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----- Forwarded by Steven J Kean/NA/Enron on 10/16/2000 10:26 AM -----

	Ann M Schmidt
	10/16/2000 08:26 AM
		 
		 To: Mark Palmer/Corp/Enron@ENRON, Karen Denne/Corp/Enron@ENRON, Meredith 
Philipp/Corp/Enron@ENRON, Steven J Kean/NA/Enron@Enron, Elizabeth 
Linnell/NA/Enron@Enron, Mary Clark/Corp/Enron@ENRON, Laura 
Schwartz/Corp/Enron@Enron
		 cc: 
		 Subject: Enron Mentions







A Trio of Little Guys
Embarks on Wild Ride
In Global Oil Market
---
Pursuing Business With DOE,
Their Paths Diverge; One
Leads to `a Lot of Money' 
By Wall Street Journal staff reporters John Fialka in Denver, Alexei 
Barrionuevo in Tallahassee, Fla., and Jonathan Weil in New York 
? 
10/16/2000 
The Wall Street Journal 
Page A1 
(Copyright (c) 2000, Dow Jones & Company, Inc.) 
Lance Stroud of New York, Renard D. Euell of Denver and Ronald Peek of 
Tallahassee, Fla., all had dreams of becoming oil barons. And on Oct. 4, when 
the Department of Energy announced the results of the bidding for oil from 
the nation's Strategic Petroleum Reserve, they thought their ships had come 
in. 
Two of the three black entrepreneurs were unknowns in the industry, and none 
of them had ever done a major oil deal. But there they were, listed as 
winning bidders alongside some of the biggest names in the business -- 
Marathon Ashland Petroleum LLC, Morgan Stanley Dean Witter & Co., BP Amoco 
PLC and Amerada Hess Corp. Each would be given the right to withdraw millions 
of barrels of oil from the reserve amid one of the most volatile oil markets 
in decades. In exchange, each had offered to replace that oil, plus an 
additional amount akin to an interest payment, a year later. They and the 
other winning bidders, the Energy Department said, were picked soley because 
they pledged to return the biggest quantities of oil to the reserve. 
There was just one catch: In its rush to release the oil and so ease a price 
crunch, the Energy Department had suspended its usual requirement that each 
bidder supply financial guarantees. But it wanted the winning bidders to 
present letters of credit, equal to the oil's market value, five days after 
their bids were submitted. The big players could easily meet that 
requirement. But Messrs. Stroud, Euell and Peek were men of limited means. 
They needed to find someone willing to back them for tens of millions of 
dollars -- and fast. 
The drama made for an unaccustomed scene in Harlem, where the 35-year-old Mr. 
Stroud lived with his 74-year-old mother. A heavy-set man with a goatee, Mr. 
Stroud, a former Army enlisted man who had dropped out of college shy of 
graduation, had held a string of odd jobs while using the Internet to seek 
out a big business deal. 
The aspiring oil man had entered his bid for four million barrels from the 
reserve, via the Internet. He won't discuss the details of his bid, but says 
he thought he could outbid the large oil companies because he didn't have as 
much overhead. After the winning bids were announced, Mr. Stroud became 
something of a celebrity. TV news crews arrived to interview his neighbors, 
many of whom had no idea what all the fuss was about. "I thought he [Mr. 
Stroud] was some kind of rap star," recalls Carline Thomas, who lives down 
the hall from him. 
As neighbors paused to shoot the breeze on the steps of nearby residential 
buildings, most marred by graffiti, Wall Street couriers bearing fat packets 
of information spent the week scurrying back and forth from Mr. Stroud's 
apartment on a seedy block in Harlem's central business district. 
Inside Mr. Stroud's apartment, the telephone wouldn't stop ringing, and his 
mother was helping him field the calls. He says he was in serious talks with 
four companies. And a movie producer was interested in his life story. Then, 
amid the chaos, tragedy struck. On Tuesday night, his mother, Iris Manning, 
suffered a cardiac arrest, and was taken to a hospital a few blocks south of 
Mr. Stroud's apartment. 
Mr. Stroud said he spent most of Wednesday running between his apartment and 
the hospital, taking occasional phone calls to deal with prospective 
financiers. Ms. Manning went into cardiac arrest three more times, and died 
at 9:47 p.m. Wednesday evening. 
Mr. Stroud was dazed by the fact that what he called the two biggest events 
of his life -- the death of his mother and his selection by the Energy 
Department -- occurred almost simultaneously. "I'm saying `there must be some 
reason I'm here,' " he said later. "These things happening like this, the 
odds must be in the millions." 
Mr. Stroud won't discuss which companies were vying for his oil, but he says 
at one point he thought he had an offer to buy him out for $1.50 a barrel, or 
$6 million. The most serious discussions began Thursday, with a 
representative from a refining company, which he refuses to name. From that 
discussion Thursday until the following evening, Mr. Stroud says, he was 
confident that the refiner would grant him the letter of credit he needed. 
But at 9 p.m. Friday, three hours before his deadline, Mr. Stroud said he got 
a call telling him the deal was off. "I was upset," he says. "I mean, instead 
of wasting my time with that I could have obtained the financing quickly" 
from some other source. 
A spokesman for Koch Industries Inc., based in Wichita, Kan., said it was in 
negotiations with both Messrs. Euell and Stroud. "We invited them to make a 
