Vanderbilt Journal of Entertainment & Technology Law

Volume 1 Issue 1 Article 6

1999

Phoenix Rising: Inside the Owner's Box with Counsel to

J. S. Ruffner

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Part of the Entertainment, Arts, and Sports Law Commons

Recommended Citation J. S. Ruffner, Phoenix Rising: Inside the Owner's Box with Counsel to Jerry Colangelo, 1 Vanderbilt Journal of Entertainment and Technology Law 75 (1999) Available at: https://scholarship.law.vanderbilt.edu/jetlaw/vol1/iss1/6

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n late spring of 1987, I received a telephone call that changed my law prac- tice. Jerry Colangelo, General Manager of the Suns since its arrival in Phoenix as an expansion NBA franchise in 1969, called me to discuss representing a group of inves- tors he was putting together for the purchase of the franchise. At the time, the Suns franchise was the only major professional sports team in Arizona and had been very successful. Unfortunately, the reputation of the team, care- fully nurtured from its arrival, recently had been tarnished by allegations and investigations concerning drugs. Jerry explained that the Tucson and owners of the Suns were considering selling the franchise or moving it from

Phoenix. True to an unwritten understanding with the owners, Jerry was being given an opportunity to buy the fran- chise if he could meet the price the owners had set. Jerry recounted that he had begun contacting investors by meet- ing with John W. Teets, Chairman of the Board and CEO of The Greyhound Corporation, and Greyhound's General

Counsel, L. Gene Lemon. He proposed that Greyhound consider becoming a lead investor. During the discussions with Greyhound, I had been recommended to assist in putting together the investment group. Having just received the call from John Teets that he was waiting for-confirming that the Board of Directors of Greyhound had voted to put up $6 million for a 25 per- I N S I D E T H E cent interest in the team-Jerry thought it was time for me to get involved. B OX I had moved my family to Phoenix in 1972 after obtaining an L.L.M. O W NER'S from the Graduate Tax Program at New York University. By 1987, I was C primarily a transactional lawyer and it was as a result of several large W IT C OUNSEL projects for Greyhound that I became involved with the Suns. Except for TO J E R RY a few areas (such as the organization and structure of the professional By JAY S. RUFFNERoenix r"iCOLANGELO sing

..... o000 tiiii:.,X 1 1 leagues and associations, player distinct impression that he would Things came to a head one afternoon contracting and certain aspects of prefer to do the deal on a handshake, in our offices, shortly before the arena and stadium development but was resigned to the need for scheduled closing. What we hoped matters), "sports law" differs very lit- lawyers to become involved. A dead- would be a wrap-up meeting with tle from any other business practice. line for early October had been set in executives of these investors was not Needless to say, with its increasing order to close the deal and afford new going well. After covering where he popularity, the markets for related ownership sufficient time to prepare stood with the Bank and other merchandise and business interest in for the 1987-88 NBA season. investors and after sharing his seeking sponsorship and promotion We quickly began work forming an expectations for the franchise, Jerry opportunities, professional sports has Arizona corporation (to be the gener- asked for their commitment in order become big business. This article cov- al partner) and a Delaware limited to help close the deal. The executives ers my involvement in Phoenix during partnership (to be the owner and asked for time to discuss the matter what has been a period of unprece- operator of the franchise); began the privately and adjourned to separate dented growth. preparation of subscription informa- conference rooms. About a half hour My wife and I already knew Jerry tion for investors; and started negoti- later they returned and announced and Joan Colangelo socially. They ations with the Arizona Bank. At the that they were sorry but had to pull were very active in the community same time, work was underway to out of the deal. As they got up to and, under Jerry's leadership, the prepare the agreement for purchas- leave, Jerry remained seated and seemed to support ing the assets comprising the fran- crumpled up in a ball several pieces every worthwhile cause in town. 1 In chise; to obtain NBA approvals 2 of of paper that were in front of him. Phoenix, Jerry was the Phoenix the newly formed limited partner- In a single movement, he swiveled in Suns. He had committed 17 years of ship, its general partner and his chair and tossed the crumpled his life to the franchise and had investors as they signed up; and to paper the length of the large confer- earned a reputation for hard work draft the host of other agreements ence room toward a small waste bas- and marketing genius. His integrity and documents necessary to com- ket. I will never know how he made and business ethics were above plete the project. The principal that shot. No one said a word. reproach. Nonetheless, with the assets of the team consisted of player We stayed at the office for hours drug controversy and the team suf- contracts, trademarks and trade discussing how to fill the gap. We fering through one of its most disap- names, participation rights in the ran through our list of existing pointing years on the court, the ques- NBA and affiliated organizations, investors, we considered additions to tion was whether his ambition was season ticket deposits, local broadcast the list-though time was very realistic. While Jerry had been very and telecast contracts, advertising and short-and we considered options successful with the Suns and in real sponsorship agreements, merchan- with the ownership of the franchise estate, he was of limited personal dise, and an office and facility lease (which was insisting on being bought means (certainly in comparison with (the Veterans Memorial Coliseum). out entirely). Late in the evening, I the controlling interests of other pro- With the commitments of rejoined Jerry in our conference fessional sports franchises), and I Greyhound and the Bank, Jerry had room. He had wanted to be alone. was soon to learn that he had agreed early success in generating interest With no options readily apparent, I to pay the highest price ever for an among other investors. Pinnacle struggled for words. This was more NBA franchise. West, through its investment sub- than a business deal gone bad-I had sidiary, committed to $3 million and become infected with Jerry's passion CLOSING THE DEAL Ross Farnsworth, a successful Mesa, and he deserved to succeed. When he When we met, Jerry explained the Arizona real estate developer, com- left our offices late that night, he said Greyhound investment and the com- mitted to $4 million. Other smaller it was not over-but for the life of mitment of the Arizona Bank for a investors came on board and, for a me, I did not see a solution. substantial loan if the balance of the while, it looked like smooth sailing. The next morning, the sun was $44.5 million purchase price could be As the deadline approached, signs shining and the clouds had lifted. raised. The meeting went well and began to appear that certain early Jerry called and said "It's a go." In we discussed the various steps that and substantial expressions of inter- early morning conversations, he had would have to be taken in order to est by two prominent Phoenix-based convinced the owners of the franchise purchase the franchise. I had the companies might be unraveling. to stay on as limited partners in the As if there was some urgency new partnership and Chambers, one of the first free agents. carry back some debt. onlyi ie perceived, Jerry " "sted NBA's deal of The rest, Jerry made up We There was a great by borrowing to purchase that we meet the deadline. speculation by the fans the two remaining limit- [uled, and the sports writers ed partnership units. closed the purchase, as sched about Chambers. While The elation of the recognized as a player with moment quickly gave way on October 14, 1987. tremendous talent, he had a to around-the-clock work reputation in some quarters to restructure the deal. s later, Black Monday it. for inconsistency. In addition to Jerry's The 1987-88 team pro- waste basket "hoop," several unusual dissolution of the partnership. An duced 55 victories. Coming off a 28- of the greatest things occurred during the acquisi- advisory committee of limited part- 54 season, it was one tion of the franchise. We expected ners was established to meet with turnarounds in NBA history. The that some investors might insist on Jerry once or twice a year to discuss team reached the Western burdensome constraints on manage- the affairs of the business. When the Conference Finals and Jerry could do ment and in the course of resisting limited partnership repaid investors no wrong. After the 1987-88 season, these efforts, Teets and Greyhound their capital, plus a stated annual Jerry was recognized an unprece- became a staunch ally. They pointed return on their investment, the dented third time as NBA Executive out, matter-of-factly, that none of the General Partner's interest would of the Year. The 1987-88 season 4 investors, including Greyhound, increase from one to 25 percent. would turn out to be the start of ten knew the first thing about running a consecutive seasons during which professional franchise. THE GREAT TURNAROUND the team made the NBA playoffs. the Teets made it clear that Greyhound With the team coming off one of its Kevin Johnson emerged as one of the NBA and was investing in Jerry and Jerry worst seasons, an uncertain local and best point guards in must have the authority to make it national economy, and new investors Tom Chambers proved to be a great making people work. 3 The other unusual occur- watching (a few nervously), it