The “operating subsidies” epidemic: How sports teams get cities to throw good money after bad

I’m on the road the next couple of days, so posting will be lighter than usual. First, though, I’ll leave you with some reading material: My debut article for Al Jazeera America’s relaunched website, examining how teams like the Phoenix Coyotes, Indiana Pacers, and Atlanta Falcons have extracted sweetheart leases that pay them millions of dollars a year in public “operating subsidies” even as their host cities slash services and raise taxes. Here’s a sample:

To pay off the initial Pacers arena cost — plus the $650 million that it sank into a new stadium for the Colts football team — Indianapolis’ Capital Improvement Board had already cut off all of its arts and tourism grants the year before. To help fill the new gap, Mayor Greg Ballard funneled city property-tax revenues to the board, even as he asked city agencies to reduce library hours and close public pools because of budget shortfalls.

“Indianapolis might be a great place to visit, but it should be a better place to live,” says Pat Andrews, a longtime Indianapolis community activist and blogger who has closely followed the Pacers deal. In addition to cuts to parks, transit and other services, she notes, the city police force has stopped recruiting new officers because of budget cuts, and murders have risen dramatically this year. “The basic services of the city are suffering at the same time the Simons and [Colts owner Jim] Irsay are making out like bandits.”

Read, and discuss.

Coyotes sold, firehose of subsidies from Glendale set to be turned on

The moment we never thought would arrive has: The Phoenix Coyotes have been sold, to George Gosbee, Anthony LeBlanc, and assorted other wealthy Canadians for $170 million. Or as we like to call it here, $55 million less than the new owners will get from Glendale, Arizona over the next 15 years for playing there.

Over the next 15 years, that is, assuming the Coyotes stay put. Gosbee and LeBlanc negotiated an out clause where the team can move after five years if it’s lost $50 million over that time, which should be a pretty easy bar to reach if they want, given sports bookkeeping and the fact that it’s the Coyotes. Gosbee reassured Arizonans by noting that he wants to retire to the Phoenix area, and his home in Calgary was destroyed by floods, and calling the out clause “frustrating” to his plans to rebuild a fan base in the Phoenix area. Hey, here’s a crazy idea: If you find the out clause frustrating, how about you don’t put it in the deal in the first place?

Anyway, in the meantime, Glendale still has to pay that $15 million a year worth of “operating subsidies” (a fraction of which will come back to the city via ticket surcharges and parking fees). There hasn’t been any progress that I can tell on the proposal to sell City Hall to pay for past subsidies, but Glendale is considering closing a fire station. But things aren’t all bad: There’s a new city manager, and she likes sharks!

Goldwater won’t sue to block latest Coyotes lease deal

If you’ve been hoping the Goldwater Institute was going to file one of its patented lawsuits against the latest Phoenix Coyotes lease deal, looks like that’s not going to happen:

“Based on the information available to us at this time, we do not believe that the Glendale arena management deal would be held unconstitutional,” Goldwater said in a statement on their website. “Changes made to the agreement during the course of negotiations partially bridged the gap between the market cost of arena management and the amount of the payment to the team owner, thus bringing the deal into conformity with cases interpreting the Gift Clause of the Arizona Constitution.

“The initial deal proposed several years ago would have included not only a substantial annual arena management fee, but a $100 million up-front payment to subsidize the purchase of the team. We are proud to have played a constructive role in protecting the taxpayers and taking an illegal deal off the table.”

In other words, but getting their money one year at a time instead of all at once, the new Coyotes buyers have apparently gotten around any potential legal entanglements. Not that past Goldwater suits were all that effective, but it’s one less hurdle that the new owners have to worry about.

Proposed manager of Markham arena with no sports team says arenas can’t survive without sports teams

Oh, this is embarrassing:

A key partner in the proposed $325-million arena in Markham, which doesn’t have a main tenant, has downplayed a remark by the company’s chairman who indicated big sports and entertainment centres need major pro teams to ensure financial success.

