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May 30, 2012
Glendale faces budget cuts, sales tax hikes to help pay for Coyotes subsidies
If you want a poster child for what can go wrong with stadium and arena deals, you can't do much better than Glendale, Arizona, which nine years after building a new $220 million arena to lure the Phoenix Coyotes to town (and four years after building a new $200 million training facility for the Los Angeles Dodgers and Chicago White Sox) is now faced with a $35 million a year budget hole, service cuts, and a likely sales-tax hike to 10.3%.
Not all of that is due to the sports subsidies, but they're certainly not helping. As the Arizona Republic reports, Glendale has handed over $50 million in direct operating subsidies to the Coyotes over the past two years, part of which has come straight out of the city operating budget, the rest of which will eventually. The proposed new deal with proposed new Coyotes owner Greg Jamison would add $14.5 million a year in annual payments from the city — and that's on top of the $10 million a year Glendale still has to pony up to pay off the original arena construction bonds. Meanwhile, notes the Republic, "The commercial development expected to spring up to generate sales-tax revenue and help pay off the debt never materialized. The city has been using borrowed money to pay the debt, but that will run out in more than a year."
Of course, Glendale could yet be saved from some of these expenses by the Goldwater Institute, which is still threatening a lawsuit over the Jamison subsidy deal once it's finalized. That would probably mean the city losing the Coyotes, but it would get back the $14.5 million a year in operating subsidies, plus (maybe, if you squint hard enough through your rose-colored glasses) have a shot at filling in lost hockey dates at the arena with actual rent-paying concerts. Whether this would end up a net benefit for the city is bound to be the subject of intense courtroom discussion, if somebody finally buys the Coyotes so we can get on with the lawsuit.
In a situation like this the city has to work out a deal to actually purchase the team, or let them leave. Just handing over tens of millions of dollars to a business that does not add very much to the community economically is asinine.
Posted by Joshua Northey on May 30, 2012 10:11 AM
The NHL has rules against municipalities or communities owning franchizes a la Green Bay Packers. It's pretty much a choice between throwing in more money and hoping it works or giving up and cutting your losses. Even if giving out more money seems like a bad call if it works out it would justify all the other subsidies and dumb decisions made for this team. On the other hand it could be just putting more money in the fire.
Posted by Gerry on May 30, 2012 10:33 AM
Oh I realize it does. But I doubt those rules would hold up if a municipality actually pushed on the issue, the Packers are too good of a model and the publicity would be atrocious.
It would just take some resolve on the part of the municipality. Like anything in life it is a negotiation. If the league says "we cannot that is the rules" it just means you need to sweeten the deal or increase your threats.
Posted by Joshua Northey on May 30, 2012 11:37 AM
A big part of the reason the Coyotes went into bankruptcy is that rent payments were $12.5 million per year. Even now I believe the Coyotes pay something like $4 million per year as a result of the bankruptcy proceedings (correct me if I'm wrong there, but that's what I recall reading at the time). It is true that the team has been getting more than the rent amount back from Glendale in operating fees, but the Coyotes have paid a lot of rent over the years.
It is also unfair to say that no commercial development has sprung up. Westgate would likely never have been built without the Coyotes. It is true that the amount of development is far less than what was imagined 10 years ago, but who could have predicted the housing bubble 10 years ago? (Well, many of us who couldn't believe home prices in southern California could have, but other than that...)
Posted by Ben Miller on May 30, 2012 12:00 PM
Your reporting is flawed, very flawed. Please get your facts straight, the money that is payed to the NHL and will be paid to Jamison is to operate the arena! Whether Jamison is running it or another company, that is cost that can NOT go away. Please, next time do a little research before running a story full of false information...
Posted by Dan on May 30, 2012 12:15 PM
Yes, that's why I called them "direct operating subsidies." Most teams pay their own operating costs, so if the city is paying that for you, that's a subsidy. (If the Coyotes left and Glendale had to pay operations on the arena, the city would also be getting revenues from events there, so it'd be a whole different equation.)
Ben, from what I can tell, the Coyotes have been paying about $2m a year in ticket taxes plus "fees," which isn't exactly rent but is close enough. See:
www.usatoday.com/USCP/PNI/Valley%20&%20State/2012-04-21-PNI0421met-coyotesPNIBrd_ST_U.htm
And Joshua: The Packers aren't actually municipally owned - they're owned by a non-profit held by thousands of fans. If you want an example of a municipally owned team, you'll need to go to minor-league baseball (the Columbus Clippers and Toledo Mud Hens, I believe).
Posted by Neil deMause on May 30, 2012 01:07 PM
Oh Neil I understand the Packers actual ownership situation, but isn't the way it is thought of or described int he media or the culture.
