SHADOW OF A DOUBT

THE DEFECTION OF PHILIP ANSCHUTZ IS JUST THE LATEST RED FLAG IN THE PEPSI CENTER DEAL.

Comsat already has a shopping list of other Central Platte Valley landowners, and speculation has centered on the property behind Union Station, owned by the Trillium Corporation of Bellingham, Washington. Marilee Utter, Trillium's regional vice president, confirms that her company is engaged in "discussions" with Comsat. But putting an arena on Trillium's land would be controversial, since a growing number of lower downtown loft dwellers, already swamped by the cars and crowds at Coors Field, are clamoring for lower-density development at their front door.

"Public sentiment wouldn't let them build on Trillium's land," predicts LoDo developer Charles Woolley. "The best site is where it is now. I believe it's the best site for that arena to connect it with all the other things happening downtown."

It's still possible, Woolley notes, that Comsat could simply buy the original site near Speer Boulevard and the Auraria Parkway from Anschutz. And while the Maryland company tries to find a place for the Pepsi Center to land, the company and its cadre of high-priced attorneys also will continue to push for a financial agreement with the other major players in the deal: Denver's taxpayers.

Denver has been negotiating with Comsat over the Pepsi Center proposal since the spring of 1994. That's when Mayor Wellington Webb appointed a task force to study the Nuggets' plan and determine if renovating McNichols for the Nuggets was a viable alternative.

The task force concluded that McNichols could be remodeled with new luxury suites and a second concourse for $55 million but would still fall short of what the Nuggets wanted. Since the shell of McNichols was continuing to age, the task force said it would be foolish to spend millions renovating McNichols' interior only to lose the arena's main tenant when the team's lease expires in 2008.

Months of negotiations followed, pitting Comsat and attorneys from the Denver firm of Brownstein Hyatt Farber & Strickland against a team of City Hall numbers crunchers. After several dramatic moments, including an angry Leiweke storming out of one session at McNichols, a tentative agreement was reached in January. That deal, still the only one officially on the table, calls for Comsat to pay all construction costs and sell the arena to Denver for $1. The Nuggets would sign a thirty-year lease, in return for which Comsat would be allowed to manage not only the new arena, but McNichols and the Denver Coliseum as well. A decision on whether or not to tear down McNichols would be made at a later date, and Denver would receive an annual payment of $2 million from Comsat.

"I don't see this contract being renegotiated any time in the near future," Webb told the Denver Post. "That's why we wanted to tie them up for thirty years."

The plan was met enthusiastically in some circles; Post sports columnist Woody Paige extolled its virtues in a rare foray into political commentary. Critics, however, attacked the Webb administration for negotiating the deal behind closed doors--and noted that by giving Comsat control over McNichols and the Coliseum, the city was giving away a lot more than a dollar.

Even so, by last spring the Pepsi Center deal was moving at supersonic speed and seemed all but certain to win city council approval. But Comsat and its heavyweight partners soon ran into trouble.

Just a few days after the lavish press conference that heralded the birth of the arena, an emotional Leiweke told reporters he was stepping down, blaming burnout and a desire to spend more time with his wife and daughter. While Denver's dailies ran sentimental stories about Leiweke's new commitment to his family, inside reports hinted at increasing tension between the publicity-loving Nuggets executive and his button-down boss, Charles Lyons, president of the Comsat division that owns the Nuggets.

But Leiweke's departure was a blip on the radar screen compared with the surface-to-air missile the Colorado Supreme Court sent Comsat's way. In an obscure case that had attracted little attention, remote Montezuma County had been pressing the courts for the right to collect property taxes on concessions at Mesa Verde National Park. Colorado didn't levy property taxes on private companies using public facilities--a little-known loophole that Comsat was counting on to make the Pepsi Center property-tax free. By ruling in Montezuma County's favor, the Supreme Court turned Colorado law upside down, and the Pepsi Center deal came in for a crash landing.

Suddenly Comsat faced the prospect of being liable for $2 million a year in property taxes over and above the $2 million it had promised to pay the city. With Brownstein Hyatt, the panicked corporation already had the law firm of choice for companies needing a quick tax break in its corner--and it snagged a victory in the last hours of the Colorado legislative session as obliging lawmakers passed a bill restoring the property-tax exemption. The legislation sailed through just minutes before midnight on the last day of the session, an example of backroom dealmaking that was too much even for Governor Roy Romer. Noting that the law looked like "chicanery" to voters, Romer vetoed the tax break in June.

To keep the Pepsi Center project alive, Comsat headed back to the city this summer, making it clear Denver would have to find a way to make up the $2 million a year in taxes for which the company was now liable. The city could have told the team to take a hike--but, afraid of losing the NBA franchise, it began a new series of negotiations, which have been under way now for weeks. At least one attorney from Brownstein Hyatt is present at all of those sessions. City officials and Comsat executives won't say what new tax breaks they're considering, but letting Comsat keep the sales tax collected at the arena is reportedly one option under discussion.

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