That’s right, sports fans: Comcast-Spectacor (aka Global Spectrum) chair Peter Luukko told the Associated Press regarding the Phoenix Coyotes arena, which his company will operate under the terms of the team’s new owners’ new lease with Glendale, that “for any arena or stadium in a major market to be successful, it needs to have a major league sports team.” That’s the same Comcast-Spectacor that wants to manage the proposed Markham arena that was approved in January despite having no major-league sports tenant. It’s shouldn’t be an exactly surprising or controversial statement, given that Comcast-Spectacor’s competitors Live Nation had previously said that a Markham arena couldn’t work without the guarantee of a major pro sports team. But it is embarrassing, especially since, as Markham deputy mayor Jack Heath put it, “You can’t be selling one message in Phoenix and another one in Markham.” Oh, can’t you now? Clearly, Mr. Heath, you don’t know anything about the arena game.

Coyotes sign sweetheart arena lease, arena bondholders run screaming

The buyers of the Phoenix Coyotes signed their new lease on Monday guaranteeing them $15 million a year in public operating subsidies in exchange for mumble mumble something something, and the city of Glendale is already reaping the rewards:

At the beginning of the year, Glendale, Arizona restructured the debt it took on for Jobing.com Arena, issuing $39.5 million of senior-lien notes backed by the city’s excise tax. Proceeds of the bonds will refund debt used to build the $220 million arena (Glendale still owes $152 million) that opened in 2003, and are structured to provide budget relief by reducing near-term debt service requirements. Those bonds have been hammered, with their yield jumping to $4.35% from 3.33% since January.

Much of that jump came before Monday, no doubt, but Forbes’ Michael Ozanian says bond buyers are looking askance at the Glendale arena bonds with good reason: Not only can the Coyotes leave after five years if they’re losing money, but even the shares of arena revenue that new owners George Gosbee and Anthony Le Blanc have promised to share with Glendale aren’t guaranteed. But hey, at least the struggling mom-and-pop businesses at the local mall like Johnny Rockets and the Cold Stone Creamery can rest assured of some of the Coyotes’ 500,000 fans a year wandering past before or after games. For the next five years, anyway. Unless there’s another lockout.

Glendale councilmember flips, city approves $15m a year to keep Coyotes through 2018

I’m still on the road (had a great time at tonight’s Oakland A’s game — no sewage malfunctions at all!), but wanted to stop by to report on tonight’s vote by the Glendale city council, which approved the plan to give $15 million a year in subsidies for the next 15 years to the Phoenix Coyotes in exchange for the team staying put for five years and paying way less than that in rent, ticket surcharges, and other stuff.

With the council split 3-3 and Mayor Jerry Weiers skeptical about the plan, somebody was going to have to flip to get the subsidy package passed, and somebody did:

Councilman Manny Martinez said he supported the deal after the potential team buyer offered more financial guarantees to the city, including a partnership with a successful events-management firm and repayment under certain circumstances if team revenue projections don’t pan out.

“These two things put an entirely different picture before us tonight,” Martinez said.

[UPDATE: The above from USA Today notwithstanding, it was actually councilmember Sammy Chavira who flipped from the no to the yes column, complete with a poorly timed metaphor about firemen rushing into a burning building.]

I wasn’t able to watch the hearing itself (was at the A’s game, remember?), but that “repayment under certain circumstances,” as near as I can understand it, is a promise that if the new Coyotes owners exercise an out clause in their lease and leave after five years of losses, the team would pay the city for any losses it incurred beyond $6 million. That’s something, I suppose — though given that this was promised in exchange for Glendale dropping its demand for its own five-year out clause (the team get break the lease in 2018 if it wants, but the city is stuck in it through 2028), and given that I’m not clear on how “losses” will be calculated for the purpose of this clause, it’s a pretty meager concession.

The Glendale council also considered bids by several other arena operators, some of which offered to run the Jobing.com Arena for just $6 million a year in subsidies, but according to USA Today, those were rejected because they “couldn’t guarantee NHL hockey.” So in essence, the four members of the Glendale council who voted for this deal decided that it’s worth paying $9 million a year for the next 15 years just to have 40 home hockey games a season. That’s about $18 per game per fan who actually shows up to Coyotes games, or nearly half what the fans themselves are paying — and they, unlike Glendale taxpayers overall, are at least actually getting hockey tickets for their money.