deal that made economic sense." BP Amoco said it also had discussions with 
Mr. Stroud. 
Mr. Stroud now says the DOE should have given him an extension, under the 
circumstances. "If your mother passes, aren't you given three days to 
grieve?" Mr. Stroud asks. His mother's funeral is scheduled for Wednesday, 
which would have been her 75th birthday, he says. 
Mr. Euell ran a small company, Euell Energy Resources, whose 12 employees 
helped him broker natural-gas sales and other small energy deals. By night, 
he worked the phones from his home in a modest Denver suburb, calling oil 
producers in Nigeria and energy brokers in Singapore and Sydney, always 
looking for the big score that would make him rich. 
A friend, Norman Early, a sometime golfing partner and a former Denver U.S. 
district attorney, says the 50-year-old Mr. Euell is "one of those guys who 
shoots for the stars." On Oct. 4, Mr. Euell thought he had hit one. He had 
been awarded the right to withdraw three million barrels of oil from the 
Strategic Petroleum Reserve, in exchange for returning 3.3 million barrels a 
year later. That was enough oil to fill 14,019 conventional tank trucks. 
Knowing he would need a partner to provide financial backing, Mr. Euell had 
already placed a call to a man he'd never met: Kenneth L. Lay, chairman and 
chief executive of Enron Corp. He said he was sure he was going to be one of 
the top bidders for the reserve oil. Would Enron like to be his partner? 
Within a few hours John Nolan, the giant energy company's vice president in 
charge of trading, called from London. Enron , he said, was interested. 
By Oct. 6, the price of oil had already fallen, making Mr. Euell's bid look 
generous. Still, he felt bullish. "I'm betting on Mother Nature, that she's 
coming back this winter and that oil's going to be more valuable." 
It wasn't Mother Nature, but the crisis in the Middle East that turned things 
around. Monday, Oct. 9, the target price for November oil futures on the New 
York Mercantile Exchange, jumped a dollar to $31.86 a barrel and headed 
higher. Mr. Euell flew to Houston and took a room at the Hyatt Regency, from 
which he could see Enron 's 50-story office tower. 
By Tuesday, the price of oil had hit $33.18. By Mr. Euell's calculations that 
meant a $3 million profit for him and an equal amount for his prospective 
partner just across the street. Enron 's lawyers were working on an agreement 
that would substitute Enron as the major party in Mr. Euell's contract, he 
said, and were drawing up the letter of credit for $93 million that the DOE 
required. 
Eager to close the deal, Mr. Euell called Enron trader Patrick Danaher, who 
was working on the project. "I want to sign this thing up today," Mr. Euell 
told him, claiming that he had received an offer from another, unnamed firm, 
offering to buy his contract for $1.2 million. According to tapes of the 
conversation provided by Enron , Mr. Danaher said the paperwork was under 
way: "Let me see if we can do that today." 
Mr. Euell called backed at 11:30 a.m. and again at 11:45 a.m. Each time, the 
trader sounded more pessimistic. Prospects were "50-50." When Mr. Euell 
suggested he had other offers, Mr. Danaher told him: "If you have a bid at 
$1.2 million, you should take it. A bird in the hand is worth two in the 
bush. I just have to tell you that." Still, he invited Mr. Euell to dinner. 
Tuesday's deadline passed without dinner or any action from Enron . While it 
appears from the tapes that the parties had been close to an accord, Eric 
Thode, a spokesman for Enron 's trading branch, says: "At no time was there 
anything remotely resembling a deal with Mr. Euell." 
Mr. Euell got the DOE to agree to extend the deadline for another 24 hours 
and, after a round of frantic phone calls, says he collected pledges from a 
group of European banks to support the $93 million letter of credit. But, 
when the new deadline expired, he still had failed to get the proper 
paperwork to the DOE, which then declared his award to have lapsed. "They 
played me," Mr. Euell complains, blaming Enron for the missed deadlines. 
Still, he says, the experience amounted to an instant "Ph.D." in oil. Next 
time, he vows, he will have his own letter of credit. 
The DOE said late last week that it will accept new bids on the seven million 
barrels of oil Messrs. Stroud and Euell forfeited. 
As for Mr. Peek, he remains the mystery man of the three. His company, 
Burhany Energy Industries Inc., was formed Aug. 21. It employs no one but Mr. 
Peek himself. Staffers at the Florida Black Business Investment Board, where 
Mr. Peek works as a business-development specialist, said he had taken last 
week off. Shutters were drawn at his modest, one-story house in Tallahassee. 
Phone calls to Mr. Peek were forwarded to an unidentified neighbor. In an 
e-mail to a reporter, Mr. Peek apologized for being unreachable. He was 
"working relentlessly to consummate this transaction" and couldn't "entertain 
any distraction at the moment." 
On Saturday, the Department of Energy announced that Mr. Peek had 
successfully transferred his interest in three million barrels of government 
oil to Hess Energy Trading Co. of New York, a partnership that includes 
Amerada Hess. Amerada Hess Vice President Carl Tursi said he could give few 
details of the deal, except to say that he believes there was an 
"arrangement" that resulted in "a lot of money" for Mr. Peek. 



Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. 	







Financial 
DEAL OF THE WEEK; Artesia Seeks a Link To Information Firms 
Nicholas Johnston 
? 
10/16/2000 
The Washington Post 
FINAL 
Page E05 
Copyright 2000, The Washington Post Co. All Rights Reserved 
Rockville-based Artesia Technologies wasn't just interested in another 
venture capital investment. It wanted partners. 
In its recent $26 million funding, the digital asset management company's 
second round, its venture capital lead was joined by a group of "strategic 
partners." 
Artesia wanted to form relationships with other information management 
companies, instead of working only with banks or venture capital firms. "We 
wanted to make it more of a partnership with other companies," said Brian 
Hedquist, Artesia's marketing communications manager. 
For example, in September, Vignette Corp. of Austin announced an agreement 
with Artesia to create an Internet commerce application. Now with Vignette's 
investment, the relationship is strengthened. "It's not a pure financial 
investment," said Hedquist of the equity stake Vignette and the other 
strategic partners have in Artesia. "They have a vested interest. We're all 
going to benefit." 
Artesia was born last year in a management-led buyout with the help of $25 
million from Warburg Pincus. 
CEO Chris Veator created the company when he and a group of insiders led a 
buyout of the information management division of Boston-based financial 
information giant Thomson Financial Corp. 
Veator's idea was to jump into digital asset management for a broad array of 
clients, not just managing information for publishing companies and new 
organizations. 
"We found very quickly," Veator said, "that the real opportunity was not just 
in the publishing community." 
Company officials said the funding will help Artesia pursue more 
international expansion opportunities, the primary focus of which will be 
Europe, where Artesia opened a London office last June. Also, the financing 
will be used to increase the sales and marketing staff. Veator expects the 
staff to double and revenue to triple over the next 12 months, though he 
declined to give any financial information. 
Artesia Technologies 
Deal size: $26 million 
Investors: Led by Warburg Pincus Ventures; EA Systems Inc., Enron Broadband 
Services, Vignette, Razorfish and Protege Virtual Management Solutions 
Description: Digital asset manager, helps companies catalogue, search and use 
stored digital information 
Headquarters: Rockville 
Employees: 140 
Web site: www.artesia.com 

Contact: http://www.washingtonpost.com 
IG 

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. 	





