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Monday, March 6, 2006 - Page updated at 12:00 AM

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Portland and Paul Allen: a love affair gone bad

Seattle Times staff reporter

PORTLAND — On a Sunday night in the City of Roses, Paul Allen claims a familiar spot. He sits by the basketball hoop in the arena that he built and stoically watches his Trail Blazer basketball team lose yet another game to the Houston Rockets.

His presence appears more duty than pleasure in a city where his team's fortunes have declined almost as precipitously as they have climbed in Seattle.

During the past few months in Seattle, Allen has been basking in the glory created by the Seahawks' first run to the Super Bowl. Hoisting the 12th-man flag in Qwest stadium, he received standing ovations from grateful crowds.

Meanwhile, Allen's relationship with Portland has soured badly.

His Blazers are floundering and losing so much money that Allen is seeking government assistance to help the team. Even if that aid should come through, it's unclear whether Allen wants to stay in this city, or sell the Trail Blazers franchise.

Yet more than a decade ago, Portland was the place where Allen helped kindle the passion of sports fans as he cheered a team that routinely was near the top of the National Basketball Association. He was the No. 1 fan, leaping out of his seat to lead the crowd in the "wave," as this man who cherishes privacy engaged in very public displays of emotion.

For Allen, Portland appeared to be, if not a second home, at least a second city where he could invest his money, fulfill his dreams of basketball glory and explore his early visions of urban development.

Long before Allen embarked on his ambitious effort to redevelop the South Lake Union area in Seattle into a hub of residences and biotech, he was floating plans to transform the gritty area around Portland's Rose Garden arena into a new riverfront district of condos, businesses and entertainment.

But his ownership of the Blazers has become a tale of dubious business decisions and a billionaire's dream gone awry. In pursuit of an elusive NBA title, he spent lavishly on players but balked when it came to paying off creditors who had financed the Rose Garden arena.

The team — rebuilding with young talent and former Seattle coach Nate McMillan — is struggling at the bottom of the NBA and often playing to sparse crowds.

As some Portland districts underwent a real-estate boom, the development around the Rose Garden arena fizzled. Just last year, Cucina! Cucina! — the last restaurant in an adjacent complex — shut down.

Even the arena is no longer under Allen's control. Rather than make debt payments, he handed it over to lenders during a holding company's 2004 journey through U.S. Bankruptcy Court. Allen spokesmen now say he has invested some $600 million in the Blazers without showing a profit, and that the team — without control of the arena — is saddled with a "broken economic model" that likely will lose $100 million over the next three years.

"Paul Allen is both a businessman and a fan, and as a businessman he needs to see immediate improvements," said Michael Nank, a spokesman for Vulcan, Allen's management company. "Our preference is to preserve the franchise and keep it in Portland. But ... we can't guarantee the outcome at this point because we aren't the only participants in finding a solution."

NBA Commissioner David Stern says he is trying to help broker a settlement that would allow Allen, or perhaps another Blazer ownership group, to take back control of the arena.

Meanwhile, the mood here has darkened.

For some, apathy over the bumbling Blazers has turned to anger as Allen representatives in recent weeks have asked state and city politicians to forge "a public-private partnership" to help bail out the team and an owner who ranks as the seventh-wealthiest man in the world.

Some commentators plead for Portland officials to negotiate with Allen to help keep the Blazers in Portland. Others, including two Oregonian columnists writing twin pieces published Feb. 26, are ready for him to go.

"As a Portland institution, a point of civic pride, the Blazers disappeared a long time ago," wrote columnist Steve Duin. "If you want out, I'll pack the first bag, Paul," added John Canzano in the companion piece.

A rousing start

Paul Allen's reach in Portland ranges from his philanthropic foundations, which gave more than $13 million the past five years to the arts, education and social services, to his ownership of a conservative talk-radio station that airs the Blazers' broadcasts. But basketball defines his presence in Portland, a sport that — along with rock 'n' roll — has enthralled him since his youth in Seattle.

Perhaps if the Sonics had been for sale in the late '80s, Allen would never have ventured south to Portland. Instead, in 1988, he bought the Trail Blazers for $70 million in a purchase made possible by the expanding stock value of Microsoft, which he co-founded.

Many fans in Portland were impressed by the fresh energy Allen brought to the franchise as he became a familiar figure at home games. In a city wary of flash and dazzle, he seemed to fit right in as he arrived at the arena in a leather jacket, scraggly hair and beard that only later would morph into a more clean-cut look.

"Allen came across as quite humble, and Portland likes people to be approachable," said Erik Sten, a city commissioner. "He appeared to sort of instinctively do well here."

Allen had great success in those early years as the Blazers advanced to the NBA finals in 1990 and 1992.

As a new home for the Blazers, who initially played in the aging Portland Memorial Coliseum, Allen built the Rose Garden in 1995. He hoped it would be the centerpiece of a major redevelopment effort along the east side of the Willamette River across from downtown.

Allen borrowed $155 million and invested an additional $46 million of his own money toward the $263 million construction cost. It was a significant departure from the norm in professional sports, where most stadium or arena construction depends heavily on public finances.

