Glendale/Coyotes Deal FAQs

Posted on May 05, 2011 | Type: Press Release
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Does this deal violate the Arizona Constitution?

What court precedent exists for enforcing the Gift Clause?

Do sports teams really drive economic growth?

But the local economy will be hurt in some form if the Coyotes leave, right?

What might happen to Jobing.com Arena if the team leaves? Will it "go dark" forever?

Does the Goldwater Institute want the Coyotes to leave Arizona?

Why won't the Goldwater Institute meet with the City of Glendale and Matthew Hulsizer?

Did the Goldwater Institute wait until the deal was almost closed before announcing it would file a lawsuit?

Why did the Goldwater Institute send a letter to various bond-rating agencies stating that it was looking into a legal challenge to the proposed deal?

Glendale voters elected their Mayor and City Council to make these kinds of decisions. Why is the Goldwater Institute standing in their way?

The Goldwater Institute is strongly opposed to the deal Glendale wants to make. Did you oppose the use of taxpayer dollars to help build Chase Field (formerly Bank One Ballpark)?

Did the Goldwater Institute oppose the use of taxpayer money to help fund more recent facilities, such as Salt River Fields at Talking Stick or the planned spring training stadium for the Cubs?

Are you funded by Canada? How many Canadian donors do you have?

I've heard that Mr. Hulsizer has offered a new deal with big concessions. Doesn't this address your concerns?

How can I keep up-to-date and learn more about the proposed Glendale/Coyotes deal?

 

Q: Does this deal violate the Arizona Constitution?

A: The proposed deal violates the Gift Clause of the Arizona Constitution and does so in two ways. The Gift Clause reads, in part, that no Arizona government "shall ever give or loan its credit in aid of, or make any donation or grant, by subsidy or otherwise, to any individual, association, or corporation..." Glendale's proposed deal violates the Gift Clause in its decision to provide its credit to make a payment to Matthew Hulsizer, who will use the proceeds to buy the team. By doing so, Glendale has gone into debt overload, to the effect that its bond rating was downgraded, thereby increasing its borrowing costs. Secondly, under the Arizona Supreme Court's decision in Turken v. Gordon (the CityNorth case), Mr. Hulsizer is not providing roughly proportionate value for the payments he will receive from the city.

Q: What court precedent exists for enforcing the Gift Clause?

A: In August 2007, the Goldwater Institute sued the City of Phoenix (Turken v Gordon) for violating the Gift Clause of the Arizona Constitution when the City signed an agreement to provide a developer with more than $97 million to build a high end retail development known as CityNorth. The case made its way to the Arizona Supreme Court which ruled such deals are illegal under the Gift Clause. Though the CityNorth deal was allowed to stand because of ambiguous prior case law, the Court ruled that going forward, such corporate subsidies were against the law.

Q: Do sports teams really drive economic growth?

A: When economists take a look at the experience of numerous cities across the nation over the past 50 years, they discover that the presence of sports teams, stadiums, and arenas – particularly when subsidized by local governments – don't drive growth in employment or personal income. As an extensive 2008 review of the peer-reviewed economic studies published over the past 20 years concludes: "No matter what cities or geographical areas are examined, no matter what estimators are used, no matter what model specifications are used, and no matter what variables are used, articles published in peer reviewed economic journals contain almost no evidence that professional sports franchises and facilities have a measurable economic impact on the economy."[i]

One of the main reasons sports teams and the facilities in which they play are not drivers of economic growth is because they don't create new economic activity. Instead, they displace other forms of economic activity. For example, imagine you were going to spend money on a night out. You could spend it on an expensive dinner or you could spend it on tickets to a sporting event. But because you have a limited amount of money to spend, you wouldn't spend it on both. This substitution of one type of spending for another is exactly what you see happening when you analyze the experience of cities with sports teams. Consumers spending more of their discretionary income on sports-related goods is offset by those same consumers spending less on other things. Thus, no net new economic activity results.

Another point economists make is that most of the profit generated by sports teams go to the players, owners, and shareholders of the team. Those individuals tend not to live in the area in which the team plays. Instead, the money is "exported" to be spent or invested elsewhere. This reduces or eliminates the "ripple effect" that sports teams have on the local economy.

Q: But the local economy will be hurt in some form if the Coyotes leave, right?

A: Mayor Elaine Scruggs has on numerous occasions been quoted or paraphrased in the press as saying the city will lose $500 million in "economic impact."[ii] The source of this estimate has yet to be produced by the City of Glendale or anyone associated with the Coyotes deal.

Another cited estimate comes from a study done by the ESI Corporation that seems to indicate that Maricopa County would be harmed by the departure of the Coyotes. That study has not been publicly released to allow a look at how that estimate was derived. However, city officials and reporters continue to repeat its conclusion.