Oct. 16, 2000, 11:01PM
What public gets is at heart of arena issue 
By ERIC BERGER 
Copyright 2000 Houston Chronicle 
When Enron Field opened this spring, the Astros boasted to fans that they 
were playing baseball the way it was meant to be -- on real grass, under the 
open sky. 
Blocks away, the Rockets and most of the city's political and business elite 
are asking voters for a new basketball arena. 
Yet, if voters approve the construction in the Nov. 7 election, the game 
still would be played indoors on a hardwood floor. An arena is, after all, an 
arena, and basketball already is played in Houston the way it was meant to 
be. 
The team points to such fan benefits as a flashier show, with modern video 
and sound equipment, and a more competitive team funded by higher revenues. 
The arena's influential backers say an arena would spur downtown development, 
strengthen the economy and help affirm Houston's position as a world-class 
city. 
For nonfans, it's difficult to predict how many of these benefits an arena 
actually would generate. More calculable is the financial effect it would 
have on Rockets owner Leslie Alexander and, to a lesser extent, the city of 
Houston. 
Compared with his bare-bones lease at Compaq Center, Alexander and the 12 
players who wear his uniform stand to benefit greatly. 
Based on estimates from other new arenas, Alexander stands to reap $30 
million to $45 million more a year were he to go from being a tenant at 
Compaq Center to being landlord of a new arena. For about $7 million a year, 
Alexander would enjoy revenue from such sources as 100 luxury suites, premium 
club seating near the court, selling the building's name and even bestowing 
upon Miller, Coors or some other brewer the right to sell $6 beers. 
Granted, going from tenant to landlord would boost his costs. Less the rent 
he now pays at Compaq Center, Alexander would spend $8 million to $10 million 
a year to keep the lights on. 
For players, there's no such overhead. They would share the windfall. Under 
the collective bargaining agreement ratified in January 1999, most revenues 
collected by NBA owners are stirred into a mythical pot, out of which 55 
percent is divided by the number of teams to determine a salary cap. 
For the city's part, it would spend less money buying and preparing land for 
the arena under this year's deal, with expenses capped at $20 million. A 
different location chosen in last year's plan would have cost the city at 
least $15 million more. 
Both this year and last the city was to own the land and arena after 30 
years. Now the city would get a parking garage, too. 
In the revised agreement, the city also would receive $200,000 a year, use of 
the arena for convention-related events or fund-raisers on 20 days a year, 
and a suite between the free-throw lines. 
It's a "much better deal" for Houston, says Mayor Lee Brown, who, as a chief 
negotiator and supporter of the previous deal, is among the least likely to 
make such admissions. 
City officials have valued the suite at $250,000 to $500,000 because it would 
allow Houston to woo convention center customers. The Rockets plan to sell 
the suites for $100,000 to $150,000 each. 
The suite actually could cost more than it is worth if the city opts to cater 
games for visitors. This year, the sports authority spent about $65,000 on 
food for about 80 dates at Enron Field. There would be at least twice as many 
events in the arena. 
The public would make its greatest contribution through the Harris 
County-Houston Sports Authority. 
That board would sell bonds to cover the arena's $175 million design and 
construction cost. Appointed by the city and county to collect hotel and car 
rental taxes to finance stadium construction, the 13-member sports authority 
also would repay a $30 million loan -- interest-free for the first five years 
-- from business leaders earmarked for a parking garage. 
What does the public get in return? 
"Something much bigger," said Ken Lay, co-chairman of the pro-arena campaign. 
"It's making Houston, Texas, and particularly downtown, a much more viable 
economic area. Making it more attractive for business to come to town, making 
it more attractive for conventions to come to town, and making it more 
attractive for the best and brightest talent in the world to come here and 
work with us." 
Moreover, supporters say a downtown arena, with its advanced sound and video 
systems, wider concourses, scores of restrooms and a constellation of 
eateries, would be like going from a phonograph to a hi-fi stereo. 
Some longtime Compaq Center patrons who have visited new arenas agree. 
"When people go to Enron Field they've had an experience," said fan Rebecca 
Tonahill, 53, who attends a couple of dozen Rockets and Comets games a year 
and has traveled to Los Angeles and Indianapolis arenas that opened last 
year. "You don't get an experience at Compaq Center, but I think they could 
capture some of that with the new arena." 
Overall analyses of the deal's bottom-line cost vary by how much the sports 
authority loses, if anything, from building the parking garage. 
Harris County Tax Assessor-Collector Paul Bettencourt calculates the Rockets 
would pay only 30 percent of the arena's total cost, which comes to $256 
million by his tally, and the public would pay the remainder. Ric Campo, the 
sports authority's financial whiz, contends the team's contribution would be 
closer to half of the $220 million he estimates as the total cost. 
Depending on how the numbers are manipulated, both are right. 
Bettencourt believes the public would pay the parking garage's entire $35 
million cost. 
A sore spot among tax watchdogs has been the sports authority building a 
garage that Alexander will have exclusive profit from during his events, 
including games involving the Rockets and Comets basketball teams and 
ThunderBears arena football team. 
Still, said Campo, the sports authority has use of the garage at all other 
times, which he says would be enough to cover annual garage payments. The 
private loan is interest-free for the first five years, which would save $9 
million. 
What is clear is that taxpayers would spend between $125 million and $175 
million to build an arena that would create wealth for a few. Arena opponents 
call it corporate welfare. Supporters say it's a good investment. 
It has happened before, to an even greater extent, with the construction of 
Enron Field for Astros owner Drayton McLane Jr. and the football stadium for 
Houston Texans owner Bob McNair. 
