Wednesday, September 9, 2009

Will Glendale Lease put Leash on Coyotes?

When examining the Phoenix Coyotes situation in bankruptcy court, all conversations lead to the City of Glendale and the lease agreement at Arena. All of the bidders in the bankruptcy auction have discussed the need for a new lease in order to survive in the desert. With perhaps the most to lose if the Coyotes leave town, what role will Glendale play in Judge Redfield T. Baum’s final decision? Is Glendale an innocent bystander in this situation? Are they part of the problem that led to the demise of the team?

The arena in question opened as Glendale Arena in December 2003, with the Coyotes moving in as the main tenants shortly thereafter. At the time, Steve Ellman and Jerry Moyes owned the Coyotes. After failing to secure a new arena in Scottsdale, the City of Glendale and the Coyotes owners reached an agreement to develop a 200-acre area, which included the arena, office space, an entertainment district, retail shops, as well as residential and other commercial buildings with Ellman, a real estate developer. The city sold the naming rights in 2006 for $25 million over a 10-year period to

Glendale agreed to reimburse the Ellman Company up to $180 million of the $220 million in building costs for the arena in exchange for signing a 30-year lease. Steve Ellman and his company operate 88 privately held companies in the United States, Canada and the Caribbean and he is one of the largest property owners in the Phoenix area, with current holdings in excess of 10,000 acres. The re-developed area surrounding the hockey facility would create new tax revenues for Glendale and allow the city to pay off the debt incurred by building the rink.

In an August 13th interview with James Mirtle, Phoenix reporter Brahm Resnik discussed Ellman's interest in the Coyotes and described the difficulty Ellman had in securing financing to purchase the hockey franchise. Resnik, a frequent guest on Toronto's Fan 590, went on to explain that Ellman's interest was the land on which the arena was to be constructed, not the arena itself. In the interview at From the Rink, Resnik is quoted as saying, “He (Ellman) was using the arena to get the land there, as a way to pay for Westgate, essentially. What a lot of people forget is that Steve Ellman put this team up for sale almost as soon as he moved into the arena.”

The city assumed control of the arena and much of the revenue streams generated by the facility. For example, the Coyotes offer their ticket buyers 7,500 free parking spaces as an enticement to come to games; public transportation to the arena is not available. Unfortunately, the city charges the team a $2.70 surcharge for every car in the city owned lot. Instead of generating a possible $10 million in parking revenue for the team, they have paid roughly $2 million per year to the city for parking privileges.

As for the re-developed area surrounding the hockey arena, a 2006 Phoenix newspaper report claimed the project was two years behind schedule and only half of what had been promised by the Ellman Company was actually being built, leaving Glendale without the projected revenue needed to pay for the arena. Looking at the Westgate Complex website today, whether the tenants listed are current or not, almost half of the retail space is for lease and unoccupied. Ellman dropped out of the Coyotes picture but continued as the main developer of the Westgate Complex, leaving Moyes as a reluctant owner of a hockey team in Arizona.

Court documents revealed the NHL was supporting the troubled franchise, paying $38 million to Moyes to help finance the team, yet at the all-star game, Bettman told Hockey Night in Canada’s Ron MacLean that the NHL had only given the Coyotes an advance on their portion of revenue sharing, which would be a maximum of $15 million. Perhaps the Coyotes received three years of revenue sharing all at once. Reports indicate that the NHL has attempted to renegotiate the lease at the Arena since 2008 with no success and court documents have illustrated that the $38 million was not revenue sharing but the NHL taking control of the team.

One question that remains, is the City of Glendale an unwilling arena owner, duped by brilliant businessmen with offers that were too good to be true? The answer to that question may lie in the connection between the city and Reinsdorf. There was great speculation at the time he made an offer to purchase the struggling hockey club. It has been reported on Toronto’s Fan 590 that Reinsdorf has been to two hockey games in his life, why the interest in the Coyotes? Was he doing Commissioner Bettman a favour? After all, Bettman at one time was the Deputy Commissioner in the NBA and implemented the salary cap in that league for Commissioner David Stern.

The City of Glendale and Jerry Reinsdorf already have a working relationship; perhaps that is why Reinsdorf believed he could negotiate a new lease for the Coyotes when no one else could. In the spring of 2009, the Chicago White Sox and Los Angeles Dodgers moved into their new $200 million Spring Training Complex in - Glendale. For an area that has been devastated by the current economic climate, how wise is it to invest more money in sports related facilities?

Glendale expected millions in tax revenue from the retail development surrounding the Arena but the development has only generated enough to cover debt repayment. Glendale has continued borrowing for sports facilities and this has negatively affected their bond rating, a dangerous financial situation in a difficult economy. A February 2009 article at CBS Sports raises the issue of the city’s bond rating. "Moody's bond rating agency has raised concerns about Glendale's ability to service its mounting debt, after the city borrowed $200 million to build the new spring training complex for the Los Angeles Dodgers and Chicago White Sox. Moody's cited continued declines in sales tax revenue."

The amount of money all levels of government in the United States spend on sports facilities is staggering. A report by the University of Maryland on Professional Sports Facilities, Franchises and Urban Economic Development illustrates the subsidies provided to American based sports teams. Between 1998 and 2003, 26 new facilities began operations for NFL, MLB and NBA teams, five facilities were for NBA and NHL teams. The average cost of the new stadiums/arenas was $320.6 million with an average of $208 million in taxpayer subsidies used to cover the construction costs. The study concluded there is very little to no economic improvement in cities that use tax dollars to build new facilities.

Unfortunately, for Glendale citizens and taxpayers, they have fallen into the trap so many others have fallen into, city and state officials investing millions for the right to have a professional sports team while cutting costs in more crucial infrastructure projects. When examining the lease agreement in Glendale, the only innocent bystanders in this situation are the taxpayers. With an election looming in 2010, the voters of Glendale will have the final word. Whether the Coyotes stay in the desert or not, one thing is certain, the debt created by the team will remain for years to come. Have a great sports day everyone.

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