Local tennis tourney may be sold
While half-owners say they want to stay, lucrative offer has been made
Carey Wagner / The Desert SunIndian Wells Tennis Garden aerial shot.
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Leighton Ginn and Ferdie De Vega
The Desert Sun
April 6, 2005 April 6, 2005</FONT>PM Sports, half-owner of the Pacific Life Open, has reached a standstill with the city of Indian Wells in a quest to refinance the debt on the Indian Wells Tennis Garden, the company said Tuesday.
Raymond Moore, president of PM Sports, said the tournament also is considering an offer to sell to an overseas buyer in a deal that could gross $100 million.
Moore and Charlie Pasarell, who own 50 percent of the tournament through PM Sports, say they do not want to sell.
Propelling the issue is a lucrative offer that sports-and-entertainment conglomerate IMG, which owns the other 50 percent of the tournament, wants to accept.
Moore said the offer is good until June 30, but IMG would like to know what direction they will take by the end of April.
"To make sense (to keep the tournament), we would need to restructure the debt," Moore said. "(The offer) would make us wealthy. It's still on the table. We have not rejected it."
While Moore said selling was an "appetizing option," they also are exploring other avenues. He said Tuesday that PM Sports is close to putting together a syndicate to buy out IMG, saying the group will be made up of well-known people.
"We are not in the market to sell this tournament," Moore said.
The Pacific Life Open, which celebrated its 30th anniversary last month, set an attendance record with 280,652 fans, making it the fifth-most-attended tennis tournament behind the Grand Slam tournaments - the top four.
In a 2001 study commissioned by George Washington University, the tournament had an economic impact of $100 million on the Coachella Valley. Using the same formula, combined with this year's attendance, Moore estimates that number has grown to $140 million.
The Pacific Life Open has grown in profitability by 200 percent from 2004. However, servicing the existing debt on the facility keeps the tournament at a loss.
The cash flow from this year's tournament is estimated between $1 million to under $3.7 million.
The tournament has $39 million remaining on its mortgage on the $77 million Indian Wells Tennis Garden at an interest rate of 8 percent.
Moore said they need to reduce the interest rate to about 5 percent, and need help in refinancing. By refinancing the loan, the tournament stands to save $1.8 million a year. Currently, the tournament pays $3.7 million in debt service annually.
Moore confirmed there has been a capital call in to the partners to make up the loss. When asked if the loss was about $2 million a year, Moore didn't confirm or deny the figure, saying they had to pay more in 2003 and will pay less for this year.
Moore said he and Pasarell want to keep the tournament in the Coachella Valley because it is their home and they believe in the growth of the tournament.
However, he did say negotiations with the city of Indian Wells to find ways to refinance their debt have reached a standstill.
Moore told The Desert Sun that one avenue he and Pasarell are pursuing is putting together a syndicate to buy out IMG, which under current owner Ted Fortsmann is known for getting rid of under-performing assets.
"They have the ability (to refinance the loan independently), but they do not have the enthusiasm," Moore said. "Charlie and I have the enthusiasm, but not the ability.
"We're optimists. That's why we built that stadium."
Even if the tournament gets a group of investors to buy out IMG, the debt service is still of utmost priority.
One option the tournament is exploring is obtaining a bond to help refinance the debt.
"There are several scenarios," said Indian Wells Mayor Percy Byrd, who's a member of the finance committee. "We've officially given them something to look at and respond back."
He confirmed that one of the options is for Indian Wells to float a bond, and the city would own the tennis stadium.
But Byrd said the city has not agreed to this option.
Moore said the bond issue has hit a road block as they cannot agree to terms.
Byrd said he is scheduled to speak with Moore today.
"I've always approached things that there's more than one way to skin a cat," Byrd said. "If people put their minds together, we can work things out, if everyone keeps an open mind.
"If that doesn't work, there's a standstill."
Riverside County Supervisor Roy Wilson said county staff have had discussions with Indian Wells officials about the Tennis Garden, but they also need to talk with Moore and Pasarell.
"There are some unanswered questions for the county to move forward," Wilson said. "We're looking at various alternatives and options."