addition at forward, rence was a matter of timing. There seemed reasonable to expect that forget the Nance trade except for the had to be a lot of last-minute legal Jerry would move cautiously. fact that it brought us Kevin work to effectuate the restructuring Instead, he and Johnson. While there were many was of the deal. As a result, there was (who was brought back to the Suns naysayers when the franchise (too considerable sentiment (especially shortly after closing the purchase of purchased for $44.5 million among some of the lawyers) for post- the franchise) worked feverishly to much to pay for any basketball poning the scheduled closing. As if remake the team. At the beginning team), those voices soon became muf- team.5 there was some urgency only he per- of the 1987-88 season, only two play- fled by the success of the new quickly to take ceived, Jerry insisted that we meet ers would remain from the 1986-87 The franchise moved the deadline. We closed the pur- roster. Trade rumors swirled and marketing advantage of its on-the- chase, as scheduled, on October 14, it seemed that announcements were court success. No matter how opin- 1987. Days later, Black Monday being made almost weekly. The key ions about Jerry may differ, I have -had we delayed, all might yet decisions involved trading Phoenix's never heard anyone doubt that he is have been lost as uncertainty set in best player, , to at the head of the line when it comes 6 throughout the business community. Cleveland for three relatively to marketing professional sports. were one of the few pos- Jerry's deal with his new investors obscure players, Kevin Johnson (in The Suns was pretty straightforward. He his second year in the NBA and a rel- itive stories as Phoenix suffered and politi- would operate the franchise and atively inexperienced back-up point through difficult economic make all management decisions. guard), Ty Corbin, and . cal times. The franchise seemed to Jerry Limited partner approvals would None seemed to offer the potential of be on a steady course when only be required for major events, a Larry Nance, regarded widely as decided the time was right to make a its future. such as borrowing in excess of a lib- one of the premier forwards in pro- move that would insure eral cap, a move of the franchise from fessional basketball. The other con- When information was being pre- Phoenix, the sale of the franchise, or troversial move was to acquire Tom pared for prospective investors in the franchise, Jerry insisted that there called to say that he and the City ited partnership, of which the fran- be included his commitment to a new were ready to move forward. In chise is the 99 percent limited part- arena. At the time, it sounded like almost the same breath, he told me ner. Three possible downtown sites long, long-range planning, but Jerry that one of his investment partners were identified for the City to pur- soon began giving voice to the idea at had asked him to meet with another chase and prepare for development, speaking engagements. Denny law firm about representing the Suns all of which complied with environ- Moss, Director of Economic Develop- on the project. Jerry said he owed it mental and historic preservation ment for the City of Phoenix, heard to his investment partner to have the laws. The developer/operator would Jerry speak and called to discuss the meeting and he did not want me to select the architects, design the idea of a downtown arena. hear about it through the grapevine. arena and related facilities, and It was an anxious and nervous sever- supervise construction. A construc- "LET'S GET TO WORK" al days. Our next conversation tion manager would be jointly select- When I moved to Phoenix in 1972, began, in typical Colangelo fashion, ed and construction contracts would downtown was a wasteland. with "Let's get to work." Warning me comply with the City's public bidding Commercial and retail was dying about rumors that I, in fact, had requirements. In addition to the cost out. Government buildings, bank heard concerning his meeting with of the site and site preparation, headquarters and the courts were another law firm was a decent thing to the City agreed to provide a maxi- the only notable presences. Soon do that, in my experience, would not mum of $35 million towards the con- after 5:00 p.m., the streets were have been considered by many clients. struction costs of the arena, the park- deserted. Vagrancy, crime, and the ing garage, and related infrastructure. blight that accompanies them LAYING THE ARENA'S LEGAL The developer/operator was seemed to be all that was flourishing, FOUNDATION required to obtain debt financing for despite the efforts of city councils, may- The arena negotiating team began all additional funds, then estimated ors, and vested downtown interests. meeting in early 1989. The City was to be $35 million, and would be sole- By 1989, there were a few signs of represented by Denny Moss, outside ly responsible for repaying the debt an awakening in downtown. The city counsel and a representative from from arena revenues and other had invested heavily in a much the City Attorney's office. Bob sources. Cost overruns would be the under-utilized convention center. A Machen, whom Jerry had selected to responsibility of the developer/opera- Hyatt hotel was constructed and the be in charge of development and tor. No lien or encumbrance of any "old Adams Hotel" was gutted and operation of the new arena, Rich kind would be permitted on the rebuilt. Pinnacle West was under Dozer, then Chief Financial Officer of arena improvements or the site. construction on the Arizona Center, the Suns and now president of the The developer/operator also a gamble to reintroduce retail and Diamondbacks, and I all represented agreed to enter into a long-term restaurants to the downtown area. A the Suns. For several months, we arrangement with the City to man- hard-fought battle over taxes to put together the key points to the age and operate the arena. After develop a freeway system with much deal and on March 24, 1989, the operating expenses, the funding of a better access to downtown finally Mayor and City Council were pre- repair and replacement reserve, and had been won. While some pieces sented for approval the Downtown debt service, the City would receive a were coming together, there still was Sports Arena Memorandum of priority payment during the first 30 no spark to ignite the imagination Understanding ("MOU"). years of $500,000 per year (increas- and spur activity. The MOU described a multi-pur- ing by 3 percent each year) and 70 Over a several-month period, pose arena having a seating capacity percent of net cash flow. Remaining Jerry engaged in meetings with the of approximately 18,000, an attached net cash flow represented the devel- Mayor, Terry Goddard, and City staff parking garage, and other improve- oper/operator's profit. After the ini- ("City"). A rough outline was devel- ments. The arena would be owned by tial 30 years (assuming the arena oped for a public/private partnership the City but would be developed and had not become obsolete), the devel- to construct a downtown multi-pur- operated, under long-term agree- oper/operator would continue to pose sports and entertainment facili- ments with the City, by Phoenix operate the project for ten years with ty that would serve as the home of Arena Development Limited no priority payment to the City and the Phoenix Suns. I was sitting in Partnership (the developer/operator), with the City receiving 60 percent of my office one afternoon when Jerry a Colangelo-controlled Delaware lim- net cash flow. The City, subject to The cornerstone has been solid legal requirements and were signed on July 19, with certain exceptions, oran ization and management 1989. During negotiations agreed not to participate with the City, the financial financially in the develop- not ()nly in the selection of the management consultants ment of any other arena worked on a financing pro- or arena-like facility that product and its marketing, but in posal and began shopping could compete for events. it. To my knowledge, this The Suns would enter the sustainable development of was the first project of its into a long-term, iron-clad kind proposing substantial agreement with the devel- the franchise by attracting top private financing secured oper/operator to play all solely by revenues, with no of their NBA home games coaches and athletes. rights in the physical at the arena and would assets comprising the proj- maintain practice and work-out facil- voices began to be heard. There were ect. The concept was unacceptable to ities, a store for the sale of team mer- objections to the City's investment in a number of institutions that early chandise, and their business offices the project through an increase in had expressed interest. In the end, at the arena. The Suns also agreed the hotel-motel tax and the car- The Fuji Bank, through its San to market the private suites in the rental tax; groups with various social Francisco Agency, offered its commit- arena (88 in number) and all perma- concerns spoke out about the City's ment if certain other pieces could be nent arena advertising during the spending priorities; and those funda- put in place. Fuji's commitment left first 30 years of the arrangements for mentally opposed to spending public approximately $5 million of construc- 60 percent of all gross revenues money to benefit professional sports tion costs unpaid. In addition, the derived from licensing of the suites teams became quite vocal. Petitions financial plan assumed the conces- and arena advertising sales. began circulating to limit the City's sionaire would pay the costs of build- The right of the Suns to these pay- participation in arenas and stadi- out and equipment for concession ments was subordinate only to oper- ums-placing a great deal of pres- space and a proposed bar and restau- ating expenses, funding the repair sure on the arena negotiating team rant. Finally, the financial plan con- and replacement account, debt serv- to quickly present definitive docu- tained no provision for construction 8 ice, and the City's priority payment. ments for City Council approval. cost overruns. These loose ends The agreement granted to the City Under Arizona law, a city ordinance, came together through a public bid the right to use the arena, at cost, for even if enacted by referendum, may process which identified The Dial conventions, civic events, and other not be applied retroactively to undo a Corp (formerly Greyhound), through activities. These rights included 50 transaction lawfully entered into its subsidiary, Restaura, Inc., as a $5 priority reserve dates and the right where the parties rely upon their million lender to the project, the to use the arena on any other day agreements and substantially per- exclusive food and beverage conces- that it was not committed to another form. A referendum vote could not sionaire at the arena (responsible for event. Two sets of projections were take place before the fall of 1989- building out and equipping all food submitted with the MOU, one based on the definitive documents would have and beverage space) and the guaran- a mix of events averaging 220 per year to be completed by the early summer tor of up to $6 million in construction and the other based on an average of and substantial work would have to cost overruns. 