(Allen took a different tack in Seattle. When he bought the Seahawks in 1997, he made the purchase offer contingent on voter approval of about $300 million in public financing to help pay the roughly $430 million construction costs of Qwest Field.)

When the Rose Garden opened in 1995, there were high hopes that Allen's financing gamble would pay off. New luxury suites were leased, corporate sponsorship was strong and the Blazers played to sellout crowds of more than 20,000.

Allen flew to games in his private jet, often with an entourage that included his mother, Faye Allen. Before each season, he feted sponsors with a party that, in recent years, featured a tight set by the Butcher Shop Boys, a rock band with Allen on lead guitar.

But Allen has spent little time mingling with a broader mix of Portland politicians and community leaders. Instead of sleeping over in an apartment built into the upper reaches of the Rose Garden, or a second apartment in a downtown high-rise, he typically jets back to Seattle the same night as he watches a game. If he does venture out after the game, it may be for a quick stop at Powell's City of Books before heading back to the airport.

"I didn't have a lot of social interaction with him and never heard of anyone seeing him at museum openings or other places they went to," said Vera Katz, who served as Portland's mayor for 12 years before retiring at the end of 2004.

Plan falters

Allen's low profile in Portland had made it more difficult to forge a partnership with the city to develop the area around the Rose Garden.

"It's sort of like you keep hanging out with a friend, and the spark never happens, you stop calling," said Sten, who has been deeply involved in Portland development.

Even under the best of circumstances, it would be a tough task to transform the area around the Rose Garden into Allen's original vision of an entertainment, shopping and residential district. The arena and adjacent Memorial Coliseum are on a virtual island, cut off from adjoining neighborhoods by Interstate 5 and other major roads, a busy rail line and light rail. A grain elevator blocks the view of downtown Portland.

In the mid '90s, Allen tried unsuccessfully to negotiate a deal to buy the grain terminal and knock it down. An Allen company purchased a property near the Rose Garden — the Red Lion Hotel — to expand his ownership stake in the area.

But as the decade progressed, Allen's efforts lost momentum as the Trail Blazers faltered. The team was beset by severe public-relations problems as players misbehaved off the court and feuded on court, eroding fan and sponsor support.

Meanwhile, the soaring player salaries Allen approved helped plunge the team deep into the red.

By the end of the 2002-2003 season, the Blazers' annual payroll topped $100 million, the highest in the NBA. Its annual operating loss also was about $100 million, according to Vulcan spokesman Nank.

The Blazers also maintained one of the largest staffs of any NBA franchise. In an effort to save $4 million, the Trail Blazers and the Rose Garden holding company laid off more than 80 employees in the summer of 2003.

"I got a call from my boss, and she said I had to come to a meeting," said Nick Jones, a 13-year Blazer employee who lost his community-service job urging students to stay in school and pursue their dreams. "It was a very hard meeting. We were all sitting around a table, and she was crying."

In February 2004, in another effort to cut costs, Oregon Arena Corp. — Allen's holding company for the Rose Garden — filed for reorganization in U.S. Bankruptcy Court.

Allen, through spokesmen, said the debt payment on the Rose Garden was too high. In a plan filed with the court, his company proposed selling the arena to a new Allen-controlled corporation for $50 million, then handing that money over to lenders, according to court documents. That was more than $130 million shy of the outstanding debt plus interest.

It was a contentious bankruptcy proceeding. In a report submitted to the court, an examiner noted that since 1998, Allen had received more than $9 million in payments from the arena holding company.

Lenders rejected Allen's settlement offer.

So Allen, in a surprising move, settled the debt by turning ownership of the arena over to the lenders in a court-approved plan. That meant Allen could no longer tap into the revenue that the arena earned from the Blazers and other events, including money from concessions, parking, luxury suites and courtside seats that the arena collected under a 30-year lease agreement with the Blazers.

Allen did what he thought was in the best interests of the team at that time, according to a spokesman. But Allen now thinks the lease terms must be changed for the Blazers to be profitable.

Critics say that lease worked fine so long as Allen controlled both the arena and the team, and that he should never have allowed them to be split.

"This was central to the business strategy behind doing this deal, and I informed him of that numerous times," said Mark Gardiner, a Portland financial consultant whom Allen hired to help structure the original deal. "Any notion that you could just separate them [ownership of the team and arena] was irrational."

Where's Allen?

In recent months, as his Seahawks were headed for the Super Bowl and his Blazers were racking up more losses, Allen's appearances in Portland have become less frequent. His public pronouncements have come through his representatives. They, not Allen, have met with state politicians to try to gain more government support for the team and talked to newspaper, radio and television reporters.

Despite the cloud hanging over the Blazers, a match-up last Wednesday with the Los Angeles Lakers drew a season high of more than 19,000 fans.

The Blazers shook off a six-game losing streak and upended the Lakers. For a moment, it almost seemed like old times.

Cheers thundered through the Rose Garden. Confetti fell from the roof, hailing a rare victory for Allen's Portland team.

Some were looking for Allen. "He has to be here — I don't care how busy he is," said Robert Meade, a longtime Blazer fan.

But Allen's courtside seat was vacant.

Hal Bernton: 206-464-2581 or hbernton@seattletimes.com

Copyright © 2006 The Seattle Times Company

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