"This point always raises serious questions about balance in people's minds," 
said Dennis Howard, a sports marketing professor at the University of Oregon. 
"Those paying the greatest share are not getting the benefit. They often 
can't even afford to go." 
The counter-argument from arena supporters is that visitors pay most hotel 
and car rental taxes. Bettencourt has studied the issue and concluded that 
locals pay at least 30 percent of the visitor taxes. 
Howard's research suggests about one of every 10 people who live in a market 
where a major-league sports team gets a new building ends up using the 
facility in a given year. However, the study did not differentiate arenas 
from football or baseball stadiums. Arenas probably would attract more people 
because of the many nonsporting events held there. 
Not only do fans pay for the building with taxes, they are hit again by more 
expensive tickets, said Howard, noting that average ticket prices jump by 30 
to 40 percent in a new building. 
The Rockets disputed that, citing a study of six recently opened arenas where 
prices jumped from 7 to 28 percent. The team's chief operating officer, 
George Postolos, said the Rockets have not raised the price of the most 
affordable tickets in five years. He said the team would remain committed to 
keeping a comparable number of affordable seats in a new arena. 
Customers buying expensive tickets, typically corporations, would feel the 
bulk of the increase. 
"Premium seat holders get more in a new building," he said, "and they pay 
more for it." 
Houston voters, at least, have a fairly clear idea of who is getting what in 
this deal. "It's all right there on the table," notes Bob Eury, president of 
Central Houston Inc. 
That is not always the case when teams and governments are eager 
collaborators in search of public support. In Indianapolis, for instance, 
local media suggested the agreement to build the $183 million Conseco 
Fieldhouse involved $104 million in private money and $79 million in public 
money. One reporter writing in the Indianapolis Star's special arena-opening 
section went as far as to write: "This isn't Houston or Hartford, Conn., or 
those other cities that swung open the public vault when it came time to pony 
up for new sports facilities." 
An arena built with less public than private money in such a small market 
would be something worth bragging about. 
The reality in the bond documents is much different: The city's capital 
improvement board sold $222.6 million worth of bonds to finance the arena and 
a parking garage. Those bonds will be repaid by a dizzying array of taxes, 
including a cigarette tax, car-rental tax, hotel tax, a tax on goods sold at 
the arena, and a diversion of state income taxes on player's salaries. 
The private contributions come from $10 million worth of donated land, a $37 
million loan to be repaid by the city, and, as touted by the Star, $57 
million from the Pacers basketball team. 
But the Pacers' "contribution" is made up almost entirely of revenues the 
city expects to generate from the arena's publicly financed parking garage 
when the team is not using it, according to an attorney who worked on the 
bond sale. 
Advertising for the arena in Houston so far has been accurate, but there are 
two sides to some of the numbers presented. 
A common claim is that the Rockets would pay $8.5 million a year in rent, 
appearing most recently in an Oct. 1 opinion piece by sports authority 
Chairman Billy Burge. This implies that more than half the $13 million to $14 
million the sports authority would pay on its arena debt each year would come 
from the Rockets. 
Actually, of this "rent," $1.6 million would be put into a fund for major 
arena repairs. Another $1.5 million would be paid to the sports authority, 
but if the sports authority could pay its annual debts, the money would be 
refunded to the Rockets. The sports authority would have enough money to pay 
its debt on three stadiums if its tax revenues rise at 3 percent. They have 
grown at around 10 percent in recent years. 
Finally, another $200,000 of the "rent" is paid to the city. 
Boosters also commonly promote arenas to voters as engines of economic 
development, generating millions of dollars in sales taxes. 
But even if the teams left, most personal leisure spending would simply be 
spent on movies, the arts or other forms of entertainment, said John 
Siegfried, a Vanderbilt University economics professor. 
The other major chunk, from sales taxes on corporate spending at the arenas, 
often comes from advertising budgets, he said, and there are other 
promotional activities where the money could be spent. 
"Repeatedly, we're finding the emperor has no clothes," said Howard, of 
Oregon. "These buildings are sold as economic development engines, but the 
economic impact they create is negligible." 
Studies by professional consultants may, and often do, find otherwise, but 
they are usually commissioned by a team or government seeking to justify 
public spending on a new facility, Siegfried said. 
Campo countered that building Enron Field has already fueled local economic 
gain from higher property tax revenues. The ballpark's 10 blocks of land were 
purchased at $12 per square foot, he said. A single block across the street 
was recently sold for $100 a square foot to Trammel Crow. 
Land values around the arena site have likewise doubled within the last year 
on speculation of development there. 
"That's creating a lot of value for the city, county and schools," Campo 
said. 
Economists, including four interviewed for this article, argue that spending 
public money in other ways, such as tax abatements to developers, would 
stimulate even more activity. They point to research in respected economic 
journals that has found higher high school graduation rates and more spending 
on police encouraged economic growth, whereas a major-league sports team 
actually put a drag on the economy. 
By Texas law, the sports authority may not spend the taxes it collects on a 
venue unless it is approved by voters, and it may spend its revenue only on 
sports facilities or other community projects like an arts center. 
Its 2 percent hotel tax and 5 percent car rental tax will not rise if the 
arena proposition passes. Adding arena payments to its existing debt would 
completely tap its resources, however. 
The board has not addressed what to do if the arena fails. To spend money on 
anything other than an approved venue, such as hospitals or schools as 
opponents suggest, would require legislative action. 
Return to top

