The Phoenix Coyotes are expected to lose between $25- and $35-million (all currency U.S.) this year and with his primary business under financial duress, owner Jerry Moyes may not be able to cover the hockey team's losses any longer.
That leaves him three choices:
- Renegotiate the Coyotes' arena lease to effectively put the city of Glendale into the position covering some of the losses;
- Put the franchise into bankruptcy;
- Turn the keys over to the NHL, forcing commissioner Gary Bettman to find a new owner.
Moyes, 63, took his company, Swift Transportation, private in May 2007 with debt financing of $2.74-billion. One of the largest truck carriers in the U.S., Swift immediately ran into a financial hurricane of rising fuel prices and a falling economy.
In June, Moody's Investors Service changed its outlook on the company to "negative" from stable. By late November, the junk bonds issued to finance Moyes' takeover were trading at 18 cents on the dollar, and bank debt is now trading at 43.5 cents on the dollar, according to Eiad Asbahi, the managing partner of Prescience Investment Group in New York.
Asbahi's report on the company also shows that Swift loaned $560-million to Moyes as part of the takeover. He guaranteed the loan personally.
"Calculating back from the value of its debt, Swift's liabilities now exceed its assets by anywhere from $1-billion to $1.5-billion (all currency U.S.)," Asbahi said.
Asbahi said the only way Moyes may be able to avoid seeking bankruptcy protection for Swift is by exchanging some of its corporate bonds for equity in company.
As Swift Transportation is the foundation of Moyes' business interests and is thought to have provided him the cash to cover the hockey team's losses, the Coyotes' survival in Phoenix is in doubt.
A request to interview Moyes for this report was refused by a Swift spokesman, who said the owner does not do interviews.
After an encouraging spike at the gate for the first five Coyotes home games this season, the crowds declined and overall attendance fell slightly under last season's average. Having missed the playoffs for five consecutive years, the franchise has assembled a talented young team under head coach Wayne Gretzky. But the average ticket price of $31 ranks 29th out of 30 NHL teams and as with all NHL franchises, the lack of TV money compromises the balance sheet.
"This team has to win," NHPA executive director Paul Kelly said, following a recent visit to Phoenix. "If you just look at the numbers on a page, you would say, 'Back up the truck and pull them out of there.' But if they get some home (playoff) dates and qualify for their full share of revenue sharing. ...."
The Coyotes signed a 30-year lease with the city of Glendale, Ariz., when they moved into Jobing.com arena in December, 2003. Terms impose a large financial penalty for breaking the lease. However, if the team is placed into bankruptcy protection, or Chapter 11, the lease could be broken under U.S. law. Without the lease, the team could more easily be sold and relocated.
Moyes could reduce his losses by renegotiating the lease with Glendale - in effect, placing the city in position of subsidizing the team. This was done in Nashville when a local group bought the Predators from Craig Leipold a year ago.
But two sources said Moyes is so eager to unload the Coyotes that he approached his former partner Steve Ellman about buying the team back. "The answer was short and emphatic," one of the sources said of Ellman's refusal.
"I am confident not only that hockey will be here in five years but that we will be doing well in five years," says Coyotes' governor and CEO Jeff Shumway, pointing to improved ticket and suite sales and fewer giveaways. "We run a great franchise in a great sport, a sport we love. And, we're in one of the fastest-growing markets in the U.S."
Shumway's optimism is not shared by many people around the NHL.
"I don't know how they can sustain the losses," one former governor said."The team loses so much money you can't sell it. If I were offered the team for a dollar, I'd say no because you can't fix it."
It is estimated by the former governor that the Coyotes have lost more than $200-million since 2001 - at least $70 million beyond the purchase price. The Coyotes regularly receive payments from the league's revenue-sharing plan, introduced after the 2004-05 lockout.
Shumway would not confirm the estimate of the Coyotes' losses. "All we've ever been willing to say is we lose a substantial amount of money," he said. But Shumway has admitted to the Arizona Republic that the team lost about $30-million in 2006-07.
Moyes purchased the Coyotes with Steve Ellman in 2001 for $120 million, and bought out Ellman's interest two years ago. It is not known if Moyes paid Ellman any cash but Ellman did receive control of the real-estate project around the arena as part of the deal.
Ellman's original plan had been to build an arena in the affluent city of Scottsdale, where many of the team's fans lived. When the city refused the terms, they made a deal with Glendale, a working class suburb on the opposite side of Phoenix. Glendale provided $180-million of the building's $220-million cost.
The Coyotes are no strangers to the upper-bowl phenomenon, whereby the cheaper seats at the top of the arena are filled but thousands of seats in the expensive lower bowl seats are empty. A Scottsdale businessman said the team offers significant discounts on its most expensive seats, further suppressing revenues.
"The big-money guys, the corporate guys, don't live in Glendale," Kelly said. "If you live in Scottsdale, Glendale is not an easy place to get to. That hurts them in the area like club seats and boxes. You could see evidence of that the other night [at a Coyotes game]"
NHL deputy commissioner Bill Daly said in an e-mail message that the Coyotes' financial problems are not considered overwhelming and sought to quash rumours that the club came close to missing a payroll.
"I'm not in a position to comment on Mr. Moyes' personal financial situation or the financial condition of Swift," Daly said. "I can confirm that we are not concerned about the Coyotes missing payroll, nor have they ever come close to missing payroll.
"I can also confirm that I do not expect the team to file for bankruptcy protection." A banking source said the Coyotes are talking to Citibank about a loan. Citibank, which is having its own financial difficulties, declined comment through a spokesman.