Bonus Babies

If voters approve a new downtown ballpark in next month's referendum, Enron chairman Ken Lay will likely take his place in Houston lore alongside such "visionaries" as Judge Roy Hofheinz of Astrodome fame. Prior to his involvement in the stadium negotiations in late August, talks between Astros owner Drayton McLane and the county had bogged down, and the Astros' future in Houston looked bleak indeed (at least, so the media reported).

Enter Lay, who, after meeting with 15 influential executives at the River Oaks Country Club, announced that he would raise between $50 million and $75 million from the business community to help build the new ballpark and a downtown basketball arena, as well as to help finance another renovation of the Astrodome (this time to convert it to a football-friendly facility).

The promise of money talked, because just two weeks later McLane inked a joint agreement with the city and county and Ken Lay, representing a group of businessmen known as the Houston Sports Facilities Partnership, to construct a $265 million ballpark downtown and keep the Astros in Houston for more than 30 years.

Though portrayed in the media as something of a white knight, stepping forward in a leadership vacuum to rescue Houston from the naysayers who would forsake the city's can-do tradition, Lay has said from the start that Enron expects a return, however modest, on its investment. So has another member of the partnership, investment banker Don Sanders, who will put at least $1 million into the deal. "I don't know that any of us just want to make a donation, okay?" Sanders told the Houston Business Journal.

The nature of that return is buried in the fine print of the joint agreement. Though official pronouncements have called the $33 million pledged by the partnership for the ballpark a "contribution," the agreement provides that the money be repaid "within a reasonable period of time." Lay's group, which is currently negotiating to buy the land on which the stadium will be built, will finance the estimated $15 million purchase, as well as $18 million in construction costs, by purchasing bonds from a yet-to-be-formed local sports authority. The bonds will eventually be paid back, with interest, "within a reasonable period of time."

Collecting the interest on its investment isn't the only way the partnership can make money. Lay and friends retain the right to repurchase the land at any time during the next 35 years -- at the original purchase price. If the partnership exercises its option while the ballpark is still functional, it will then lease the land back to the sports authority.

If the revitalization of the surrounding area predicted by the project's boosters does in fact occur, the option could result in a windfall for the partners. To see how that might work, here's a hypothetical: the partnership buys the land for $15 million and sells it to the sports authority for that amount, repayable over 30 years plus interest. After five years, say, the value of the land has doubled. The partnership then buys the land for $15 million and leases it back to the sports authority for a price agreed to in advance, say $1 million a year. The partnership now holds property worth $30 million that it paid half that amount for, plus $1 million a year in revenue from the lease.

Even if the area fails to achieve its potential and land values remain static, the partnership is guaranteed the interest on its original $15 million investment. While the partners could do better on the open market, there's no real risk, either.

Lay also negotiated another interesting option for the partners. According to the joint agreement, they have first choice "to provide goods, services, advertising and naming rights to the new facility at competitive prices and terms."

How does "Enron Park" sound?
More than the right to pay McLane $50 million or so for naming rights, that clause could prove a windfall for those providing goods and services at the park. Anheuser Busch, for example, could make a bundle off the beer concession, and would likely leap at the chance to be a partnership member in exchange for first dibs on the new stadium's taps.

The picture would be clearer if the identity of the partnership members were known. But so far, only a handful have been publicly identified -- Lay, Sanders, Houston Industries chairman Don Jordan (who also chairs the Livestock Show and Rodeo), Century Development Corporation chairman C. Richard Everett, Conoco president Archie Dunham and NationsBank vice chairman Joe Musolino.

As of this week, Conoco spokesman Tom Decola wasn't prepared to say whether Conoco is indeed a partnership member. None of the others were available for comment. Enron spokesman Gary Foster says Lay and company president Richard Kinder, who is also actively working on the project, are hesitant to name names. "They do not feel comfortable in making known the participation of other companies," Foster says.

If the list ever appears, one name will not be on it -- Cameron Frye, the maverick insurance executive whose lobbying for a downtown site for the ballpark preceded Lay's by more than a month. Frye, who spent $200,000 of his own money to design and promote a novel multipurpose stadium, has written numerous letters to the city, county, McLane and Lay, arguing against locating the ballpark at the Astrodome complex. He even deposited $1 million in a bank account to help buy the Astros from McLane.

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