The most detailed description of the ESI study's conclusion appears in a briefing document provided to the Glendale City Council dated December 14, 2010.[iii] That document reports that the "annual regional economic impact of Coyotes and Jobing.com arena" amounts to 750 jobs in Maricopa County and $20 million in wages. Glendale officials and Coyotes supporters sometimes use this as an example of what the city and county would lose permanently if the Coyotes leave town. Another estimate reported by the Phoenix Business Journal puts the potential loss at 527 jobs – mostly part-time, service-related jobs at the arena.[iv]

It's unclear whether Mayor Scruggs is simply multiplying the $20 million figure from the ESI study by 30 – the number of years the Coyotes have agreed to stay in Glendale. That would at least provide some kind of rationale for the $500 million figure. However, it would not satisfy her claim that the estimated economic harm would only touch the city; the ESI estimate is a countywide estimate. The principals involved in the deal could clear up much of the doubt by simply releasing any analysis on which Scruggs bases her claim.

Those claims need to be contrasted with the numerous studies by sports economists that have concluded that the presence of sports teams has no significant positive impact on personal income growth or employment growth in the localities and time periods studied, which usually survey 30 or more metropolitan areas and time frames that reach back as far as the late 1950s. Those studies can either find no significant influence on level of these variables (particularly income) and no influence on the rate of growth of these variables.[v]

In the short term, of course, the departure of the team could lead to some immediate job loss and that is regrettable.

But just as the departure of the Coyotes from Phoenix to Glendale freed up capital for other businesses to open and create new jobs for residents, it's important to keep in mind the alternatives. For instance, a minor league team could be brought to the arena and the eventual opening of the new Tohono O'odham casino could attract some of the entertainment dollars that would have otherwise been spent on hockey and provide a cushion to the potential job losses.

Q: What might happen to Jobing.com Arena if the team leaves? Will it "go dark" forever?

A: There are a number of events that can replace some, if not all, of the activity during the 41 nights a year that the Coyotes play at Jobing.com Arena.

One alternative is to find another anchor tenant. Another alternative would be to attract more non-sports events such as concerts and shows. For instance, the estimates provided to the Glendale city government by their own consultants have assumed that "family events/shows" will jump from one in 2010-11 to twenty four by 2013-14. They also assume that attendance at "major events/shows" will grow by 33%, from 75,000 to 100,000.[vi] The city itself apparently believes they can find more opportunities like these so events can take place at the arena year-round. They should be encouraged to pursue these opportunities.

It's also important to realize that arenas have survived in other cities without the presence of an anchor tenant. The Sprint Center in Kansas City, Missouri, opened in October 2007. It was built by the city at a cost of $276 million for the purpose of attracting either an NHL or NBA franchise. No team ever materialized. Yet today the arena turns a profit on the strength of its attendance levels – ranked recently as the second best in the nation – driven by concerts and other events. In 2010, the Center delivered $2.1 million in profit to the city.[vii]

Q: Does the Goldwater Institute want the Coyotes to leave Arizona?

A: The Goldwater Institute's desire is a legal, viable transaction that respects taxpayers and the law. If the Coyotes leave Arizona, it will be because the City of Glendale did not develop a legal path to keeping the team local.

Q: Why won't the Goldwater Institute meet with the City of Glendale and Matthew Hulsizer?

A: This has been one of the most persistent myths. The Goldwater Institute has met and corresponded with the City of Glendale and with Mr. Hulsizer repeatedly. After numerous invitations to the City, on April 21, 2011 the Mayor and other Glendale representatives held a lengthy meeting with us and Mr. Hulsizer. In the interest of transparency, we have made the audio file and transcript of that meeting available to the public.

Q: Did the Goldwater Institute wait until the deal was almost closed before announcing it would file a lawsuit?

A: The Goldwater Institute has been asking the City of Glendale for public documents related to the proposed deal since the spring of 2009. After multiple refusals by the city to provide the public records, the Goldwater Institute filed a complaint in Maricopa County Superior Court in June 2009. A judge sided with the Goldwater Institute and ordered Glendale to turn over the public documents, and to continue providing them on an ongoing basis. Even with this order, Glendale has been extremely reluctant to turn them over.

One internal email from a city attorney that Glendale accidentally sent to the Goldwater Institute ordered another city attorney to "ignore" and "play with" the Goldwater Institute when we ask for public documents. On March 3, 2011, Glendale Mayor Elaine Scruggs told a news conference that "Glendale has provided the Goldwater Institute with everything they have asked for." Yet we received more than 400 new pages of documents later that day, more than 200 pages the next, and have continued to receive more since then.

The public records the Goldwater Institute seeks are integral to determining whether or not the deal violates the constitution. If the City had been forthcoming in providing the documents, the Goldwater Institute likely would have been able to announce whether or not it was going to file a lawsuit much sooner than it did.

Q: Why did the Goldwater Institute send a letter to various bond-rating agencies stating that it was looking into a legal challenge to the proposed deal? Won't this only serve to raise the interest rates on the bonds?