Posted by Joshua Northey on May 30, 2012 01:28 PM
And I don't want to say that municipal ownership isn't a fine model. Just that it's way rarer than people think - even the CFL teams that are "publicly owned" are actually run by community nonprofits, I believe.
Either way, it's certainly something that Glendale could demand in exchange for its cash. And that the NHL would summarily refuse. I wonder if there would be any antitrust grounds to challenge a refusal to sell to public owners...
Posted by Neil deMause on May 30, 2012 01:42 PM
Best thing to do with the team: relocation
Posted by Dave on May 30, 2012 02:48 PM
I think even more than the courts the leagues would be absolutely excoriated int he media if a team in financial distress looking for an owner was offered to be purchased and set up as a non=profit utility by a government body and the league said "no way we are relocating rather than face that".
It would be an interesting thing to see.
Posted by Joshua Northey on May 30, 2012 04:59 PM
It's happened before: Joan Kroc tried to leave the Padres to the city of San Diego in her will - with a trust fund to fund operating expenses - and MLB said, "No way." I believe something similar happened with one of the Pittsburgh teams (either Pirates or Penguins, I forget which). Any excoriation that resulted was pretty quiet.
Posted by Neil deMause on May 30, 2012 06:10 PM
The State of CT owned the Whalers for a couple of years before Karmanos purchased them.
The City of Glendale must have something incriminating on the NHL Board of Governors considering the lengths the NHL is going to in order to keep the Coyotes in Glendale.
Posted by Mike on May 31, 2012 09:03 AM
@ Mike M - Simple reason. The NHL wants to avoid looking like they didn't care about a city that paid ~$300M to keep the team in the city.
Some other sucker is out there but if the NHL left after 5 years they'd look a lot worse than they do.
Posted by Andrew T on May 31, 2012 10:26 AM
on what grounds exactly can the MLB say "no way" is it a single business or not? I am always so confused because they seem to flip back and forth as needed.
Posted by Joshua Northey on May 31, 2012 12:40 PM
They're a franchise operator - their argument is it's like Dunkin Donuts saying who can own one of their outlets.
Posted by Neil deMause on May 31, 2012 12:45 PM
Don't forget the double down (or should I say triple down, after the NFL stadium) that Glendale did over at Camelback Ranch. Although you could argue that there is a net influx of dollars for spring training facilities... or will be, someday...
Posted by Greg on May 31, 2012 09:08 PM
During the bankruptcy filing, the club (or city, depending on who you think might be most embarrassed) was forced to reveal that the Coyotes had never paid the city more than $4.7m in total in any season. So, what the rent payments or ticket/parking taxes were supposed to generate is unimportant.
A good year for this club is losing $20m or less on operations. While it's true that some Westgate shoppers are drawn in by the arena/club, and thus some tax revenue may be indirectly earned by the team;s presence (my guess would be very little, given that those shoppers would spend their money anyway... but perhaps not all in Westgate or Glendale). But realistically, any subsidy greater than $5m annually is all but guaranteed to be a money losing proposition for the city.
As for arena operating costs, arena ops for NHL hockey tends to run around $250k per game on average (yes, it does depend where the arena is and who is operating it, too). The majority of that is not what you would call "basics" (IE: security, routine mtce, building ops). In other words, if the NHL tenant leaves, you can cut the actual operating cost by $7-8m or so.
It might be true that if the Coyotes leave the city won't be able to cover it's bond payments with the revenue from concerts, wrestling, dog shows and arena football. But those pointing that out fail to understand that the city has never come close to covering it's obligations with the revenue the Coyotes generated either.
While the building has occasionally been "full", the revenues tell the tale. The Coyotes have rarely topped $20m in total NHL gate in their history, and I'm told did around $15m in ticket sales this season (not counting the playoffs). A good market generates $40-50m in ticket revenue, a great one is well north of $65m.
Big picture.
it will be interesting to see how the cba negotiations will go. If the players are asked to give up more of their cut of league revenues, they may quickly point out that since the last cba the league has turned down options to increase total revenue. The salary cap would likely have increased had the coyotes been sold to Balsilie and relocated to a profitable market. The Thrashers went from taking from the revenue sharing to nearly contributing as the Jets.
Posted by Gerry on June 1, 2012 11:26 AM
Hey John Bladen. I love some of the data you throw out. Can you point me in some directions to learn more? (Books, other blogs, other research, etc.) I wouldn't mind exchanging a couple communications as well. I am on linkedin (John Barr, Seattle and work for a rather large software company in the area :-))
@Gerry. Balsilie never had an arena plan so I am sure that is the argument the League would use. I have often scene that the leafs would get $1B because of a territory rights to the area. I am sure Balsilie had no intention of paying that part of the expense.
Posted by John Barr on June 3, 2012 10:54 AM