been forced to scale back their stadium-building dreams. Now they intend to relocate the Beavers outside Portland and limit PGE Park renovations to $31 million, with the City of Portland kicking in $11.2 million from its spectator fund, a money pool derived from ticket and parking revenues.
It's a stark reversal for the Paulson gang, who claimed repeatedly that public stadium money could be the solution for Portland's economic ills. Unfortunately, they are still playing that tune, and the Portland City Council continues to dance.
On July 23 the Portland City Council voted four to one to move forward with the "public-private partnership." Despite Portland's reputation for innovative urban planning, city officials have yet to demonstrate the courage and ingenuity necessary to venture beyond the standard-issue financial model whereby the Paulsons cough up some of their millions and the city uses its bonding power to fund the rest.
The junior Paulson recently crowed, "I challenge people to find a better deal out there for the city."
As it turns out, numerous alternative funding options exist, as long as Portland is willing to live up to its reputation as a creative city.
Call us purveyors of the obvious, but we think one "better deal" for the city would have the Paulsons paying for their own sporty ventures.
With Goldman Sachs--Henry Paulson's former firm--making $38 million per day and doling out the heftiest executive bonuses in its 140-year history, it shouldn't be difficult to find investors, especially if Major League Soccer is the money-maker the Paulsons have promised it to be. Perhaps it's time Henry Paulson went out and beat the silver-frosted bushes for some capital. In 2006 he bestowed $100 million to an environmental charity. Why can't he make a much smaller donation to his son?
Another option for filling the funding gap is to pursue a better naming-rights agreement.
PGE Park is named after Portland General Electric, a Fortune 500 company that had the misfortune of being an Enron subsidiary. In recent times PGE has thrived, raking in $145 million in profits in 2007 alone. Earlier this year CEO Peggy Fowler was handed an $11 million golden parachute upon her departure--coincidentally, almost the exact sum Portland residents are being asked to fork over.
PGE secured a decade's worth of naming rights at a bargain-basement price of $8.5 million, but the deal expires after 2010.
If the naming-rights agreements signed recently by other MLS teams are any indication, Portland could get a lot more bang for its corporate buck.
In Toronto, the Bank of Montreal paid $24 million for a ten-year naming-rights deal. The Los Angeles Galaxy scored $70 million over ten years from Home Depot for soccer-stadium naming rights. Real Salt Lake signed a ten-year deal with Rio Tinto for approximately $20 million, while Dick's Sporting Goods agreed to pay the Colorado Rapids $30 million over fifteen years for stadium naming rights.
If PGE were asked to fork over $19.7 million for the next decade of sponsorship--a figure in line with other MLS agreements--there would be no need to finagle the city for money.
And using the surplus naming-rights funds to pay for stadium building would help impose a shred of authenticity into what is otherwise a public-relations fleecing festival.
The resolution passed by the Portland City Council is riddled with problems. To name only a few of them:
• Merritt Paulson has not agreed to pay a fair wage--let alone a living wage--to stadium employees. Rather, the city will "top-up" subpar wages to raise them to fair-wage status.
• The agreement relies on zero-coupon bonds, which allow principal and interest payments to be shoved off into the future--2017, in this case. In the world of stadium financing, zero-coupon bonds are the equivalent of subprime mortgages with massive balloon payments, a huge factor in the housing bubble's catastrophic pop. To support public financing for stadium construction using zero-coupon bonds is to advance the same flawed ideas that got us into this economic meltdown in the first place. On top of that, there's no guarantee anyone will want to purchase these taxable bonds, which would bring us back to square one.
• The resolution states that the city and the Paulsons "agree to evaluate in good faith opportunities to enhance attendance and fan experience at the MLS Stadium with additional improvements in the future." That sounds more like a threat than a promise, making this $31 million plan sound like phase one of a multiphase project, the gateway drug to a future of addiction to such "public-private partnerships."
• The resolution flaunts the falsity that stadium-building will jump-start the Portland economy. Yet there's not a shred of evidence from independent academic sports economists to support this claim. Just because you say something a million times doesn't mean it's true.
• The deal hinges on a steady flow of money from the spectator fund. While boosters of the deal argue that fans will pay off the bonds, what happens if this money pool dries up--via a lockout or an economy that continues to sour? Ultimately, the spectator fund is backed by the city's general fund, which is to say it's backed by taxpayers, so the people of Portland would be on the hook, not the Paulsons. Moreover, every penny of bonding power put toward stadium-building is money that could be spent on other programs that benefit a wide range of Portlanders--not just its sports fans--and that actually boost the economy.
As the Paulsons pounce on Portland to wrest public funds for their escapades, it's a great time to ask ourselves if this model of "public-private partnership" is the best we can do.
The stadium-financing imbroglio in Portland is a test case in the postmeltdown era. Will we see ersatz public-private partnerships continue as before? Or will a new era of equity and vision emerge in which we will cease socializing the costs of business while privatizing the profits?
Portland Mayor Sam Adams recently said, "There's a lot more work to be done on this deal, but we are moving forward." The people of Portland should take that as their cue: it's time to get the Paulsons' hands out of our pockets.