As the Phoenix Coyotes’ remarkable playoff run ended in overtime against the Los Angeles Kings, their franchise received another promise of tens of millions of dollars from the local politicians but the Goldwater Institute is still poised to shoot it down.
The city council of the suburban city of Glendale passed a tentative budget for the 2013 fiscal year Tuesday night that called for a payment of $17-million (all currency U.S.) to tentative owner Greg Jamison as an “arena-management fee.” But the long-awaited sale of the Coyotes is far from complete. Aside from the question of just how Jamison will raise the $170-million purchase price, a Goldwater lawyer implied the management fee may be excessive.
The conservative watchdog group scuttled a previous attempt to sell the team because it raised the possibility of a lawsuit over excessive subsidies from the taxpayers for private enterprise. Such subsidies are in violation of what’s called the gift clause in the Arizona constitution.
NHL commissioner Gary Bettman implied last week the deal with Jamison is different than the one with Chicago businessman Matthew Hulsizer that was torpedoed by Goldwater. “So if there is third-party interference,” Bettman said, “it won’t be something that shouldn’t stop us at the beginning. We should be able to proceed and hopefully prevail.”
The difference seems to be that unlike Hulsizer’s deal, Jamison’s purchase does not involve the city backing a bond issue that would produce a $100-million up-front payment to cover most of the sale price. However, Goldwater also objected to the enormous “arena-management fee” called for in the deal, a fee which saw Glendale commit $50-million to the current owner, the NHL, for the last two years.
Carrie Ann Sitren, a Goldwater staff attorney, could not say officially how the institute will respond to the latest sale attempt until it sees a lease in writing. Council discussed the lease agreement in-camera Tuesday and no details came out in the public meeting aside from the payment. But Sitren made it clear even though there is no bond issue in the Jamison deal, the size of the management fee remains clearly in Goldwater’s sights.
She pointed to recent comments from outgoing Glendale Mayor Elaine Scruggs, who is one of three councillors opposed to the $17-million payment to Jamison, that a more reasonable management fee, based on her research, is $11-million.
“The best indicator is look at people who might know what [the fee]includes, like the mayor, and at her comments that 17 million dollars is too much,” Sitren said. “If someone like her says it’s too much that’s a good indicator.”
One of Sitren’s Goldwater colleagues, Byron Schlomach, told Phoenix television station CBS5 that a more realistic management fee would be $8-million to $10-million. Anything more looks like a gift.
Scruggs, the architect of Glendale’s drive to build sports facilities for professional sports teams, said Tuesday when the city borrowed $180-million to build the arena in 2001 the idea was that Glendale would not be stuck with the operating costs. Not when the Coyotes get most of the operating revenue. The recession wiped out the anticipated revenue from sales taxes and development around the arena that was to service the debt on the building.
The mayor also said she believes Jobing.com Arena can be booked for enough dates to offset the city’s debt payments on it even if the Coyotes leave.
The fee is also too much for Glendale councillor Phil Lieberman, the most vocal opponent of large payments to the Coyotes. He said at Tuesday’s public meeting that the city is ready to increase its sales tax and property taxes to the highest in Arizona “to support a hockey team. We cannot afford this.”
Technically, what Glendale council approved Tuesday night was a maximum amount for its 2013 budget. The Coyotes payment is included in the draft budget but the vote to formally approve the budget is not expected until June 12.
The city is already in a tight spot financially. It has to deal with a $35-million gap between its spending and revenue in the 2013 budget, caused in part by the $25-million annual commitments to the NHL in the last two years.
Layoffs of city employees have already been announced and Glendale is also poised to raise its city sales tax to 10.2 per cent, which the local car dealers say will kill them in competition with Phoenix and other auto dealers, as well as jack up property taxes by 31 per cent.
If Jamison and Glendale city manager Ed Beasley settled on the kind of terms they were kicking around earlier, things will get even tighter for the city. One version of the 20-year lease called for the management fees to be front-loaded with Jamison getting $20-million in each of the first four years, which casts doubt on some councillors’ claims the $17-million payment in the draft budget is a “placeholder” and the city may not pay that much.
This kind of proposal also adds weight to those who wonder where Jamison is getting the money to buy the team, since he does not have the personal wealth to do it alone, and how he will cover the annual losses, which have been as much as $40-million. He declined to identify his partners last week when Bettman introduced him as the “tentative” owner.
No details of the purchase agreement between Jamison and the NHL were announced, but it is likely there is an escape clause as it was a feature of all previous deals. Those deals allowed the owner to ask the NHL to move the team after four or five years if the losses hit a certain figure. A four-year escape clause would match well with front-loaded arena-management fees in the first four years.
Those familiar with the cost of operating an NHL team say it takes about $80-million a season for a team with an average payroll to break even. The Coyotes payroll this season was about $55-million, which is 20th, about $5-million less than the middle group of teams.
Since the Coyotes consistently rank at or near the bottom in attendance (tickets were still available for Tuesday’s Game 5 of the Western Conference final on the afternoon of the game), they only bring in a little less than $20-million a year in ticket revenue. Add another $30-million from NHL revenue-sharing and other shared league money, such as television revenue, and the Coyotes are still a long way from breaking even.
That is why Jamison seems to be gambling that if he can get $20-million or even $17-million a year out of Glendale and hope to realize a payoff in season tickets and local sponsorship, not to mention local broadcast money thanks to the Coyotes’ long playoff run, he might get within $10-million or less of breaking even. Compared to the Coyotes’ losses in recent years, a $10-million loss would, in the words of one insider, “be spectacular.”
But it still isn’t self-sustaining, which is why, three years after the Coyotes wound up in bankruptcy court, the longest, most embarrassing ownership saga in NHL history is still running.