The Almighty Water$

Halsey Street starts alongside a saturated sports ground, Victoria Park, and runs downhill, ending as a watery cul-de-sac, with seagulls fluttering and foraging among mounds of trash.

If you judge an address by the companies it houses, this is the most expensive half-mile in the Southern Hemisphere. Gathered here, barbed-wire cheek by key-padded jowl, are the 10 syndicates that will contest the 31st America’s Cup, which started Monday night (Pacific time) with the challenger series for the Louis Vuitton Cup.

Over the next five months, sailing syndicates with budgets totaling more than half a billion dollars will be reassembled and sent out to sea from here. Their destinies will unfold in slow motion--the top speed of a 79-foot, 50,000-pound America’s Cup yacht is 9 1/2 mph. Often, those fates will be apparent even before each race is underway, since the crucial part of these sailing contests is establishing the best position at the start.

Here, on the other side of the international date line, it’s the world of Larry Ellison of Oracle and Otto Plattner of SAP; the place for a meeting of the minds and needs of Paul Allen, co-founder of Microsoft, and Craig McCaw, onetime father of cellular telephone communications. Somewhere in there too, is a lawyer turned $30-an-hour tennis coach. Their common interest is 1 mph of boat speed.

The story starts with money, or the lack of it. In April, 2001, McCaw’s companies were losing $15 million a day, by the estimate of Fortune magazine. OneWorld Challenge, the altruistic $75-million America’s Cup campaign McCaw had founded in partnership with the Seattle Yacht Club “to win the oldest trophy in sports in the name of the World’s oceans” was starting to look like an indulgence.

So McCaw undertook what the London Times called “the world’s biggest garage sale.” Foremost among the sale items was Tatoosh, a 303-foot luxury yacht, about to be launched at shipyards in Kiel, Germany. Tatoosh was built for $150 million. The asking price was reported to be $100 million.

The buyer was Paul Allen, shortly to become a sponsor of OneWorld Challenge through the commitment of $10 million from his TechTV in San Francisco.

OneWorld Challenge was undergoing further budget cuts. At a meeting in mid-May in Seattle, the syndicate members--sailors, designers, technicians, support staff--were told they were going to have to feel some of the owner’s pain.

McCaw, who to that point had spent $30 million, said he would quit the campaign unless they agreed to release him from their contracts and take discounts on their pay.

“At that time, our future looked pretty bleak,” says Bob Ratliffe, communications director of OneWorld Challenge and a spokesman for McCaw. “Wages were substantially cut. That was voluntary. We had to make some tough decisions. The team came to me and that was one of the first things put on the table. The guys said they would be proactive.”

All except Sean Reeves, the team’s rules advisor and operations manager.

Reeves, 41, is a commercial lawyer in Auckland. This was to be his third America’s Cup campaign. The first two were as Team New Zealand’s rules advisor, the jungle guide every syndicate employs to help it through the thicket of America’s Cup rules.

Reeves had shared a desk with Team New Zealand’s figurehead and patron saint, the late Sir Peter Blake, who was killed by pirates at the mouth of the Amazon last December, and believed he had a working knowledge of how to run a Cup campaign.

After New Zealand’s successful defense of the Cup, in February 2000, there was a scramble by syndicates to recruit its team members. In 26 cases, money won out over national pride.

Russell Coutts and Brad Butterworth, Team New Zealand skipper and tactician, respectively, joined the Swiss Alinghi syndicate. Others would soon be gone, including the rules advisor.

Recollections vary as to the extent of influence Reeves wielded in the recruiting of his former teammates, 12 in all. The pick of them, though, was boat designer Laurie Davidson, 78, with a festering resentment for the lack of individual credit his work had received during the successful Team New Zealand campaign.

New Zealand, population 3.7 million, was at first aghast, and then defiant at the defections.

“There’s more where they came from,” sniffed an editorial in Auckland’s New Zealand Herald.

Sometimes called the Pacific Peso, the currency of Australia and New Zealand fluctuates between 40% and 60% of the U.S. dollar.