185 per year. An opinion of Public begin on site acquisition, prepara- Financial Management, Inc. (financial tion, and planning in order to render A TANGLE OF PRIORITIES 9 and investment advisors to the project) the project safe from challenge. Where the arena money came 7 accompanied the projections. Early during what became pro- from is fairly easy to explain. How After approval of the MOU by the tracted negotiating and drafting ses- construction funds would be dis- City Council, work began immediate- sions, the parties set a deadline of bursed, however, and how arena rev- ly on definitive documents. While June for completion of all document enues would be paid were the subject public reaction to the deal was large- preparation. While that date of difficult negotiations and complex ly positive (with the help of the team, slipped, all necessary approvals were arrangements. The concerns of the which was working its way towards received (including the vote of the City included protecting its priority another 55-win season), dissident City Council) and the documents payment and making sure that its bond funds were not disbursed or City approval, granted Fuji a securi- developer/operator, the Suns, the used for purposes that would contra- ty interest in all contracts relating to City, Fuji, Dial/Restaura, the various vene applicable requirements. Fuji the financing, construction, develop- banks holding reserve accounts and was agreeable to the priorities for ment, use and operation of the facili- the entity formed by the City of operating expenses (including the ty-including its agreements with Phoenix to act as interim operator. overhead of the operator) and fund- the City, its agreements with The principal purpose of the ing for repair and replacement, but Dial/Restaura, its agreements with Interparty Agreement was to set wanted first call on every other dol- the Suns, the naming agreement, forth the various priorities for appli- lar of revenue. The Dial Corp and major advertising contracts, and cation and payment of facility rev- Restaura, with respect to their $5 suite license agreements. In the enues in the absence of default as million loan and cost overrun event of a default, the developer/ well as in the event of defaults under advances, investment in concession operator could be removed; however, any or all of the financing arrange- area build out and equipment and all of the rights and obligations of the ments or other key agreements for interest in concession revenues, developer/operator of the Arena, the operation of the Arena and the wanted to share arena revenues including the Arena's obligations to playing of Suns home games at the (after operating expense and funding the Suns, were required to be Arena. What was, as between the for capital improvements) pro rata assumed by the interim operator City and the developer/operator, a with Fuji. The franchise was pro- and, ultimately, a replacement oper- fairly simple outline for disbursing tective of the priority established for ator to be selected by the parties. Arena revenues became excruciating- its fees for the marketing of adver- The Dial/Restaura loan agreement ly complex arrangements to address tising and suite licenses while at the set forth procedures for obtaining the payment of competing obliga- same time sought to maintain maxi- advances against the $5 million loan tions, with variations in priorities to mum flexibility in the control of the commitment as well as advances take into account the various defaults facility through its affiliate, the devel- against the $6 million cost overrun that might occur. Special provisions oper/operator. facility. Under a related concession applied during construction to take Negotiations to put the financing agreement, Restaura would collect into account untoward events and for the arena (with naming rights all food and beverage gross revenues. failures to maintain the schedule for successfully marketed, the America Against these collections, Restaura development and construction.1 1 West Arena) in place were protracted was permitted to withhold from the The Arena site was acquired by and difficult due to the number of Arena's share 10 percent of gross the City by late summer 1989, and parties involved and their competing receipts plus an additional amount work was begun immediately (using interests. 10 Most of the private for each $1 million advanced pur- proceeds from the sale of the City's financing came from the sale of suant to the cost overrun guaranty. bonds) for infrastructure and site taxable variable-rate bonds issued Provision was also made in the loan preparation. Groundbreaking for the by the Industrial Development and concession agreements for Arena occurred in 1990. It was an Authority of Maricopa County. repayment of the depreciated costs of ideal time to be building an arena- The bonds were backed by Fuji's concessionaire build out and equip- the local economy was in the dol- direct draw letter of credit in the ini- ment in the event of termination of drums and major construction was at tial stated amount of approximately the concession agreement. In the a near standstill. Every major con- $45,000,000. Fuji would make liq- event of a payment default with tractor in Arizona bid on the project uidity advances to bond holders pur- respect to Fuji, Restaura was subject at substantially below the most opti- suant to the letter of credit with to a limited pay back obligation. mistic estimates of the construction repayment by the Arena on the same Notwithstanding a default in the manager. This permitted adding date. Several reserve accounts were obligations to Dial/Restaura, no additional seating and many aesthet- established and funded, primarily acceleration of Arena obligations was ic features to the Arena not included with advance deposits from the early permitted without Fuji's consent. in the original design. The Arena marketing of suites. In addition, the All of the rights and obligations of officially opened on June 5, 1992, Arena was required to fund a work- the various parties involved in the several months ahead of schedule. ing capital reserve to pay operating Arena's financing and operation were Approximately 25 new restaurants expenses in the event cash flow pulled together in the Interparty and retail outlets opened in down- proved inadequate. The Arena, with Agreement by and between the town Phoenix within 12 months, and existing downtown businesses sessory interests in publicly owned of our documents are public record). expanded. The City finally had an property. The "Operating Agree- I was hired in the spring of 1996 by attraction that would bring people ment" structure, rather than a the Miami Heat to prepare the ini- back to the downtown area, and, ground lease arrangement, was tial documentation for a new arena with streetscapes and other improve- selected to avoid characterizing the to be developed for by the NBA ments, downtown began to take on the developer/operator's interest in the Miami Heat and the NHL Florida attributes of a popular destination. Arena as a possessory interest, even Panthers. Shortly after my arrival though several exemptions from the in Miami, the tentative agreement THE PLAY-BY-PLAY OF ARENA tax on possessory interests were between the teams fell apart. Eric DEVELOPMENT applicable. Subsequently, provisions Woolworth, General Counsel of the 1. Jerry instructed the arena of the favorable property tax applica- Heat, Bruce J. Colan, a partner at negotiating team at the outset of ble to government-owned arenas and Holland & Knight, and I began negotiations with the City that he stadiums were held violative of drafting documents for the develop- had committed the Suns to the Arena Arizona's Uniformity Clause (ARIz. ment of a downtown Miami basket- and that we should not resist any CONST. art. 9, §1 provides "all taxes ball arena, while the Panthers and recourse the City might seek if the Suns shall be uniform upon the same class their lawyers were working on a threatened to leave or left the Arena of property") and Exemptions Clause new hockey arena in Broward prior to the end of its commitment. (ARIz. CONST. art. 9, §2 provides County. Those involved with each of 2. Although it was not at all "[piroperty in the State not exempt the facilities kept a close eye on the clear that we would be successful, under the laws of the progress of both projects. In one of our instructions were also to safe- or under the Constitution ... shall be the final drafts of the hockey arena guard the franchise from Arena fail- subj ect to taxation"). 