	

	

OUTLOOK
Editorials
FOR ARENA / Many concrete reasons to support this proposal Nov. 7
Staff

10/15/2000
Houston Chronicle
4 STAR
2
(Copyright 2000)

Houstonians are no strangers to the many arguments for and against the 
building of new sports arenas. We've hashed and rehashed them often in the 
past few years. We've put one facility - Enron Field for baseball downtown - 
on the map, and we're erecting another - a new football/rodeo stadium at the 
site of the Astrodome. 
A decision on a third piece - a downtown basketball/hockey arena - is 
forthcoming on the Nov. 7 election ballot.
The Chronicle urges voters to vote for the arena referendum. 
It makes sense for Houston to finish the third leg of this sports facility 
package as both a quality-of-life amenity and a valuable economic development 
tool. 
The arena proposal is essentially the same one, in terms of financing, as the 
others that were approved by voters in 1996. Tax dollars will be spent 
sparingly, taxpayer liability is limited, and taxpayers are even protected 
from having to pick up cost overruns. 
The fact there is a relative consensus on the proposal, or at least a lack of 
vigorous opposition as there was on a previous proposal, is a signal that 
this deal is a better one for Houston. The building's tenants, the Houston 
Rockets and Comets, are paying a fair share of the costs. 
Ticket and parking taxes have been eliminated from the new proposal. 
Many people find the "corporate welfare" aspect of publicly financed arenas 
distasteful, and some of their concerns have merit. But the reality is that 
major league sports teams are amenities that help cities and all of their 
residents. That's part of the reason so many cities compete to have them and 
retain them. 
Houstonians have debated this issue for years, and some people will adhere, 
no matter what, to the philosophy that sports teams shouldn't be publicly 
subsidized. Continued debate won't change their minds. 
We believe the presence of sports teams and facilities such as these is a 
plus for the city that far outweighs the public costs. 
It's not an esoteric, theoretical discussion. The proof is concrete - as 
concrete as the 18 new projects developed in downtown around Enron Field. 
They include a mix of residential, office and entertainment facilities 
totaling about $700 million. 
The economic activity these enterprises generate is already a boon to 
Houston's economy. The property value they add to the tax rolls will more 
than offset the public investment costs of Enron Field. 
Some critics of the arena have posited the theory that funds needed for 
public safety, such as improvements to the Fire Department, will be raided or 
shortchanged by the city's commitment to the arena. But that's simply not the 
case. The increased property taxes and other benefits of a more dynamic 
downtown will repay the city's investment many times over. That's new tax 
money available to the city's general fund, which pays for police and fire 
protection. So, it's not an either-or decision. 
Furthermore, what the stadium and all this activity have done for downtown, 
and for Houston's image as a whole, is quite remarkable. 
Remember, downtown's northeast quadrant was was a virtual ghost town of 
dilapidated warehouses and empty fields only a few months ago. Enron Field, 
coupled with Theater District development and other projects, has put to rest 
almost every argument that was made against the building of that stadium. 
A downtown arena would help complete the renaissance of the area and would 
put money into the public coffers. 
These are all strong reasons to vote enthusiastically for the arena proposal 
on Nov. 7.


Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. 


A
Is new arena deal a slam-dunk for taxpayers? / Houston's costs, funding for 
NBA team compared to other cities
ERIC BERGER
Staff

10/15/2000
Houston Chronicle
2 STAR
1
(Copyright 2000)