A bond is "just one option," he said. "We're not sure if that's a viable option.
"We think the tennis tournament is important to the economy of the valley, and we want to do anything we can to help," Wilson said. "But we have to work with the City of Indian Wells because it's in their city."
The city of Indian Wells has talked with Moore about other options to refinance their loan, including selling the tournament's 27-acre parking lot, provided the city rezones the land. Currently the land is zoned for event parking.
Byrd noted the land could be rezoned by a majority vote of the city council.
"I don't know what my colleagues would vote for," he said. "There's a possibility it could change. I don't know."
Indian Wells Mayor Pro Tem Ed Monarch, the other member of the finance committee, declined to comment about possibly rezoning the 27 acres.
"I'm not a land planner," he said. "It's something I'm not familiar with."
Moore estimates that the 27 acres, if rezoned, could sell for $13.5 million, which would solve their refinancing problems.
However, finding alternative parking has been a sticking point.
The options laid out by Moore as to how to use the parking included:
The tournament building a parking structure. Moore said the costs were too expensive.
Have the developer, who is in escrow, purchase 64 acres around the stadium, buy the 27 acres and use it for parking.
Have the county buy the land and dedicate it for parking, which Moore said was unlikely. However, Moore has tentatively scheduled an April 14 meeting with county officials.
Have the city buy the land, rezone it and use it as a park, driving range or golf school for the rest of the year. Moore added parking generates $100,000 a year, which the city would get. He also said the tournament would give the city presenting sponsorship rights, which this year cost $600,000.
Moore suggested that if the parking lot was sold, the tournament could then offer parking at The Golf Resort at Indian Wells. Moore said the council's reaction to this was "Hell no."
Like other businesses, the tournament should provide parking for customers on its own property, Byrd said. "They were not happy that they would have to continue to provide parking with a venue of that size."
Responding to a scenario in which tennis fans would park their cars on some fairways of the city's golf course, Byrd said, "What a joke. That for me is not an option. That is our golf course.
"We're redoing it," he said. "Doesn't sound like a reasonable request to me."
"I would say that it's premature," Monarch said.
"The city's position is we're about to spend a lot of money to redo the golf course," he said, noting the city will hold a meeting Thursday about the proposed renovations, which could cost more than $20 million.
Monarch said officials from the tournament and the city agreed during their last meeting to split the cost of a feasibility study "to explore all aspects of the city financing the stadium."
If the tournament is sold to another city and moved, what becomes of the Indian Wells Tennis Garden?
"I don't know," Monarch said. "That stadium is owned by PM Sports and IMG. That would be their decision on what to do with it."
"At this point, it's not the city's stadium," Byrd said. "They (PM Sports) would have to decide what they would want to do with the stadium."
The tournament cannot independently refinance their loan because banks require a 2-to-1 ratio of revenue vs. debt.
On the back burner is the United States Tennis Association. Franklin R. Johnson, president of the USTA, has offered to help.
Johnson met with Pasarell at Indian Wells during the tournament and again last week at the Nasdaq-100 Open in Key Biscayne, Fla.
However, Johnson said their conversations never got into details, but they will meet again.
"I suspect we'll have something more substantive coming up," Johnson said from his office in Los Angeles. "We've just basically had introductions, but no hard facts or down and dirty talks."
The USTA has a $150 million portfolio and Johnson said they were exploring diversifying into venture capital, and investing in the tournament would make perfect sense.
"We would have to believe it is a sound investment with a return on our investment," Johnson said. "If it's high risk with a lot of concern if we're going to have a return, then no. But the board is willing to invest in a tennis asset with a tennis consequence."
The fact the USTA would step forward to help the Pacific Life Open represents the changing attitude of tennis' governing body in this country.
The next USTA board meeting is in May, but Johnson doubts a proposal would be ready by then. The earliest the Pacific Life Open might be discussed is in the July meeting, Johnson said. The tournament already has sold 64 acres for $18 million, but the deal, which has been in escrow for two years, will not close until December. Moore said they would gross $10 million from the sale, $5 million of which could go to paying down the debt.