The saga of the Phoenix (now Arizona) Coyotes was one of the longest in recent sports history, and ended in 2013 with the city of Glendale agreeing to pay the team $15 million a year to stay put in town for just five more years. But at least it’s finally over, and now Coyotes fans, such that there are fans, can enjoy the Coyotes season in peace, such that there’s much to enjoy — wait, what now?
The city of Glendale is not sure what impact — if any — a sale of the majority stake in the Arizona Coyotes will have on a $225 million arena accord reached with hockey team’s owners last summer…
City officials are not sure yet if a change in Coyotes majority ownership would necessitate a new or amended arena subsidy.
Why on earth would Glendale have to kick in more money just because of the checks being made out to a different name? Phoenix Business Journal doesn’t say, but presumably it’s connected to the out clause in the Coyotes’ lease, which allows the team’s owner (whoever it is at the time) to break the lease and move the team in 2018 if they’ve lost more than $50 million over the previous five years.
The Coyotes say they lost $24 million last year, which would certainly put them on the path to lease breakage. But it’s not entirely clear that that entire loss is really loss. As David Shoalts of the Globe and Mail explains it:
The problem for the latest owners is the same as it was for all the previous owners – despite any claims to a successful first year, the Coyotes’ cash flow is not enough to service the franchise’s enormous debt. The team’s hockey-related revenue (HRR) for the 2013-14 season was said to be just $40-million, last among the NHL’s 30 clubs.
Gosbee and LeBlanc borrowed $120-million from Fortress Investment Group and $85-million from the NHL to finance the team and have some working capital left over. While the NHL loan is at favourable terms, one source pegs the interest rate for the Fortress loan at 10 per cent.
The New York Post, which first reported the $24 million loss figure, doesn’t indicate if this counts debt service. But if it does, it’s completely ridiculous: Just because the team’s owners took out a terrible loan (which is soaking up the entire $15 million in subsidies from Glendale to pay off) because they didn’t have enough cash to buy the team shouldn’t count against the franchise’s performance. And it certainly shouldn’t allow the Coyotes owners to cry poverty in order to demand more subsidies. (They would have to repay some of the subsidies to do so, but it’s not really about whether they’d use the out clause, but whether they’d threaten to.)
Anyway, let this be a reminder to city officials everywhere: Don’t sign lease clauses based on team profits and loss, because the teams can cook the books however they want. Maybe someone could just print up some nice plaques with Paul Beeston’s quote on it and send them around to city halls everywhere? The world will appreciate it.