The deal — which also includes the team changing its name to the Arizona Coyotes, which helps Glendale because, um, tourists might hear the name and decide to come to the state and accidentally stumble upon Glendale? — will only be finalized if the sale of the team goes through by August 5th, which is reportedly not a stumbling block, but then, this is the Coyotes we’re talking about, so probably best to believe it when we see it. Assuming that happens, though, Coyotes fans can look forward to at least five more seasons of their team being in town, even if they have to buy all new gear now that says “Arizona” on it. And Glendale residents can look forward to at least five more years, if not 15, of sending checks to the local hockey team — plus, one assumes, all sorts of exciting debates about what public buildings to sell off next.

Coyotes buyers count everything but kitchen sink, still can’t come up with $15m a year in value to Glendale

The city of Glendale has at last released figures of how it would pay for its $15 million annual subsidy to the Phoenix Coyotes (see PDF here) … sort of. What’s it’s actually issued is a summary of “proposed draft points and projections” from the group that wants to buy the Coyotes (and get the subsidy), and then a list of city “concerns” that adds up to — well, let’s add it up:

Glendale would, as previously discussed, hand over $15 million a year for the next 15 years to the new Coyotes owners, Renaissance Entertainment Group, to “manage and operate” the Jobing.com arena. In exchange, the city would get:

  • $500,000 a year in rent
  • $1.5 million a year in surcharges on hockey tickets
  • $1.7 million a year in surcharges on other tickets
  • $2.2 million a year in parking revenue
  • $670,000 a year in arena naming rights
  • $150,000 a year in naming rights for a new smaller theater
  • Some undetermined amount of sales taxes from “admissions, concessions, etc.”

This list raises almost as many questions as it answers. First off, if the Coyotes keep selling 500,000 tickets a year as they have been, this would mean a $3 per ticket surcharge, which makes you wonder why the Coyotes couldn’t just raise ticket prices by $3 a pop instead of laundering it through the city. (There could be some revenue sharing implications, I suppose but I’m not familiar enough with the intracacies of NHL revenue sharing rules to say.) The surcharge on non-hockey tickets is a weird thing for the Coyotes to “give” to the city, since the city could go ahead and levy this fee (reportedly $5 a head) on concert tickets whether the Coyotes were there or not.

Most of all, though, the above only adds up to $6.7 million a year, which would put Glendale in an $8.3 million annual hole. Counting sales taxes generated at the arena would help fill in that hole, but it’s also a pretty bogus way of doing so, given that 1) only a little over half the attendance at the arena is for Coyotes games and 2) some chunk of that money would be spend in Glendale anyway, since it’s not like those people and their spending money would disappear from Arizona if the Coyotes left.

In short, Renaissance’s proposal is better than “give us $15 million a year for 15 years, and we’ll give you a hockey team that your citizens can continue to be disinterested in,” as it looked a couple of weeks ago. It’s more like “give us $15 million a year for 15 years, and we’ll give you back a few million a year, depending on how ticket sales go, and here’s a bunch of other stuff that we wouldn’t really be giving you, but if you don’t look too hard you can pretend it’s new money, and while you’re at it you can pretend it all adds up to $15 million. Oh, and we get to cancel the lease in five years if we don’t like it (or if we run up $50 million in losses), but you’re stuck with it for 15 years regardless.”

That’s not exactly an offer the Glendale council can’t refuse, which is no doubt why so far they haven’t agreed to it. It looks like two pro-subsidy councilmembers are going to force a vote next Tuesday, though, so we should know by then who’s going to win this game of chicken.

Glendale council still can’t agree on Coyotes deal, won’t talk in public until they do

The Glendale city council, after weeks of meetings behind closed doors about the Phoenix Coyotes‘ lease subsidy demands, finally held a public hearing last night where residents could testify about the proposal — but first they held a four-hour closed session to discuss the plan. And then announced that they wouldn’t be revealing any details of the subsidy proposal, because they couldn’t agree on what they would be:

“We’re just not there yet,” [city spokesperson Julie Frisoni] said.