Now the defectors were being paid in U.S. dollars. Gary Wright, OneWorld Challenge’s chief executive, estimates salaries were increased by 200%-400%, to about $200,000, in some cases, and $1 million or more for senior positions.

Davidson was paid $1.5 million for eight drawings of a new America’s Cup boat. According to an undated contract signed by Reeves and Wright, Reeves’ pay would escalate from $40,000 a month in 2000, to $50,000 a month in 2001, and $60,000 per month for 2002. Bonuses would range from $250,000 for reaching the semifinals of the Louis Vuitton Cup, to $2 million for winning the America’s Cup.

“This is my retirement,” Reeves remembers one of his countrymen telling him after he had signed.

“These guys were chasing bonuses,” Reeves said. “These guys were doing everything to win, including crossing that boundary of taking [Team New Zealand’s] stuff with them, and it was endemic.”

In a submission last February to the America’s Cup Arbitration Panel, the body charged with divining the meaning and intent of the America’s Cup Protocol, OneWorld acknowledged that some of its guys had taken stuff--carbon-fiber specifications, photographs of secret miniature model tests, computer programs and spreadsheets--that had been used to assemble NZL 57 and 60, the winning boats for the previous Team New Zealand campaign.

But, they added, none of it was important, and it hadn’t been used anyway.

The Kiwis disagreed. Their submission to the panel said three of the six former team members with laptop computers containing Team New Zealand files had not been returned to be purged of relevant information as requested. A fourth team member had opened a design file the day before he took his laptop in. Another had kept a copy of a file that “could fairly be said to contain a distilled representation of most of TNZ’s intellectual property.”

The observations rankled. In an unpublished letter to the daily and Sunday newspapers in Auckland, OneWorld’s Wright said that this was not the way Peter Blake would have handled the situation.

“He was a man who felt that differences like this should be settled out on the water,” Wright told The Times.

Instead it was left to the arbitration panel, five practicing and former judges and lawyers, from Europe, Australia and New Zealand to sort out. Except that they had legal problems of their own.

Some syndicates were dragging their feet about signing a commitment not to sue the panel --which held the power of competitive life and death over them--if they weren’t happy with panel decisions. The panel also was seeking a separate indemnity against lawsuits from parties with interest in the outcome of its decisions, such as a sponsor, but with no direct connection to any syndicate.

“The question is, what would happen if the panel disqualified a syndicate?” a source close to the panel said. “It’s a very gray area. We’re dealing with very wealthy men who would have no compunction in funding a lawsuit.”

By early August, the panel had been provided with an insurance policy, covering it for $25 million in legal costs.

Two weeks later, it announced its decision: OneWorld Challenge had breached rules relating to the possession, if not use, of other teams’ information. The penalty would be the deduction of one point, the equivalent of a first-round win in the round-robin challenger series.

OneWorld, though, had been fighting a legal war on two fronts. The second was in Seattle, where it had sued Reeves in U.S. District Court, alleging he had breached a confidentiality agreement, signed after he and the syndicate had parted ways in May 2001, by trying to sell information to other syndicates.

Reeves, paid $600,000 in severance, counter-sued for defamation. Neither side gave much heed to the non-disparagement clause in their agreement.

“I’m a tennis coach now,” Reeves said. “I’m just a little guy. I make $30 an hour, coaching people in tennis in wet, old New Zealand in the winter. I’m hardly a high flier here.”

This lack of status made no difference to District Court Judge Barbara Rothstein, who dismissed Reeves’ defamation complaint and on Thursday ruled that Reeves had breached the confidentiality agreement, finding him liable for damages and OneWorld Challenge legal fees totaling at least $750,000.

Reeves, who had previously told The Times his legal fees were being paid by friends of the family of his American wife, suggested to the New Zealand Herald that he would not pay the money.

So, why?

Why the premium on, and pilfering of design and construction information that will be 3 to 5 years old by the time it is used?

Why throw such stupendous amounts of money at a sporting trophy, even one that is 151 years old?

To answer the first: America’s Cup yachts are designed to certain specifications, most notably, 79 feet of above-water length, and a total weight of 27 1/2 tons. Within those restrictions is the requirement to design for an almost infinite number of variations, the result of an object racing under maximum stress through two different and constantly changing elements: wind and water.