12 The operating agreement, someone ures. By pre-selling naming rights, Legislature moved quickly and failed to catch the provision that long-term advertising and suite Arizona no longer imposes property "Jerry Colangelo" was to maintain licenses, we were able to assure rev- taxes on possessory interests in pub- control of the operator at all times. enue streams which, together with licly owned property; rather, a While it was obvious to everyone the City's commitment of funds to Government Property Lease Excise familiar with either project that the Arena development and construc- Tax ("GPLE"), which applies favor- America West Arena documents tion, allowed us to achieve that objec- ably to publicly owned arenas and were being used for both projects, tive by limiting recourse on financing stadiums, has been enacted (ARIz. this oversight in drafting provided a obligations to Arena revenues and REV. STAT. §42.6201 et seq.). much-needed lighter moment. the developer/operator. In addition, Arizona's Uniformity Clause and 6. When the Arena was under the franchise's principal revenue Exemption Clause do not apply to design, a great deal of consideration 13 streams were tied to gross revenues excise taxes. was given to the playing and per- from advertising and suite licenses. 4. As on several other occasions formance areas for the wide array of Not only was the franchise well- previously referred to, Dial once anticipated events. After Jerry con- equipped (in the person of Harvey again played an important role by firmed with the National Hockey Shank, Vice President of Marketing) agreeing to provide the construction League that the sport was not des- to do this, but the revenue expecta- cost overrun guaranty. No conces- tined for Phoenix in the near term, it tions of the franchise were not sionaire bidding for exclusive was decided to place the basketball dependent on the bottom line per- arrangements at the Arena (other court in the center of the bowl. This formance of the Arena and the obli- than Restaura) was willing to provided for removable seats in order gations to the Suns would be assume that risk. to expand playing and performance assumed by any successor to the 5. We were not able to find any areas to one end of the Arena for developer/operator, if removed due to model or structure similar to the sporting events and exhibitions Arena defaults. arrangements negotiated and requiring added space (such as arena 3. In structuring arrangements entered into with respect to the football, arena soccer, ice events, between the City and the develop- America West Arena. Since complet- large family shows, and hockey). A er/operator for the Arena, a great ing the America West Arena, I have great deal of consideration was also deal of attention was paid to proper- run into more clones of our docu- given to advertising by hiring a high- ty taxes. In 1989, Arizona taxed pos- ments than I can keep track of (most ly regarded consultant to make sure that the maximum amount of appro- performance of the Arena was the developer/operator. The America priate prime advertising space was improved, at which time the sharing West Arena is and, I believe, will incorporated in the design of the Arena. arrangement would terminate and the continue to be an outstanding example 7. From virtually the outset, City would repay the Suns. This is a of public/private sector cooperation in the America West Arena outper- good example of Jerry's philosophy providing the community a much- 14 formed revenue projections; unfortu- about doing what has to be done to needed and much-utilized facility. nately, it also proved more costly to make business arrangements work out 9. The agreements between the operate than estimated. While the to everyone's reasonable expectations. Suns and the City were unique at the Arena operated at a level sufficient 8. Throughout negotiations time. The NBA had no experience to satisfy the priority payment to the with the City, including the financ- with these kinds of arrangements. City, participation in net cash flow ing of the Arena, relationships were Accordingly, the City of Phoenix would be deferred beyond the City's cordial and one could sense a great required our legal opinion that no expectations. Discussions began deal of trust between the City (both rule, regulation, or policy of the NBA immediately with the City and, while elected and appointed officials) and was violated by the arrangements. underway, newspaper headlines the Suns organization. As was the NBA rules and regulations were easy trumpeted that the America West case with the investors in the pur- to verify; policy, on the other hand, Arena was underperforming for the chase of the Suns franchise, the City existed only in minutes of the meet- City. Even though the economic pro- clearly relied on Jerry and his lead- ings of the Board of Governors of the jections had been carefully qualified ership and credibility that was being NBA, available for inspection only in and reviewed by consultants, Jerry counted on to make the Arena a suc- the Association's New York offices. moved quickly by agreeing that the cess. Accordingly, the various agree- It took me three days to get through City could temporarily share in pay- ments with the City included certain the minute books. To be able to fol- ments going to the franchise (its fees restrictions on Jerry's transferring low the major events in the history of from advertising and suites) until control of or selling the franchise or the NBA from inside the boardroom

To pave the way for the Phoenix Coyotes, the Arena. The hockey team also was given the exclusive a binding letter of intent was entered into right to establish prices and control the sale of tickets for the between the hockey team, the develop- suites and to receive all revenues therefrom. The team was given the right to one private suite for its use for all Arena er/operator of the Arena, and the Phoenix Suns. This letter of intent obligated the events and the exclusive use of another suite for hockey parties to use their best efforts to enter games. If suite licensees chose not to purchase tickets for into definitive agreements and obtain all hockey games, the hockey team and the developerloperator necessary approvals, consents and modifi- were to cooperate in obtaiining the permission ofsuch suite cations to existing agreements in order to licensees to permit the use of the suites by third parties. implement certain understandings. QArena agreed, at its sole cost and expense, to make cer- 1h Arena and the hockey team, as a J9 improvements in order to provide a venue complying pie licensee of the Arena, would enter with NHL standards and consistent in quality with the into a license agreement for the play of all material and workmanship provided to the Suns (in areas home, exhibition, preseason regular sea- such as locker rooms, coaches' rooms, etc.). The develop- son and play-off games at the Arena. The er/operator would be entitled to reimbursement of these license agreement would be for an initial expenses if the hockey team left the Arena before the term of five seasons, with two five-year improvements were fully amortized. renewal terms, if elected by the NHL team. License fees were established for 4 hockey team was provided access to all existing facili- the initial and renewal terms, together 1necessary for NHL hockey game use, including the box with reimbursement for certain game day office, media lounge, wives and family lounge, training facil- and related costs incurred by the Arena, ities, medical room and officials room. Access and use of all not to exceed a cap. other facilities at the Arena would be made available to the hockey teami on the same basis as available to the Suns, 9,hockey team retained the exclusive with office space to be offered when available in the Arena r to sell and control the sale of tick- or ancillary buildings controlled by the Arena. ets for hockey events, subject to a ticket distribution agreement entered into by was fascinating. As Jerry had assured franchise has organization in the League. Bryan's me, no policies of the NBA were con- become a great investment. The suc- emergence from the long shadow of travened by our deal with Phoenix. cess of the Rattlers is illustrative of his father began with the success of Jerry's approach to professional the Rattlers. Bryan now also heads SfOK'S EXFANSION sports. One of his first moves was to up the Suns organization. He still While the basketball franchise hire Danny White as the first and remembers with more than just a lit- was a great anchor tenant for the only General Manager and Head tle satisfaction that he presented Arena and while Bob Machen was Coach. Danny is a product of Arizona Jerry with his first professional immediately successful in attracting and and sports championship ring. commitments for family shows, ice was the successor to Roger Staubach In late 1995, Jerry was approached events, concert bookings, and other in leading the Dallas Cowboys to on the subject of bringing the events, Jerry began investigating many successful seasons. Jerry's to Phoenix. other indoor sports that might add second move was to delegate respon- Several businessmen were in negotia- reliable events at the venue. An sibility for developing the franchise tions to purchase the Winnipeg Jets affiliate of the Suns bought into to his son, Bryan. Bryan and Danny franchise and move it to a more World Team Tennis, indoor soccer, White have been honored by the promising market. In meetings and arena football. Tennis and soc- as Executive between Jerry and the new own- cer did not work out in Phoenix, of the Year and Coach of the Year ers, arranged by Gary Bettman, notwithstanding three years of effort respectively. As a result of a coordi- Commissioner of the NHL, a rough and substantial investment. Arena nated marketing strategy, 1 5 virtual- outline was prepared to bring the football, on the other hand, almost ly every game has been a sellout and hockey team to Phoenix and the immediately became and continues the franchise has received the AFL America West Arena. The success of to be wildly popular with a very loyal Commissioner's Award on two occa- NHL hockey in the Sun Belt since cadre of fans. At a nominal cost, the sions as the best indoor football has catapulted Phoenix and the