It’s still possible that the council could vote on the matter Tuesday, Frisoni said.

“It seems tight that we would hit a July 2 date, but I would tell you that anything is possible,” she said.

That does seem tight, given that there’s still no public information about how the city would raise the $15 million a year for 15 years that Renaissance Sports & Entertainment (aka George Gosbee and Anthony LeBlanc, aka the Ice Edge guy and his rich friend) wants in order to keep the Coyotes in town. The council will meet again on Friday to discuss the issue further — but in closed session, of course.

What did leak out after yesterday’s marathon private meeting— plus a public meeting in which the council also tabled the proposal to sell City Hall to pay for past Coyotes subsidies — is that the councilmembers themselves seem confused at to what on earth they might be voting on. The Arizona Republic reports that Renaissance is offering to give Glendale “slices” of team ticket surcharges, parking revenue, naming rights, and “other potential profits,” but in the absence of any information about actual dollar values, it’s still hard to see how that would add up to anything close to $15 million a year. And even those slices seem to be in flux: “We’re still not satisfied with what we have, so the whole mix can change,” councilmember Gary Sherwood told the Republic. “If they offer something else up, maybe they take something else off the table, so it’s not even fair to say what we’ve agreed to.”

And Sherwood is one of the supporters of the subsidy plan. For an opponent’s view, we turn to councilmember Norma Alvarez, who said of her council colleagues: “I called them knuckleheads, because they don’t get it. They don’t get it. They don’t get it. They’re going to continue discussions. Discussions of what? We’re selling City Hall because of paying $50 million. C’mon. C’mon.”

It remains to be seen what the NBA will do, now that a Glendale council vote seems like it may not be imminent. The NHL owners are meeting tomorrow, and deputy commissioner Bill Daly previously warned Glendale that “No decision could be a decision.” If nothing else, expect even more strongly-worded vague move threats to issue from the league offices — as NHL commissioner Gary Bettman said of the June 27 meeting, “Stuff’s gonna happen.”

Glendale may sell City Hall to pay off Coyotes subsidies

With all the focus on just how much of a bath the city of Glendale would take if it were to hand over $15 million a year to the Phoenix Coyotes as part of a new lease — and yes, it’s worth pointing out for anyone just tuning in, this is the rare kind of lease where your landlord pays you to rent space — there’s been less attention to where exactly tiny Glendale is getting the money for all this. Fortunately, today’s Globe and Mail has some answers:

Buried on the agenda of Tuesday’s council meeting is an emergency measure to secure a lease-purchase agreement for a maximum of $30-million on Glendale’s City Hall Complex.

It is essentially the same as mortgaging the family home to pay your debts, which in this case is the $50-million the previous Glendale council agreed to pay the NHL in the 2010-11 and 2011-12 seasons, to cover part of the Coyotes’ losses and operate Jobing.com Arena.

Glendale, it turns out, has already depleted its landfill fund ($21 million), sanitation fund ($4 million), and water and sewer fund ($15 million) to pay off past Coyotes subsidies. So to replenish those and raise even more money, the city is now looking at selling City Hall and leasing it back, which will earn it absolutely nothing in the long run, but will get it some quick cash now in exchange for lease payments later.

And that’s all just past Coyotes subsidies — the new $15 million a year would have to paid off with some other pot of money, as yet to be determined. That’s something that the Glendale council is going to have to weigh against the news that the ice machines in Seattle are still working.

Reminder: There’s a public hearing — yes, finally public — set for tonight at 7 pm, at which the arena lease will be discussed, with actual details hopefully revealed. Glendale doesn’t seem to be able to afford a webcam, so those of us not within driving distance of the soon-to-be-sold Glendale City Hall will just have to await press reports of the action.

[UPDATE: @TravisWaldron of ThinkProgress notes that Glendale floated a remarkably similar City Hall sale idea for the Coyotes last year.]