NEW ORLEANS—A bit of due diligence might have kept Louisiana's effort to become the Hollywood of the South from taking another black eye.
In an investment that should have yielded a reduction in their tax liability, 15 present and former members of the New Orleans Saints - including quarterback Drew Brees, coach Sean Payton and former star Archie Manning - put down nearly $1.7 million to buy state movie industry tax credits from Louisiana Film Studios in suburban New Orleans.
Tax credits are a legitimate investment, especially for high-income earners such as professional athletes. A credit reduces the amount of income tax that must be paid. The Saints thought the studio credits would give them roughly $1.33 for every dollar invested.
Like a number of other states, Louisiana passed the tax credit program to prod movie and television companies to do more business in the state and establish complete production facilities. The credits can be bought and sold, somewhat like a commodity.
But state film office officials say Louisiana Film Studios owner Wayne Read never acquired the credits. Though he has said he would repay the buyers, Read so far has not. And his company has been forced into involuntary bankruptcy by, among others, the credit buyers.
The FBI is investigating although no charges have been filed.
The case is the second recent mess involving movie tax credits in Louisiana. Mark Smith, who served as state film commissioner from 2003 to 2005, pleaded guilty in 2007 to taking about $65,000 in bribes to help movie producer Malcolm Petal secure about $1.3 million in state tax credits for filming live music festivals. Smith is serving two years in federal prison; Petal is serving five.
The latest unfolded after Saints player Kevin Houser, in a move that initially had a lot of fans scratching their heads, was released from the team. Houser, who told at least some of the Saints about the credits, said he and his former teammates wanted their money back.
Read said all he needed was more studio investors and the Saints would be made whole. They're still waiting. Read also explained he was confused about what expenses qualified for tax credits. In the meantime, he said, studio startup expenses exceeded estimates and revenue didn't come in as planned.
In January 2008, Read paid off an investor $452,000 for a separate, failed project called Mardi Gras studios. According to Illinois court records and interviews, the sheriff was ready to seize Read's home after he ignored the investor's suit.
In Louisiana, it didn't take long for patience to wane.
A construction company half-owned by Houser's wife, which did work on the studio, and some of the credit buyers, including lineman Charles Grant, who's apparently out $425,000, forced the company into involuntary bankruptcy.
The first time he appeared before a judge in U.S. Bankruptcy Court, without an attorney, Read said he planned to have a repayment plan in short order. Then he pledged his cooperation with a court-appointed overseer. The overseer now says he's been unable to locate any of the financial records of the studio, which had operated in Jefferson Parish.
Before a bankruptcy hearing in September, Read e-mailed Judge Elizabeth Magner, saying financial problems made it unaffordable from him to travel from Illinois to New Orleans. The judge, who has exercised patience in the case, scheduled a sworn deposition for Read - and made it clear federal marshals would be available to provide transportation if he couldn't pick up the cost of an airline ticket.
Read, from afar, said he was still trying to line up buyers for the studio.
In the meantime, though, the Saints apparently have been able to forget about the money on game day, getting a quick start that has visions of a Super Bowl dancing through fans' heads.
Houser, now with the Seattle Seahawks, might be able to take some comfort in the fact that his new team isn't on the Saints' schedule this year.