Arena parking garage was available to the hockey team est in concessions for the hockey team was split between Jockey game days at rates specified by the hockey team. Restaura and the developer/operator. Ali parking revenues (net of direct operating costs) were to be paid o the hockey team- Suns and the developerloperator agreed to make avail- their marketing, advertising, ticket sales and promo- repect to signage and sponsorship, base advertising tionl staffs to the hockey team on a fee basisi order to ,Vnues (including scheduled increases) would be deter- save the hockey team overhead costs with respect to its lined with respect to all existing advertising in the Arena. staffing of these functions, Where the Suns and the devel- The Suns would continue to negotiate new advertising oper/operator benefited from exclusive relationships with agreements and replacement advertising agreements for service providers, best efforts would be made to extend sim- such space, with the hockey team receiving any increase. ilar arrangements to the hockey team. Exclusive arrangements were protected nd advertising in new space (or based on new technologies) would be shared ey team retained exclusive rights to control all and all existing trans- on an equitable basis to be agreed upon. Advertising space b ,s and telecasts of its games on the upper fascia within the bowl of the Arena (between missin:and production facilities at the Arena were avail- the two levels of suites) was assigned to the hockey team for able for its use. the sale of fixed and permanent, advertising. Tekmporary advertising at hockey games also would go to the hockey team. h ling of NBA and NHL games would share the same Iiorj% both subject to long-term arrangements for other chockey team was given the right to elect to participate events entered into by the Arena. 'rif sales of"merchandise, novelties and publications, togeth- er with the Suns and the through a i Qa revenues to be paid to or retained by the hockey limited liability company to be formed with stores at the e deemed revenues of the hockey team and not rev Arena, the Bank One Ballpark (under construction) and enues of the Arena or subject to any distribution formula other locations. under any agreement to which the Arena, the Suns, the City, Fuji Bank, etc., were parties. Q developeroperator agreed to use its best efforts to assist iockey team in negotiating a separate concession agree- ient with Restaura. The cost of carving out a direct inter- America West Arena to the fore as a to the letter of intent a statement similar events and to alleviate, to a promising market and venue. concerning Jerry's positions as the significant extent, the problems with Several factors brought the NHL controlling shareholder of each of the obstructed seating. The cost of this to Phoenix. The NHL team wanted general partners of the Suns and its project is estimated to be $12 mil- to be more than a mere licensee at affiliates and of the Diamondbacks lion. 17 With respect to participation the America West Arena. In future and its affiliates; consistent there- in Arena revenues, there is obviously marketing, the Arena would be with, Jerry's obligations to the hock- a point beyond which the develop- referred to and identified as the ey team were to be subject to and to er/operator, its lenders, the City and home of the Phoenix Suns and the be performed consistent with his the Suns cannot go, especially if the NHL team. In addition, the new fiduciary duties owed to the entities Coyotes franchise continues to insist hockey team owners required certain he controlled and their investors. that its Arena revenues not be at risk interests in Arena revenues; howev- to costs of operations and other com- 18 er, unlike the Suns and the develop- RELATIONS COOL mitments. In the end analysis, the er/operator, those revenues were not WITH THE NHL Phoenix Coyotes suffers from at risk by being subordinated to oper- Negotiation of the definitive docu- increasing player contract demands ating expense, debt service, the ments with the hockey team (to (as does all of professional sports) City's priority payments, payments become the Phoenix Coyotes) were and inadequate revenues at the to the Suns for advertising and protracted and, at times, very diffi- National Hockey League level-one suites, or any of the other priorities cult.1 6 Relationships between the need only compare the NHL to pro- established for the disbursement of parties became somewhat strained. fessional football, basketball, and Arena revenues. The shortcomings Definitive documents were signed in with respect to shared of the America West Arena as a June of 1995. No agreement was league revenues in order to appreci- venue for hockey were well known at reached with respect to Jerry becom- ate the problem. the outset of negotiations. The ing a limited partner in the Phoenix Arena had hosted a number of NHL Coyotes. The relationships between THE MERCURY TAKE THE COURT exhibition games which established the Coyotes and the Arena have con- While the Arena has had a diffi- the capacity of the Arena for NHL tinued to decline. While the Coyotes cult relationship with the Phoenix hockey at approximately 16,500 due franchise has been successful in gen- Coyotes, the Women's National to the problems of impaired sight- erating very good fan support in Basketball Association, as would be lines at the expanded end of the play- Phoenix, it has experienced operat- expected, has been a different story. ing surface. ing losses. Among the causes it has When NBA Commissioner David On December 12, 1995, the parties publicly identified are the reduced Stern first discussed establishing a entered into two binding letters of capacity of the Arena for hockey professional women's basketball intent. An abbreviated letter of events, obstructed view seating, league, with Jerry, Jerry was imme- intent obligated Jerry to negotiate problems with suite licensees (this diately supportive, feeling that the definitive agreements to bring the season, approximately 7 suites at the time was right. The WNBA is not NHL hockey team to the America Arena do not participate in the organized in the same manner as the West Arena and obtain all necessary Coyotes season and do not permit the NBA. The NBA owns the WNBA and consents and approvals. Jerry Coyotes to license others for the use enters into long term operating and agreed to assist the hockey team in of the suites), and limited participa- revenue sharing arrangements with obtaining sponsors, advertisers, local tion in Arena revenues. NBA teams and their venues to radio and television stations, and Dissatisfied with its venue, the organize WNBA teams and operate service providers. The agreement hockey franchise has entered into an them. Players contract directly with also recited Jerry's right to purchase agreement with Scottsdale (which the WNBA and are subject to a team a 5 percent limited partnership inter- borders Phoenix on the east) and selection process that seeks to assure est in the NHL team on terms and developers for a new hockey arena competitiveness throughout the conditions to be agreed upon-failure there. The project goes before the League. The WNBA kicked off its to reach agreement in this respect voters of Scottsdale in May of this initial season with eight teams, would not relieve the hockey team or year. The City and the Arena have including the . the America West Arena of their recently announced plans to expand Jerry prepared to enter women's pro- agreements. We insisted on adding the Arena's capacity for hockey and fessional sports by signing up Cheryl The process of ... assisting Miller as Head Coach. mitted Maricopa Coun-ty, Cheryl had been an All investors and their counsel wih through a Stadium American at University of District, to impose a quar- Southern California, a the subscription documents; ... ter-cent sales tax for national College Player of funds to develop a base- the Year and a leader on keel Aing track of commitments ball-only stadium, if a the U.S. Women's Basket- ball Team that won an I escrow account deposits team were first secured. 19 America's first Gold As Jerry considered Medal in the sport at the and supplementing the offering the opportunity, it was 1984 Olympics. At the clear that there would be room for foot faults. same time, the marketing mat erials as significant events little departments of the Suns For the Stadium District and the Arena focused on to be formed and the vote to preparing Phoenix, and OccU] 'red affecting Major League on ballpark funding its fans, advertisers, and take place, a Major sponsors for women's pro- Bas( ball, ... made most of 1995 League Baseball fran- fessional basketball. chise would have to be Despite predictions and a blur in my memory. committed to Phoenix. projections of a slow start The seed money for and serious losses for the first sever- 1990, Phoenix had been embarrass- efforts to attract Major League al years of operation, the Phoenix ingly unprepared. Jerry's visitors Baseball and pursue a ballpark Mercury took to the basketball court expressed the opinion, which they would have to come from the Phoenix in 1997 and was an immediate finan- said was shared by many others in Suns organization. In addition, Jerry cial and performance success story. the community, that Jerry was the was concerned that Major League Like the Rattlers, the Mercury person who could make it happen. Baseball, for historical and other rea- appear to have a very bright future Jerry was a very successful base- sons, faced serious problems in rela- in the Phoenix marketplace. Again, ball player in high school, receiving a tionships with its players, in the the cornerstone has been solid organ- number of offers from major league competitiveness with other profes- ization and management-not only franchises. Though he accepted a sional sports, and