Glendale city council voted unanimously Tuesday night to pay up to the $25-million (all currency U.S.) demanded by the NHL in order to hang on to the Phoenix Coyotes.
That was bitter news for hockey fans in Winnipeg. They were hoping the NHL might turn the Coyotes over to Canadian billionaire David Thomson, who was looking to buy them and return them to the city from which they fled as the Jets in 1996. But after the council meeting ended, NHL deputy commissioner Bill Daly declared the chances of a move to Winnipeg were gone.
Technically, the city council for the suburb of Phoenix voted 7-0 to give city manager Ed Beasley the authority to negotiate what he called "a fee to the NHL to operate our arena and maintain the team if an ownership agreement is not completed" before the season starts.
The NHL wants the money to cover its losses if it cannot sell the team before the start of the 2010-11 season. If the league cuts a deal with the two bidders for the Coyotes, any fee payments will cease. Council agreed to pay no more than $25-million.
Beasley said the city is still negotiating an arena lease with both bidders for the Coyotes - Chicago White Sox owner Jerry Reinsdorf and Ice Edge Holdings LLC, a group of Canadian and American owners. He said he was confident a deal could be reached between the NHL and one of the parties by June 30, the date the league can legally sell the Coyotes to someone who could move the team.
Last week, Reinsdorf was said to be out of the running but his point man on the bid, controversial Phoenix lawyer John Kaites, sat with a group of NHL executives at the council meeting Tuesday, including Daly. Daly told council the league has dealt with both bidders and could complete a sale within a few weeks.
Beasley said paying the NHL would also give the city time to finalize an arena lease with both Reinsdorf and Ice Edge. He also said the payments would end once a new owner is in place but there are still plans for a "communities facilities district" (CFD) to be established around the arena. Land owners in the district will be asked to contribute revenue in the form of surcharges which will be passed along to the Coyotes' owners to pay their operating costs.
The question remains if any agreement Beasley strikes with the NHL will be legal. Arizona law prohibit communities from making excessive subsidies of private businesses and even modest financial help must show a clear benefit to the taxpayer. It is unlikely handing over upwards of $46-million a year to an NHL team, as Reinsdorf's recent lease proposal demanded, will qualify under that criteria.
However, city staff argued the money would come from the CFD and revenue from operating Jobing.com Arena. Presumably, the land owners who agree would then pass on the new tax to their tenants or customers in the form of higher prices for drinks and food in restaurants, for example.
But even that may not pass muster under Arizona law. "The purpose of CFDs have never been to support teams and entertainment businesses," said one Phoenix lawyer connected to the situation who wished to remain anonymous. "It was to pay for infrastructure like roads and sewers."
There is also the question of whether or not the CFD could raise the kind of money the NHL is looking for even if it is established. The Coyotes district would be mostly made up of the Westgate City Center entertainment complex owned by former Coyotes owner Steve Ellman. He has already been assessed stiff financial penalties by Glendale because Westgate has not met targets for expansion.
Last year, the Coyotes were hit with a $1-million charge by the city because the sales-tax revenues from Westgate, which are meant to cover the city's debt payments on the arena, did not meet projections. When former Coyotes owner Jerry Moyes took over the team from Ellman, he also took over responsibility for paying fines connected to the sales tax.
But, as Glendale councillor Phil Lieberman noted, losing the Coyotes to another city will still hurt badly.
"That would put us in a hell of a bind," he said. "We need that team to pay the debt service."
At this point, city officials will only say that Reinsdorf's bid is not dead. They insist his memorandum of understanding, which calls for massive public subsidies, is the only one Glendale has at this point.
The status of Ice Edge's bid is murky at best. Principals of the group of investors have variously said they have an agreement in principle on an arena lease with Glendale, talks have broken off with the city and, finally, that talks are "taking a nap," in the words of an Associated Press report.