Those who support subsidizing an arena to keep the Houston Rockets in Space 
City hail the deal struck this summer. It's better for taxpayers than last 
year's accord, they say. It's comparable to what the Astros and Texans got. 
Perhaps more important, they say, the agreement Houstonians will vote on Nov. 
7 is a "market deal" that compares favorably with other arenas built in 
recent years for National Basketball Association teams.
But does it really? 
A Houston Chronicle study of the seven most recently built U.S. arenas for 
NBA clubs reveals that four were constructed with less tax money than will be 
spent here if voters approve next month's arena proposition. One had a 
slightly larger public contribution and two were built with considerably more 
public money. 
There are good reasons for this, arena boosters contend. Unlike Houston, 
three of these four cities offering lesser subsidies provided other 
incentives. 
In Dallas and Los Angeles, they note, the government condemned whole blocks 
of land for private development around the arena. In Atlanta, Ted Turner was 
given carte blanche to develop public land. 
All of the markets that received a smaller subsidy also had both major league 
basketball and hockey teams, which could share the construction costs. Two 
teams generate more revenue, which tends to make the public contribution less 
vital. 
"This is one of the largest single-team contributions to a building ever," 
said Rockets Chief Operating Officer George Postolos, whose team is paying 
about $7 million a year for control of the Houston arena. 
Still, there is another general rule of thumb when it comes to determining a 
public subsidy. Historically, the less populous a city and its suburbs, the 
more public money is needed to complete an arena project. With their bevy of 
Fortune 500 companies, larger cities far outstrip the mid-sized markets' 
capacity to buy the pricey suites and club seats that make new arenas so 
lucrative for NBA owners. 
Strikingly, an arena was built with far fewer tax dollars in one city smaller 
than Houston - Denver. 
Atlanta, a market comparable to Houston, built an arena with considerably 
less public money. 
This was also the case in two larger markets. Los Angeles built an arena with 
almost no public money, and Dallas' expensive project had substantially less 
public than private money involved. 
Only two of the cities reviewed, San Antonio and Indianapolis, built arenas 
with larger public money contributions, which is consistent with their 
relatively small market stature. 
"The arena deal follows the Enron Field-type of model," said Harris County 
Tax Assessor-Collector Paul Bettencourt, who released a study critical of 
Houston's arena plan but has not campaigned against it. "It's consistent with 
how the baseball and football stadiums were built in Houston. 
"But it's clearly not the model for arenas in the rest of the country, from 
Los Angeles to Atlanta to Denver." 
Conservative activist Bruce Hotze, who recently launched an effort against 
the arena, says Houston should follow the example of other cities where the 
owners of sports teams - such as the Utah Jazz in 1991 - have primarily paid 
for their facilities. He characterizes anything less as corporate welfare. 
The list of factors determining how far a team can dip into public coffers 
goes on, from the breadth of a team's local following to its success and its 
owner's popularity, said Andrew Zimbalist, a Smith College economics 
professor. 
But the overriding factor is probably simpler, he said. 
"The best strategy for any team to follow is to ask for so much money that 
the referendum passes by a tenth of a percentage point," Zimbalist said. 
"Teams will get as much as they can. If it passes by 5 percent, the owner, 
usually a smart businessman, has done himself a disservice." 
Another big factor is a threat to move. 
This has loomed over Houston since NBA Commissioner David Stern announced 
earlier this year that he was "certain" the Rockets would leave town without 
a new building. 
When the Denver Nuggets wanted a new arena in the mid-1990s they had a decade 
left on their lease. The Rockets have just three years left before they can 
leave Houston. Otherwise, Denver's circumstances as its leaders began 
negotiating with the team were remarkably similar to Houston's. 
The city had just spent about $200 million in public money to build Coors 
Field for the Colorado Rockies baseball team, and was contemplating an even 
larger expenditure to replace Mile High Stadium for the NFL's Broncos. 
But when it came to the city-owned McNichols Arena, built, like Compaq 
Center, in 1975, the attitude was that if the team's owner wanted a new 
building he would have to do it largely with public money, said Dean Bonham, 
a Denver-based sports consultant. Eventually, the owner got some city 
concessions totaling about $30 million but paid for all the arena's 
construction costs. 
A few years later in Houston, after building Enron Field and ponying up for a 
new football stadium, public leaders have signed a similar, heavily 
subsidized plan for the basketball team. 
What was it that opened Houston's treasury when Denver's was closed? 
"I can sum the difference up in one word: leverage," Bonham said. "The Denver 
teams weren't going anywhere soon. The Rockets got a green light to go." 
In Miami, a smaller market where a building was constructed with slightly 
more public money than would be spent in Houston, the Heat's first arena was 
only 8 years old when the team asked for a new facility. 
At first team officials, amid threats of leaving, managed to cut a deal with 
the Miami-Dade County Commission to build a $165 million arena on Biscayne 
Bay with only $50 million coming from the team. 
But leading up to a referendum a new county mayor, Alex Penelas, was elected 
in part because he campaigned against public financing for the arena, saying 