with its fan sup- in the selection of the product and its college scholarship at Kansas to play port. On the other hand, there was marketing, but in the sustainable basketball, his love of baseball also reason to believe success could development of the franchise by always remained strong. Nonethe- be achieved and would be welcomed attracting top coaches and athletes. less, the challenge of bringing Major by Arizonians. After all, Arizona had League Baseball to Phoenix was for- repeatedly demonstrated its infatua- tion with baseball. At every level, "PLAY BALL!" midable. It was to be expected that In the summer of 1993, Jerry an expansion team would cost no less including the outstanding pro- received a visit from Jim Bruner, a than $100 million, and Phoenix had grams at Arizona State University member of the Maricopa County no ballpark. In addition, early pro- and the University of Arizona, Board of Supervisors, and Joe posals to deal with the Phoenix sum- baseball was popular and success- Garagiola, Jr., an attorney in mer heat (such as erecting evapora- ful. In addition, the state and var- Phoenix with a deep and abiding tive cooling towers at Phoenix ious communities throughout the interest in baseball. Both had been Municipal Stadium, the home of the state had worked hard and at no involved with baseball in Arizona Triple A Phoenix Firebirds) had small expense to develop the Cactus over the years, and wanted Jerry to proven totally unsuccessful. Jerry's League as the premier Major League lead an effort to solicit an expansion visitors had some positive informa- Baseball spring training program. franchise of Major League Baseball tion concerning a stadium. In con- More than $160 million of public in Phoenix. Jerry knew if he became nection with previous attempts to funds has been spent on Cactus involved, everything would have to bring Major League Baseball to League facilities for ten teams that be in place. In the previous round of Arizona, the Arizona Legislature had conduct spring training in Arizona. Major League Baseball expansion in enacted legislation in 1990 that per- Further expansion of the Cactus League by two additional teams with the Maricopa County Stadium filed with and acted upon by Major appears likely. 20 The popularity of District to develop a memorandum of League Baseball. the Cactus League has been impres- understanding and planning for the While we were moving quickly to sive from the beginning, not only in enactment of the County-wide sales review, verify, and complete sub- terms of local support, but in draw- tax for the development of the ball- scription documents, investment ing winter visitors and capturing sig- park. Amid wildly churning contro- questionnaires and Major League nificant tourism dollars. In addition versy over the imposition of the tax Baseball's ownership information to these encouraging developments, for the ballpark which required no and applications, we were involved one was tempted to look to our neigh- public vote and several tumultuous at the same time in detailed discus- bor, Colorado, and Denver's success public hearings, the members of the sions and due diligence with Major as a 1990 Major League Baseball Maricopa County Board of League Baseball over the Mem- expansion franchise. Supervisors (sitting as the governing bership Agreement. The Mem- With these thoughts in mind and, board of the Maricopa County bership Agreement established the Jerry made the decision to proceed. Stadium District), authorized the tax basis on which the expansion fran- Legal work for the project was split. on February 17, 1994, subject to the chise had been awarded and set forth My assignments were to organize the prior award of a Major League all of the rights, duties, and obliga- Delaware limited partnership and Baseball expansion franchise for tions of the various parties. Over the related entities to acquire the expan- Maricopa County and subject further preceding months, I had made sever- sion franchise; to prepare materials to a $238 million maximum amount al trips to New York to meet with for a private offering; and to negoti- of tax levy receipts. At the time the Major League Baseball staff mem- ate and document the Membership vote was taken, the development bers and in-house counsel so that we Agreement between Major League budget for the ballpark was approxi- would be prepared to sign the Baseball and the expansion fran- mately $278 million. Agreement. In addition, we had chise. Another firm would be respon- With the passage of the ballpark reviewed a massive number of docu- sible for negotiations with the tax provision, the legal work moved ments and agreements affecting the Maricopa County Stadium District forward on all fronts. After numer- franchise. Notwithstanding this and the development of the ballpark ous delays, on March 9, 1995, the preparation and the detailed infor- and related facilities. Major League Baseball owners mation that for months had been In February of 1994, I organized approved expansion franchises for shared back and forth, the first draft AZPB Limited Partnership, a Phoenix and Tampa. What had been of the Membership Agreement sub- Delaware limited partnership, for collected in the way of commitments mitted by Major League Baseball the purpose of owning and operating by investors now had to be turned had a host of problems. In the weeks a Major League Baseball team to be into binding subscriptions and leading up to the deadline for signing awarded to Maricopa County and to escrowed funds. On March 24, 1995, the Agreement, changes were coming operate a ballpark and related facili- a several-inch-thick Confidential from and going to New York virtual- ties. Jerry already had begun and Private Offering Memorandum for ly nonstop. In addition to dealing we were to follow through on discus- AZPB Limited Partnership was with in-house counsel at Major sions with investors. The objective released. It covered Major League League Baseball, we were just being was to raise $145 million. The mini- Baseball, the expansion franchise introduced to outside counsel for the mum investment was set at process, the Maricopa County mar- and outside counsel $250,000, with early efforts targeted ket, the ballpark, and other details of for the American League, each of at commitments of $5 million and the offering. Distribution of the whom had previously unanticipated above. In addition to Jerry's efforts, Memorandum was limited to known concerns with the Agreement. primarily in the business communi- accredited investors who had The Membership Agreement was ty, a number of friends and associ- expressed an interest in the opportu- entered into as of March 24, 1995, ates worked nonstop to put together nity that was being offered. and established, in accordance with groups of smaller qualified investors A detailed subscription agreement the franchise award vote, a fee of to participate through limited liabili- and investor questionnaire were $130 million payable in four install- 2 1 ty companies. At the same time, included with the materials, as was ments between July 1, 1995, and ballpark design and planning was an extensive background informa- November 1, 1997.22 The Agreement proceeding, as were negotiations tion-new ownership application to be also required equity capital of $32 million by April 18, 1995; $60 million project and obtained their commit- Major League Baseball staff, there 2 3 by July 1, 1996; and $90 million by ment to continue their work. As a was never a dull moment. the closing date (tied to the expan- result of the distraction of law firm Because no decision on league sion draft scheduled for November of internal politics and rumors, I ended assignment was made at the time the 1997 or such other date as agreed up moving our group, together with expansion franchises were awarded, upon by the Commissioner and the secretaries and several paralegals, to we had to comply not only with the expansion club). The process of an unoccupied floor of the building. Major League Baseball Agreement, preparing and issuing offering mate- We had agreed to "play ball" and only rules and regulations, but also with rials; assisting investors and their become involved in firm politics to the Constitutions, Bylaws, rules and counsel with the subscription docu- the extent necessary to protect regulations of both the National and ments and Major League Baseball's careers. One career that did not American Leagues. This presented background information form and need protection was that of Jane some interesting problems at times, ownership application; keeping track Birge, a very bright and capable since consistency was often lacking. of commitments and escrow account young lawyer. Jane stayed with me Within the structure of professional deposits; and supplementing the for three years and only left to take a baseball, certain matters are gov- offering materials as significant job with Jerry as the first in-house erned by each league whereas other events occurred affecting Major lawyer for the basketball and base- matters are governed by Major League Baseball, the franchise, and ball organizations, as well as the League Baseball (all of the owners in the ballpark made most of 1995 a Arena and the Ballpark. Jerry also both leagues, meeting as the govern- blur in my memory. lured away Melissa Santello, my ing body of Major League Baseball). legal assistant for eight years. The Office of Commissioner (vacant IN RETROSPECT Dealing with Major League in 1995 but with its powers vested in the In 1993, I left the law firm of Baseball was nothing like dealing Executive Committee of Major League Lewis and Roca, where I had prac- with the National Basketball Baseball) was kind of a "wild card." ticed for 21 years, and joined the firm Association. The NBA, under the The structure of Major League of Meyer, Hendricks, Victor, Osborne leadership of , is an Baseball made due diligence espe- & Maledon. In the spring of 1995, extremely efficient and well-run cially difficult. Not only were there a several of the senior