A: The Goldwater Institute sent the letter to the bond-rating agencies because bond purchasers must not be kept in the dark about potential legal risks, which would be akin to the seller of a home failing to disclose serious structural defects. Even if the Goldwater Institute had not sent the letter to the bond-rating agencies, the agencies would likely have discovered that we were looking into a legal challenge when they completed their own due diligence.

Q: Glendale voters elected their Mayor and City Council to make these kinds of decisions. Why is the Goldwater Institute standing in their way?

A: No elected official is above the law.

Q: The Goldwater Institute is strongly opposed to the deal Glendale wants to make. Did you oppose the use of taxpayer dollars to help build Chase Field (formerly Bank One Ballpark)?

A: The Goldwater Institute has always stood against the use of taxpayer money to help finance the building of arenas and stadiums, including Bank One Ballpark. At the time it was built—the mid-1990s—the Goldwater Institute did not have a legal center, so there was little we could do beyond making our objections heard.

Q: Did the Goldwater Institute oppose the use of taxpayer money to help fund more recent facilities, such as Salt River Fields at Talking Stick or the planned spring training stadium for the Cubs? You had a legal center when those deals were being made.

A: Thankfully, Salt River Fields at Talking Stick did not use taxpayer funds to help in its construction. As the L.A. Times wrote, "Construction began on Salt River Fields in November 2009, which may not have seemed the best time to undertake a project, but financing the more than $100-million Salt River Fields did not require municipal funding..." As for a new Cubs' stadium in Mesa, Ariz., the Goldwater Institute has been a very vocal opponent of the use of taxpayer funds to help a deal go through. We have written on the situation (here and here) and spoken out against it in the media (here). In addition, Mesa Mayor Scott Smith has met with the Goldwater Institute on several occasions to make sure any deal he makes will pass constitutional muster. When the deal is completed, we will evaluate it from a legal perspective.

Q: Are you funded by Canada? How many Canadian donors do you have?

A: In order to respect the privacy of our donors, the Goldwater Institute does not release the names of individual donors to any individual or organization without the express agreement of the donor, except as required by law. But we have searched our database high and low today and found that we have received exactly one gift from a single Canadian for $100. We also earned a 4-star ranking from Charity Navigator, the highest possible for a non-profit.

Q: I've heard that Mr. Hulsizer has offered a new deal with big concessions. Doesn't this address your concerns?

A: The press reported the story as the buyer guaranteeing taxpayers $75 million, but our assessment finds the "new deal" still violates Arizona law against private subsidies.

Q: How can I keep up-to-date and learn more about the proposed Glendale/Coyotes deal?

A: You can find more information about the proposed Glendale/Coyotes deal and can sign up for our press releases, daily or weekly emails at http://goldwaterinstitute.org.

 

NOTES:

[i] Dennis Coates and Brad R. Humphreys. "Do Economists Reach a Conclusion on Subsidies for Sports Franchises, Stadiums, and Mega-Events?" Econ Journal Watch, Vol. 5, No. 3. September 2008, pp. 294-315, available at: http://econjwatch.org/file_download/222/2008-09-coateshumphreys-com.pdf. See also Sports, Jobs, and Taxes: The Economic Impact of Sports Teams and Stadiums, edited by Andrew Zimbalist and Roger G. Noll. Brookings Institution Press, 1997; and, Robert A. Baade. "Stadiums, Professional Sports, and Economic Development: Assessing the Reality." Heartland Institute, April 1994, available at: http://www.heartland.org/custom/semod_policybot/pdf/8828.pdf

[ii] Rebekah Sanders. "Phoenix Coyotes deal backed by business leaders." Arizona Republic, March 3, 2011.

[iii] Available at: http://www.glendaleaz.com/Clerk/agendasandminutes/Meetings/Agendas/121410-23.pdf

[iv] Mike Sunnucks, "Much to lose if Phoenix Coyotes leave Glendale." Phoenix Business Journal, March 22, 2011, available at: http://assets.bizjournals.com/phoenix/print-edition/2011/03/11/much-to-lose-if-coyotes-leave.html

[v] See Robert A. Baade and Richard F. Dye. "The Impact of Stadiums and Professional Sports on Metropolitan Area Development." Growth and Change, 1990, vol. 21, no. 2, p. 1-14; Denis Coates and Brad Humphreys. "The Growth Effects of Sports Franchises, Stadia, and Arenas." Journal of Policy Analysis and Management, 1999, vol. 18, no. 4, pp. 601-624; and Ian Hudson. "Bright Lights, Big City: Do Professional Sports Teams Increase Employment?" Journal of Urban Affairs, 1999, vol. 21, no. 4, pp. 397-407.

[vi] Available at: http://www.goldwaterinstitute.org/sites/default/files/TLHocking.pdf

[vii] "Sprint Center delivers $2.1 million to Kansas City coffers," Wichita Eagle, October 14, 2010. Available at: http://www.kansas.com/2010/10/14/1542093/sprint-center-delivers-21-million.html

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