“The difficulty of yacht design is that you have an extra problem created by the water,” says Dave Egan, a designer with the Italian Prada team. “If you are building an aircraft or a car, the flow is always around it. With a boat, as it changes speed, the amount of wave or surface it encounters changes.”

On most teams, after each day on the water, there are changes to the boat requested by the sailors and/or the designers. These changes are made, simulated on computer, tested, fed into another computer, which checks the effects on everything else aboard, and then the boat goes back onto the water. Time is as critical to preparation as money. Time can be saved with the availability of proven designs and computer programs.

To answer the second: The dismissal of the America’s Cup as simply the indulgence of a few billionaires is tempting but not strictly accurate. Apart from the cachet of holding a trophy first contested off the south of England in 1851, the savvy Cup holder virtually owns a license to print money. He can run the event at a time and location of his choosing, under rules of his devising. It’s like throwing the world’s most exclusive party, and knowing that there will always be guests willing to pay whatever is necessary to get in.

The holder of the Cup also gets broadcasting, merchandising and staging rights to the event.

Dyer Jones, of the New York Yacht Club, chief executive of the organizing committee for the Louis Vuitton Cup, puts the total broadcasting rights value at $10 million, as does Bill Koch, the Cup-winning skipper of America3 in 1992.

Merchandising can return as much as $40 million. The jackpot, though, is the staging rights.

“The big money in the America’s Cup isn’t in the TV rights or the merchandising rights,” says Koch. “It’s in the real estate.”

Auckland’s Viaduct Basin was a relatively decrepit fishing port until the mid-1990s, famous only as the place where the Greenpeace vessel, Rainbow Warrior, was sunk by French agents in 1985. After New Zealand’s America’s Cup victory off San Diego in 1995, $55 million was spent to upgrade the area.

With this, and the subsequent announcement by the Royal New Zealand Yacht Squadron that the competing teams would be based at the Basin, the value of the surrounding land soared. What was once derelict open space, is now covered by restaurants, cafes, bars and apartments.

From Halsey Street in the City of Sails, this space looks like the place where everything happened at once: the future, progress, money, fame, all jammed into six years and 10 acres

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(BEGIN TEXT OF INFOBOX)

All the Players

The winner of the Louis Vuitton Cup series, which begins tonight with nine entries, representing six countries, will gain the right to challenge New Zealand for the America’s Cup, starting Feb. 15.

ENTRIES

TEAM NEW ZEALAND (DEFENDING CHAMPION)

Country: New Zealand

Club: Royal New Zealand Yacht Squadron

Skipper/helmsman: Dean Barker

ALINGHI CHALLENGE

Country: Switzerland

Club: Societe Nautique de Geneve

Skipper/helmsman: Russell Coutts

GBR CHALLENGE

Country: England

Club: Royal Ocean Racing Club

Skipper/helmsman: Ian Walker

LE DEFI AREVA

Country: France

Club: Union Nationale pour la Course au Large

Skipper/helmsman: Luc Pillot/Philippe Presti

MASCALZONE LATINO CHALLENGE

Country: Italy

Club: Reale Yacht Club Canottieri Savoia

Skipper/helmsman: Vincenzo Onorato, Paolo Cian

ONEWORLD CHALLENGE

Country: United States

Club: Seattle Yacht Club

Skipper/helmsman: Peter Gilmour/James Spithill

ORACLE BMW RACING

Country: United States

Club: Golden Gate Yacht Club

Skipper/helmsman: Larry Ellison, Peter Holmberg

PRADA CHALLENGE

Country: Italy

Club: Yacht Club Punta Ala

Skipper/helmsman: Franceso de Angelis

TEAM DENNIS CONNER

Country: United States

Club: New York Yacht Club

Skipper/helmsman: Ken Read

VICTORY CHALLENGE

Country: Sweden

Club: Gamla Stans Yacht Sallskap

Skipper/helmsman: Mats Johansson/Jesper Bank/Magnus Holmberg

The Louis Vuitton series began Monday night (Pacific time), the start of four months of racing to determine which boat will compete against New Zealand’s defending champion.