partners in the organization. While there are dis- large number of complex Major firm precipitated a power struggle agreements among NBA owners League Baseball documents and which resulted in the dissolution of from time to time, I have not been agreements to review, but there were the firm. When these events began aware of any issue which publicly also the material documents and to unfold at the law firm, I immedi- divided the organization or impaired agreements of the National League 2 4 ately met with Jerry. It was a diffi- the Commissioner's office. If a self- and American League, as well. cult meeting and the timing could destructive tendency was near the With the America West Arena not have been worse. While I was surface in the NBA, one surely would located downtown and Jerry to be in prepared to withdraw from the proj- have expected to see evidence of it control of both teams, the location of ect and assist in an orderly transi- during the course of the recently con- the ballpark was designed to be in close tion of the work, I also was prepared cluded lockout. Major League proximity to the Arena. The impact of to see the project through and meet Baseball, on the other hand, had no the Diamondbacks and the ballpark the critical deadlines which lay Commissioner in 1995 and the Major (now, pursuant to a long-term naming ahead. If ever the loyalty of a client League Baseball Players Association agreement, the Bank One Ballpark) on was tested, this was certainly one of was on strike. The Major League downtown Phoenix has been and will 25 those moments. While Jerry was Baseball owners seemed to be much continue to be remarkable. sympathetic, he was obviously con- less cohesive than the NBA owners. The Bank One Ballpark used the cerned for the project. I assured him I am sure among those who know tried and true legal structure devel- that nothing would interfere with Major League Baseball well-and I oped for the America West Arena. As getting the job done. With his sup- am not one of those-there are his- with the Arena, a separate entity port and encouragement, I went back torical, structural, and other reasons was formed for the development and to work. Before meeting with Jerry, that explain why the organization operation of the Ballpark. Due to the I had called a meeting of the key was difficult to deal with. When I size of the project, uncertainties attorneys who were working on the was in almost daily contact with associated with being a start-up ven- ture in a new facility and difficulties rials were supplemented to keep Major League Baseball. At the out- encountered in dealing with investors and prospective investors set, Jerry had established $250,000 2 7 Maricopa County (a more challeng- fully informed. as the minimum investment. While ing task than dealing with the City of Major League Baseball, the most of our committed capital was Phoenix), the Diamondbacks fran- National League, and the American attributable to investors of $5 million chise was required to take on greater League prohibit any owner of an or more, a substantial amount of risk than the Suns franchise had interest in a franchise from lending money was raised from among undertaken with the Arena. money to any other franchise or the wealthy individuals who formed lim- The Ballpark itself presented well- owners, players, and personnel of ited liability companies for the pur- publicized architectural and design any other franchise. Four investors pose of purchasing one or more limit- challenges. The facility would have in the Diamondbacks franchise were ed partnership units for $5 million to be enclosed and air conditioned large lending institutions with major per unit. After the award of the fran- during the hot Phoenix summers, offices in the Greater Metropolitan chise and signing of the Membership while at the same time meet Jerry's Phoenix area. They represented Agreement, the Major League commitment to a natural playing commitments to the capital of the Baseball owners determined that the surface. The result is a facility with limited partnership of $20 million. minimum investment could be no a natural surface and a retractable The problems posed by the rules con- less than $500,000 by each individ- roof which can open and close in cerning their participation as ual and business investor. A busi- approximately six minutes. In every investors (presumably a credit card ness entity formed for the purpose of respect, the Ballpark is state-of-the- issued to a player on another team investing in the franchise would not art for fans and game participants. could trigger a violation) was raised be approved unless each member or Every detail from sight lines and with Major League Baseball in 1994. shareholder contributed the mini- seating, concessions and restaurants, In what has to be one of my most mum $500,000 amount. Having public amenities and aesthetics was frustrating experiences, it took until accepted investments in the amount carefully considered. In addition, the June of 1995, for Major League of $250,000 (subject to Major League Ballpark was designed to accommo- Baseball, the National League, and Baseball approval) at the last date advertising and other revenue- the American League to approve an minute, we had to offer each small generating opportunities. 2 6 The exception we suggested for small investor the opportunity to withdraw Ballpark has immediately established noncontrolling ownership interests their commitment or increase it to itself as one of Phoenix's landmarks. held by banking and banking-related the newly-established minimum con- While modern and innovative in businesses with respect to transac- tribution amount. In addition, we had many of its design and construction tions entered into in the ordinary to notify all investors of the change in concepts, it retains a traditional feel. course of business. Given past scan- the rules and apprise them of the effect Major League Baseball, the dals, it is understandable that base- of the change on capital contributions. National and American Leagues, the ball would have strict rules regard- The NBA requires various levels expansion franchise, the expansion ing the lending of money and gam- of background investigation, depend- franchise process, and the Ballpark bling, but the delay in getting the ing on the size of the ownership would have been difficult enough to owners to adopt what appeared to be interest and participation in man- 2 8 explain in private placement offering an easy "fix" was maddening. agement. This always seemed like a materials under normal circum- While our lending institutions con- reasonable policy to me, since it was stances. Unfortunately, the situa- tributed their funds to the escrow unlikely that a franchise or the sport tion in 1995 was anything but nor- account, they would not approve would be tarnished by something in mal and predictable. We were con- unconditional release of their funds the background of a small passive stantly assessing new developments until the rules were changed. investor. Major League Baseball's with Major League Baseball as a The April 18, 1995, deadline for equity requirements were far more burden- result of the player strike and the capital established in the Membership some and restrictive. The expense and vacant Commissioner's office. Agreement had to be extended three delay occasioned by the Major League Development of the team and the times until July 1, 1995. Baseball procedures were substantial. increasing costs of the Ballpark had Beginning in early 1995, we were On March 31, 1998, as scheduled, to be carefully tracked, as well. On reporting investment commitments Bank One Ballpark opened and the several occasions, the offering mate- on a regular basis to the staff at Arizona Diamondbacks took the field. The inaugural season is histo- across the country which hosts fran- While he has turned opportunity ry. The Diamondbacks got off to a chises of the four major professional into tremendous success, his most miserable start, but played the last sports organizations, and Jerry has enduring qualities are revealed in part of the season at better than 500. been instrumental in bringing and the sentiments he has expressed on a Attendance was at the top of Major keeping three of them here. It has number of important occasions. The League Baseball. The Bank One been an exciting 12 years since he message is simple. I have heard it Ballpark ended up costing approxi- telephoned me about buying the delivered to more than 350,000 fans mately $350 million (with some costs Suns franchise. It has been an unfor- in front of the America West Arena still in arbitration); and that amount, gettable experience with a truly after the Suns came so close to beat- together with the franchise fee and remarkable man. Jerry started out ing the Bulls in 1993;29 to the fans the costs of establishing a farm sys- in and made his way into crowding Bank One Ballpark on tem and the team, account for, give high school and opening day for the Diamondbacks; or take a few million, a half-a-billion- and baseball as a "jock." An early and, most recently, to the sell-out dollar enterprise. As the Diamond- failure in business led him to follow crowd at the Suns first home game of backs prepare for their second Major up on a suggestion to contact Dick this lockout-shortened season: League Baseball season, the excite- Klein. Dick Kein hired Jerry to help "I want to thank you for your sup- ment of being a contender has put together the , after port. You owe us nothing. It is up to replaced the excitement of being the previous failures of professional bas- us to earn your support, and we'll do new kid on the block. ketball to take hold in the Windy everything we can to do just that." City. When Jerry hit the ground in When Jerry expresses these senti- BUILDING THE FAN BASE Phoenix with the Phoenix Suns in ments, they sound sincere-because Greater Metropolitan Phoenix is 1969, who would have guessed what they are sincerely spoken. * now one of a handful of communities was to follow.