the county had "given away the kitchen sink." 
Later, a deal was struck in which the team paid for the arena's construction 
and the county bought bayfront property and helped the team with annual 
operating costs. 
This dramatic game of building publicly backed sports stadiums with 
questionable public support is so familiar throughout the United States that 
it has practically become the fifth major league sport. 
More than $21.7 billion has been spent or committed on 95 built or planned 
big-league stadiums since 1990, and, according to several economists' 
calculations, two-thirds of that money comes from public sources. 
In Houston, more than two-thirds of the nearly $1 billion in built, planned 
or proposed stadiums since 1996 has or would come from public sources. 
In spring 1996, citing aging facilities and unprofitable leases, the Oilers 
had left town and the Astros were making threats. The still-champion Rockets 
were bound here into the new century, but would soon sue to break that lease 
and were making no promises beyond 2003. 
The Astrodome and Compaq Center had lost their sheen amid a nationwide tide 
of stadium building that is only now ebbing. Political leaders decided they 
must do something to stop the defection of Houston's pro sports teams. 
For several months, a blue-ribbon commission chaired by Pete Coneway and Ben 
Love tackled the issue, ultimately deciding, as elsewhere around the country, 
that the city and county should help build new facilities for baseball, 
football and basketball. 
From this blueprint arose the Harris County-Houston Sports Authority, which 
has helped fund two of those facilities and is seeking voter approval to 
spend its remaining tax revenues on a new downtown basketball arena. 
The Astros hit the jackpot with Enron Field, which has propelled their 
attendance to more than 3 million for the first time. After the Oilers made 
good on their threat to move to Nashville, it took Bob McNair's $700 million 
and Texas charm, as well as a $367 million football stadium, to bring the NFL 
back. 
Sports authority members say that if McNair's experience teaches Houston 
anything, it will take a far greater investment than the proposed arena's 
costs to return the NBA should the Rockets leave. 
They point out as well that in building both the baseball and football 
stadiums, although each cost more than the arena, Alexander would pay more 
than has either McNair or Astros owner Drayton McLane Jr. 
Houston's arena deal, as complicated as it appears, lacks the hidden value 
attached to some other deals, which Rockets officials say makes sports team 
owners in the other markets appear less mercenary at first blush. 
More than two years ago Dallas voters approved a $125 million public 
contribution to a new arena by a handful of votes in a citywide referendum. 
A scrappy coalition of opponents, which had only $75,000 to spend, tried to 
point out that the public was giving up much more than the $125 million. 
Beneath that widely reported figure was essentially freedom for the arena 
developers, Dallas Mavericks owner Ross Perot Jr. and Dallas Stars owner Tom 
Hicks, to proceed with an 18-city block, $1 billion overall development with 
the city's blessing. 
In January, Perot sold the Mavericks basketball team to Internet billionaire 
Mark Cuban. 
Perot, who had bought the team only four years earlier, said he was 
interested in the new arena largely for the related development 
opportunities. 
"A lot of people look at a basketball team as an anchor tenant for an arena. 
I look at an arena as the anchor tenant for a much larger program," he said 
upon selling the Mavericks. His Hillwood Development Corp. retained the 
development rights. 
To aid the development, the city of Dallas condemned much of the land and 
offered as much as $30 million for infrastructure work to spruce up the 
property. 
The city also let both the Stars, a hockey team, and Mavericks out of their 
Reunion Arena leases several years early and went so far as to ensure no 
other sports referendums would be on the same ballot. Hillwood also got a 4 
percent construction management fee and Hicks 1.5 percent as part of the $325 
million in public and private money spent on the arena. 
"Oh sure, there were kickbacks and all that," said Sharon Boyd, co- 
chairwoman of the opposition group It's a Bad Deal! 
"It was like all of a sudden there were five men in Dallas that got free land 
and didn't have to pay taxes. That's a sweet deal." 
Like Dallas, Atlanta offered Ted Turner a plush real estate deal to keep the 
Hawks basketball team in the city, freeing up the NBA team to pay more than 
half the arena's actual construction cost. 
Hawks' owner Turner Broadcasting Co. was given 10 years to add development to 
the public land the arena was built on, with streets, roads, sidewalks and 
other needed infrastructure paid for with tax money. 
In Los Angeles, the city condemned most of about 30 acres surrounding the 
privately developed Staples Center for a hotel, restaurants and an 
entertainment district. 
"The subsidies take all kinds of forms," said Robert Baade, an economics 
professor at Lake Forest College in Illinois. 
"The cities and teams have become much more clever about how they finance 
these things and hide the public subsidies." 
Monday: Who would pay, who would benefit from a new arena.


Graph: 1. Basketball arena deals (p.18); Photos: 2. Houston Rockets Proposal 
arena (p.18); 3. San Antonio Spurs: SBC Arena (p. 18); 4. Dallas Mavericks: 
American Airlines Center (p.18); 5. Atlanta Hawks: Phillips Arena (p.18); 6. 
Denver Nuggets: Pepsi Center (p.18); 7. Los Angeles Lakers, Los Angeles 
Clippers: Staples Center (p.18); 8. Miami Heat: American Airlines Arena 
(p.18); 9. Indiana Pacers: Conseco Fieldhouse (p. 18) 

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.
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