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Sports News

City will declare PFE in default

11/06/02

SCOTT LEARN

Portland plans to issue a notice of default today to Portland Family Entertainment, the private operators of PGE Park and owners of Portland's minor league baseball and soccer teams.

The notice gives the star-crossed group 15 business days to make past-due payments or hand over its keys to the stadium.

The city's announcement comes amid clear signs that PFE, begun with great fanfare in 1998 and financed by a group of wealthy Portland-area businessmen, is close to stepping away from its deal with the city.

If the deal falls through, Portland could have a tougher time covering its stadium expenses, possibly forcing it to dip into a fund designed for Rose Quarter improvements.

PFE is running out of money and has reached an impasse with its lender, TIAA-CREF, on cutting debt payments that have pushed its bottom line well into the red. The lender already is managing PFE's cash and payments to vendors, said Roger Krage, one of PFE's limited partners and a Crown Pacific executive.

Despite weeks of unsuccessful negotiations, Krage said he hopes the group can reach a restructuring deal with TIAA-CREF by the city's Nov. 27 deadline. If the impasse can't be broken, he said, "Our goal is to cooperate with the city, the Pacific Coast League, the lender and any new ownership to make sure this (transition) is as seamless as possible."

Portland Family Entertainment is $576,000 behind in payments to the city that are required under its stadium operating agreement. No one is saying so directly, but the declaration of default could help spur negotiations with PFE's lender.

The declaration "sends a message of urgency to all parties concerned," Krage said.

Declaring PFE in default also ensures that something will happen soon, said Sam Adams, Mayor Vera Katz's chief of staff. That's important, he said, because sales of stadium sponsorships, season tickets and luxury suites for next season need to go forward now to ensure a money making seasons next year for the Portland Beavers Triple A baseball team and the Timbers minor league soccer team.

Adams and Pacific Coast League President Branch Rickey III said the Beavers will continue to play at PGE Park even if Portland Family Entertainment folds.

"We've got some things that need to be worked out," he said, "but we're going forward, and we're going to play baseball in Portland next year."

The city's notice of default also will give the lender 90 days to make the city payments if PFE doesn't. The city has already talked with Paul Allen's Oregon Arena Corp., which runs the Rose Garden and Coliseum, about operating PGE Park during that 90-day period. The city also may retain PFE President Mark Schuster to help out.

"This sets the clock ticking," Adams said. "They'll have 15 days, and the lender will have 90 days to pay the city what they owe us. In the meantime, we'll be better prepared for a successful season next year for PGE Park."

PFE's 14 limited partners have invested $10.5 million in the venture. Combined with roughly $23 million in loans, the group purchased the Beavers, the Timbers and another minor league baseball team in Pasco, Wash., and invested $5 million in a refurbishing what was then called Civic Stadium.

The city issued $33 million in debt to pay for the rest of the downtown stadium's retro remodel, then negotiated an increase in Multnomah County's hotel-motel tax that went in part to cover about two-thirds of those debt payments.

The city had planned for PFE's stadium lease and other fees to cover the rest of the debt, nearly $1 million, plus at least $400,000 in other stadium-related costs. If PFE doesn't come through now, the city will instead have to tap a $10 million fund created by parking fees and a share of ticket sales at the Rose Garden and Memorial Coliseum, money that otherwise could go toward improving the largely dormant Rose Quarter.

The city's operating agreement requires teams to continue to play at PGE Park for 20 years in the event of a default. But if PFE goes into bankruptcy, a court could void the deal. Both the city and PFE officials said they will work to ensure that doesn't happen.

Krage, the limited partner, said the partners would voluntarily hand over the teams to the lender and walk away from their investment rather than go into bankruptcy.

TIAA-CREF representatives could not be reached for comment Tuesday. Krage said he and other limited partners will put more money in if the lender agrees to cut debt payments and the city agrees to reduce fees charged under the operating agreement. The city has said it will negotiate on the operating agreement only after the lender agrees on a debt restructuring.

Initial projections for PFE showed the investors making high returns on the strength of luxury suite sales and sponsorships.

But the group quickly ran into problems, with roughly $5 million in startup expenses, delayed suite sales and a staff that reached as high as 56 people under former managers Marshall Glickman and Mark Gardiner. The limited partners terminated Glickman and Gardiner last year, bringing in Schuster, who has improved the bottom line by slashing expenses.

In hindsight, Krage said, the group overestimated its ability to sell suites, sponsorships, season tickets and club seats. It also paid too much for its teams, he said, and put more into the stadium than minor league teams could support.

"We refurbished a beautiful facility for a minor league sport," Krage said. "And we built a Taj Mahal."

Scott Learn: 503-294-7657; scottlearn@news.oregonian.com

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