1 In the early years of the franchise, Jerry hired Tom restructuring of its long-term debt. Through the restructuring from operations, the Ambrose as Vice President of Public Relations. Tom's duties and the utilization of net cash to all partners their adjusted capital included organizing the Suns in support of the community and Partnership distributed return on investment. The community efforts. Today, Tom's duties include staffing Suns accounts and the guaranteed interest increased from 1 to 25 percent. In Charities, which donates several million dollars a year to General Partner's redeemed the interests of Viad Corp, worthwhile community causes, as well as for community 1996, the Partnership Dial involvement by the Diamondbacks. successor to the 25 percent interest in the Suns of The Corp. (formerly Greyhound), and the General Partner's inter- 2 It was evident from my first contacts with the NBA that est increased to approximately 36 percent. Gary Bettman (now Commissioner of the National Hockey 5 The Phoenix Suns franchise is estimated by those in the League), Jeff Mishkin (now Chief Legal Officer of the NBA), to be worth $200 million. Joel Litvin (now General Counsel of the NBA) and their staff industry attorneys would be helpful beyond my expectations. The same 6 The Greater Metropolitan Phoenix area ranks th in size is true whenever I have had to deal with outside counsel for 19 the NBA at the Proskauer Rose LLP law firm. within the NBA. According to NBA statistics, over the past ten years the Suns have averaged 11th in attendance. In four 3 John Teets pointed out that Jerry had always been given of those ten years, the franchise ranked in the top five in the NBA in merchandise sales. great latitude in running the team. Donald Pitt, the Suns Managing Partner, stated in 1982 on the occasion of Jerry's selection for the second time as NBA Executive of the Year: 7 For the period 1993-1998, the America West Arena aver- aged in excess of 190 events per year. "We look forward to Jerry Colangelo being the general manag- er of the Phoenix Suns as long as he's in professional basket- 8 On October 3, 1989, the voters of Phoenix approved a limit ball. The key to the success of the Suns, we feel, is stability. The Phoenix Suns is one of the few sports franchises that has of $3 million in public fund expenditures to construct or aid in not changed ownership, has not changed cities, and has not the construction of any arena, without approval of the elec- changed general managers. The top-to-bottom stability of the torate. Phoenix, AZ CODE Ch. XXVII (1969). Suns organization is remarkable in light of the transient nature of pro sports management. We consider Jerry to be 9 In Point Resorts, Inc. v. Culbertson, 158 Ariz. 137, 761 the premier executive in basketball, if not all of professional P.2d 1041 (1988), the Arizona Supreme Court held that a athletics. He exemplifies as a leader what every business trade of publicly owned land in the Phoenix Mountain organization, particularly sports organizations, desires to have Preserve for 34 acres of privately held land was sufficiently at its helm." completed prior to the effective date of a measure adopted by special election prohibiting the selling or trading of Mountain Preserve property. 4 In July of 1993, the franchise entered into a favorable 10 Harry Pfeifer, a partner at Lillick and Charles in San 20 See A Big Spring Pitch, ARIZONA REPUBLIC, Mar. 13, 1999. Francisco, represented The Fuji Bank. Harry not only repre- sented his client in outstanding fashion, but at times lent 21 Jerry's partners in the Suns and in real estate invest- assistance to the other parties in resolving their differences. ments, Mel Shultz and David Eaton, provided invaluable Stuart Meislik with the legal department at The Dial Corp assistance, as did Eddie Lynch of Westcor Partners. Dale represented Restaura, Inc., and was also of great assistance. Jensen, a transplant from Nebraska who had been very suc- Bob Matia, with the Phoenix office of Squire Sanders & cessful creating banking software, not only became a substan- Dempsey, represented the City with respect to its financing of tial investor, but worked to bring others on board. the project. 22 Investors subscribing to Units were permitted to con- 11 On March 1, 1998, the Arena was refinanced on very tribute in installments timed to meet the payment obligations favorable terms through the issuance of Phoenix Industrial to Major League Baseball for the expansion franchise. Development Authority bonds insured by Ambac. Jim Pitman, Chief Financial Officer of the Suns, and Paige 23 1 never received less than cordial and helpful assistance Peterson, Chief Financial Officer for the Arena, were in from the staff at Major League Baseball. In particular, Tom charge of the project and, while there were a few anxious Ostertag, General Counsel, and Chris Tully, a staff attorney, moments as interest rates fluctuated, their timing was excel- were a pleasure to deal with. The difficulty and the frustra- lent. tion would occur when, what I would consider to be staff deci- sions, could not be made without first obtaining the vote of 12 In an unpublished and unappealed ruling in January one or more committees of owners. 1993, the Arizona Tax Court invalidated exemptions from the property tax applicable to possessory interests. ARIZ. REV. 24 The material documents and agreements identified in STAT. §42-684 (1998). exhibits to the Membership Agreement numbered in excess of 50, all of which required detailed examination. 13 In order to appreciate the impact property taxes can have on arenas and stadiums, one need only look to the consterna- 25 Shortly before the opening of the Ballpark, we formed a tion and concern in the wake of a recent Florida decision, limited liability company to provide facility personnel to both Sebring Airport Auth. v. McIntyre, 718 So.2d 296 (Fla. Dist. the Arena and the Ballpark. By combining the staffing for Ct. App. 1998). That decision, which is being appealed, would both facilities, we were able to increase the number of full subject stadiums and arenas owned by cities and sports time positions for the facilities, avoid duplication of personnel authorities to property taxes. The decision is on appeal. and put in place a better trained and more cost effective work See Arena Taxes Give FloridaFits, STREET AND SMITH'S SPORTS force. BUSINESS JOURNAL, Feb. 1-7, 1999, at 7. 26 As opportune as the timing was for the construction of the 14 In 1996, Bob Machen was named Manager of the Year by Arena, the Ballpark came along when the construction indus- FACILITIES MAGAZINE, which also conferred its Prime Site try in Arizona was booming. As a result, competition for the award on the Arena in 1995, 1996, 1997, and 1998. The project, while active, did not present the same cost saving Arena was named Best New Concert Venue by POLLSTER opportunities as were enjoyed by the Arena. MAGAZINE in 1992. In 1996, the Arena was named the Foremost Sports Facility at Sports Summit, a convention of 27 The private placement offering closed when $145 million sports industry professionals. in capital was achieved. The Phoenix Suns acquired one unit 15 In 1991, Ray Artigue joined the Suns to coordinate the for $5 million and one-half unit for the risks assumed in fund- ing the early efforts to sign up investors to attract an expan- marketing function. Within the Suns organization, Ray has sion franchise and to deal with the Maricopa County Stadium established "Standing Room Only" which not only markets the District. The Suns also were repaid the funds which had been Suns, the Arena, the Diamondbacks and Bank One Ballpark, advanced, plus interest. In excess of 50 business and individ- but an impressive number of unrelated businesses. ual investors were approved by Major League Baseball. 16 Fortunately, Jac Sperling, a partner with Hogan and 28 As we became increasingly concerned that our lending Hartson in Denver, represented the Coyotes and helped to institutions might be disqualified, inquiry began into the own- work through the tough issues. ership of other franchises. In Toronto (with the Blue Jays) and Pittsburgh (with the Pirates), several large banks were 17 See $12 Mil. Upgrade for AWA, ARIZONA REPUBLIC, Mar. substantial investors. 12, 1999. 29 Jerry was honored for the fourth time as NBA Executive 18 A group of California investors headed up by Barry Kemp, of the Year in 1993. No other executive has won the award an investor in the Suns, has offered to purchase the Phoenix more than twice. Coyotes and keep them at the America West Arena. See Group Bids for Coyotes, ARIZONA REPUBLIC, Mar. 18, 1999.

19 ARIZ. REV. STAT. §48-420, et seq. (1998). The legislation was news to Jerry, who, in 1990, was consumed by the Phoenix Suns and the America West Arena.