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UO arena revenue forecast scrutinized.

Byline: Greg Bolt The Register-Guard

A flap over how much money a new University of Oregon basketball arena will generate has given critics of the $200 million project a second wind, but it hasn't shaken the university's confidence that the building will pay off.

Whether the arena will be able to pay for itself - with help from a $100 million gift from Phil and Penny Knight - has been a point of debate since the project was first proposed. That debate intensified last week when skeptical faculty circulated a four-year-old report that was critical of an earlier UO arena plan.

That report, by former Eugene City Manager Mike Gleason and completed in 2004, said that revenue assumptions from ticket sales and other sources for the earlier project appeared unjustifiably high and faulted the methods used to calculate them. It calculated lower revenue than the study done the previous year by consultant Conventions, Sports and Leisure Inc. for the UO.

Gleason, using data analyzed by Eugene economic consulting firm ECONorthwest, estimated annual arena net revenues before debt payments at $4.1 million; the 2003 CSL report put them at $5.4 million. The most recent arena study for the UO - in 2007 - also was done by CSL but was based on more detailed information about the size and features of the new arena. It projects net revenue before debt payments of $12.3 million under a conservative scenario to $18.2 million under an aggressive scenario (those amounts are inflation-adjusted to 2010, the year the arena is expected to begin operations).

Annual debt payments are estimated at $14.5 million - meaning that depending on the scenario, the arena could require an annual subsidy from donors, or could generate a surplus for the athletic department.

The wide range of revenue estimates, and the sharply higher numbers in the most recent CSL analysis, has forced the UO onto the defensive as it tries to counter fears that the arena won't generate the kind of money the UO is expecting. That in turn is driving concern that if the arena turns into a white elephant, the university's general fund - the money that's used to educate students - will have to be tapped to bail out the athletic department.

Given the difficulties of predicting how many people will pay more money to attend not only men's basketball games but also women's games, volleyball games and whatever concerts and other events the UO can book into the arena, the university is facing increasing anxiety over its financial risk in taking on the project.

"The fact that there are quite a wide range of revenue estimates raises questions about how much money will actually be raised," said UO biology professor Nathan Tublitz. "That leads to the possibility that there will be difficulties finding the funds to pay the expenses for the arena years down the line. Those of us who are concerned, and there are many, just want to make sure that the arena financial plan remains self-sufficient and does not affect the academic side of the university."

The fact that the university did not promptly release Gleason's report to economics professor Bill Harbaugh when he requested a copy fueled speculation that the administration was trying to hide something. The university said it could not immediately locate a copy of the report.

"I support (UO) President (Dave) Frohnmayer's efforts to build the arena. I believe it will be a big plus for Eugene," Harbaugh said in a e-mail message. "I oppose his efforts to hide important information about this project from the university, the public and the Legislature, while claiming that he has been open and transparent. I think this is a big negative for the cause of good government."

Frohnmayer dismisses the criticism, saying it is wrong to compare the earlier figures with the current ones. The older numbers, he said, were developed before the university had picked and bought the former Williams' Bakery for the arena site, assumed a larger building with less flexibility for other uses and were based on a starkly different financial plan that never anticipated the Knight donation.

"The ECONorthwest report was an exercise," Frohnmayer said. "All the assumptions were completely hypothetical ... and expressly tentative."

Frohnmayer said he remains confident that the newest CSL projections will hold up.

"First of all, it's historically more current based on market testing," he said. "Second, they have a methodology behind them that's much more sophisticated; and finally, it's about this project, located on Franklin Boulevard on property we now own, as opposed to a hypothetical structure of indeterminate location and no specified design."

Gleason supported Frohnmayer's view. In an e-mail to the UO president, Gleason excoriated a story in a Portland newspaper that suggested his analysis could be applied to the new project.

Gleason said he was outraged by that connection and said the earlier work "had no relationship to the current plan you have proposed." He also said that applying revenue projections from the older project to the new one was illogical and "does a great disservice to the legitimate and necessary public discourse around financing public projects.

As for allegations that the university was trying to hide the report, Gleason said he made numerous appearances before neighborhood groups, faculty and business groups after the report was complete to talk about its findings and other issues.

Contacted Tuesday, Gleason again said it would be wrong to judge the current plan against the finding of his older work. If anything, he said, Frohnmayer should be applauded for having addressed in the new arena plan most of the concerns raised earlier.

Not everyone is convinced of that. UO finance professor John Chalmers, who led a faculty subcommittee that reviewed the 2007 CSL study, said the bottom line is that all the studies were trying to assess the same thing: how many people would pay higher ticket prices to attend UO basketball games.

"It is a basketball arena; it is in Eugene. There are only a certain number of people who are going to go to basketball games," he said. "To claim the (different results) are totally irrelevant ... things are different, certainly, but that doesn't mean they're irrelevant."

Lost in the current debate over the older study is its conclusion: that the UO would still come out ahead on the arena. Gleason concluded it just wouldn't have as much net revenue as the UO was expecting at that time.

That's also been the conclusion of nearly every review of the new arena plan, including those by faculty and legislators.

The lone exception is a worst-case scenario in the faculty review that cut revenues to half of the conservative estimate in the 2007 CSL report. And even then, the arena wouldn't be in a financial crisis for almost 15 years, which faculty acknowledged was more than enough time to develop a response.

Even though Frohnmayer downplayed the new round of concerns, he was quick to respond when the controversy spread to the state Legislature and raised concerns among lawmakers.

On Monday, he sent an e-mail to the co-chairmen of the Joint Ways and Means Committee pledging to further protect the university's general fund by establishing a bond reserve fund as further insurance against arena revenue shortfalls.

Legislators largely said the questions raised by the older studies haven't turned them against the arena, and the UO's chances for getting legislative approval for the bonds appear to remain good. Gladstone Democratic Rep. Dave Hunt, the House majority leader, said Tuesday that he hasn't heard of any significant opposition to the idea. A floor vote on an omnibus funding bill that includes the UO bonds has not been scheduled.
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Title Annotation:City/Region; The wide-ranging estimates of proceeds have forced the university onto the defensive
Publication:The Register-Guard (Eugene, OR)
Date:Feb 14, 2008
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