Coyotes owner seeks $200m in tax kickbacks, free land, property tax breaks for Tempe arena project

If the symbiotic relationship between the Buffalo Bills owners seeking public cash and the Buffalo News seeking an exclusive wasn’t enough to squick you out, the Arizona Republic yesterday released its own “exclusive” look at Arizona Coyotes owner Alex Meruelo’s arena plan for Tempe, subscribe to the paper now to find out what’s in it!

Or read below for the most important bits:

The Arizona Coyotes are proposing a $1.7 billion development in Tempe with a hockey arena, hotels, apartments and shops that the team says would be financed by private investors

Ooooh!

although it wants to use a portion of city sales tax revenues generated on the site to help pay for $200 million in additional costs

Awwww!

The sales-tax kickback is part of a Community Facilities District, aka a TIF (Good Jobs First has an excellent new explainer page up on TIFs, btw), wherein Tempe would sell $200 million in bonds and repay them via a combination of:

  • two-thirds of city sales taxes paid on the project site (the other third is already set aside for specific city needs)
  • a 6% surcharge on ticket, merchandise, and concession sales
  • future property taxes

That last bit is a bit confusing, as the Republic also reports that “the team also seeks a property tax abatement,” and it’s unclear how future property taxes can pay off the CFD bonds if the team isn’t paying any, but maybe it’s only a partial property tax abatement, or maybe Meruelo is using non-Euclidean financing, who can say?

In addition, since the land for the arena needs environmental cleanup, Meruelo is offering to pay $48 million toward remediating the site as a purchase price, but no actual cash to the city. Coyotes President and CEO Xavier Gutierrez says this is a fair deal because the land is worth less than that; it’s 46 acres, and most vacant land in Tempe seems to be going for more than a million dollars an acre, so that’s maybe not entirely accurate, but barring an actual assessment of the land — or putting it up to bid — it’s hard to say for sure.

How much the total subsidy would be will depend on how much that property tax abatement amounts to, and how much of a land discount Meruelo would be getting. It’s definitely more than $200 million, though, which sounds pretty good in the context of a $1.7 billion project, but maybe less so if it’s compared to an arena price of, say, $400-500 million. (That’s just a guess; Meruelo and Gutierrez didn’t break down project spending for the Republic.) Is Meruelo actually contractually promising to building all the other stuff like two hotels and a theater and apartments and detail he says he plans to build nearby, or just saying he plans to, hopefully?

“He is fully committed to do so, and he has the financial wherewithal to be responsible for that,” Gutierrez said.

That’d be a “check the fine print, first,” then.

Clearly the idea here is to spin a bunch of special tax breaks as not really tax breaks at all — Gutierrez told the Republic, “We’re on the hook for all of this. It really is going to be something that has no financial liability for the taxpayers or the residents, and we’re willing to really embrace that risk.” That doesn’t seem to be true at all, so now the only thing we need explained is “How much money, exactly, would Tempe be putting up for a hockey arena?”, which at present is unknowable.

There are also (nonpaywalled) a bunch of renderings of vaguely glowy buildings and underlit people, if that’s more what you’re in the mood for today. Also, whatever the hell is going on here:

I guess they’re taking a selfie, with the sidewalk as a backdrop? And the palm tree in the background has curled its fronds in such a way that its photobomb doesn’t obscure the outline of the phone? Okay, maybe we actually have several things we need explained.

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14 comments on “Coyotes owner seeks $200m in tax kickbacks, free land, property tax breaks for Tempe arena project

  1. What’s the point of paying off bonds with an extra charge on merchandise and tickets, etc? Why not just pay for it yourself and then charge more for those things to make the revenue?

    I recall the Calgary owner saying that that kind of extra sales tax was really the team’s money because, if it didn’t charge that tax, it could charge more, which makes sense in an econ 01, supply-demand curve way, but it gets more complicated in the next semester when you learn more about price elasticity, and then even more complicated when you get to the part about how property tax works, but I switched my major to geology and then religion, so I don’t know.

    It feels like they’ve packaged this in a way that sounds palatable to the community, but I don’t know what Tempe is like. It feels like these sites that need a lot of clean up will just sit empty until the municipality caves in on a deal like this to a developer, but I don’t have data on that. Maybe they have some ideas that won’t cost the city so much.

    If I were them, I’d be reticent about going into business with Meruelo. These owners have a record of not paying their bills. And they don’t have any temporary arena idea that isn’t going to lose a lot more money, so it’s not clear how that will work. I wouldn’t want to loan these owners money.

    It would be bad for those fans if the team just moved now, but it would be worse for everyone if they hung around in some suboptimal rink, lost a ton of money, continued to suck on the ice, watch this Tempe thing fall through and have to move anyway (but with a lot more debt.)

    And what happens if they build this arena and the Yotes are still bad and don’t draw fans?

  2. “What’s the point of paying off bonds with an extra charge on merchandise and tickets, etc? Why not just pay for it yourself and then charge more for those things to make the revenue?”

    1) If nobody buys tickets at all, it’s up to the city to make good on the bonds.

    2) Ticket money is subject to NHL revenue-sharing, ticket taxes are not.

    1. Thank you. That clarifies it. I was confused about who was backing the bonds, even though it was pretty clear in the piece.

      I hadn’t thought about the revenue sharing. It seems like that’s something the NHLPA would want to address in the CBA, because it’s basically a way for the owners to pretend revenue isn’t revenue.

      1. I should say that I’m not 100% sure whether teams are allowed to deduct arena bond payments before calculating shared revenue, as MLB teams, for example, are. If they are, then that reduces or eliminates the value of #2.

    2. I suppose in Calgary’s case you could argue its not really speculative to have a ticket tax because you know people in Calgary like hockey and are willing to pay a lot of money to see it. In Phoenix however we have seen how quickly attendance plummets when the novelty of a new arena wears off. Also they did this exact model 18 years ago in Glendale. Put an arena with a lot of development around it and revenues from the surrounding development pays for the arena. How did that work out?

      1. It has nothing to do with ticket demand. Regardless of the market, owners are going to maximize their profits by raising ticket prices as high as they can go — and that’s going to depend on how much fans have to pay, not how much of that the owners get to keep.

        The two factors that would affect whether ticket taxes actually come out of a team owner’s pocket: 1) whether tickets have to be advertised at the full price, including taxes, or if the surcharge can come as a surprise to buyers; and 2) the marginal cost of letting an extra fan into the arena, which is usually minimal, but not zero (you may have to hire a few more concessions workers, cleanup crews, etc.).

        1. I mean before you click “buy” on your ticket order you see what the total cost is. My comment was more in reply to “If nobody buys tickets at all, it’s up to the city to make good on the bonds” That’s a much bigger risk in Arizona which has continually shown to be indifferent to hockey as opposed to Calgary where people love the sport

  3. I took the property tax part to mean no property taxes on the stadium & surrounding development, along with a Cobb County-esque deal where a bunch of stuff outside the development gets TIF’d.

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