WSJ: Glendale's Public Hockey Project

Posted on May 09, 2012 | Type: In the News
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By Brad Parks

Glendale, Ariz. — On Monday, the Phoenix Coyotes advanced to the NHL's Western Conference finals for the first time since moving to the desert in 1996.
 
But here in Glendale, the Phoenix suburb where the Coyotes play, not everyone is cheering. "If you need a poster boy for how to pour your whole budget down the drain of professional sports, Glendale is the place," says Glendale resident Ken Jones, a retired construction superintendent, who calls the team a financial albatross. 
 
By any measure, professional hockey in the valley of the sun has been an expensive proposition and the cost is falling heavily upon Glendale. The Coyotes play at Jobing.com Arena, a monument to the NHL's expansion to cities in the Southern and Western U.S. As in Atlanta and South Florida, hockey has failed to captivate Arizonans, a problem that culminated three years ago in the franchise filing for bankruptcy. Among NHL clubs this season, the Coyotes ranked last in attendance.
 
The city built Jobing.com Arena in 2003 as part of a package that included an upscale mall, and that in turn helped attract an enormous coup for Glendale: University of Phoenix Stadium, home to the NFL's Cardinals, the 2008 and 2015 Super Bowls and the Fiesta Bowl. Currently, an outlet mall is under construction nearby. 
 
Yet unlike other Arizonans, Glendale taxpayers can't ignore the Coyotes. The city is obligated to make debt payments on the arena that average $12.6 million a year. To keep the team afloat, moreover, the city has been paying a so-called "arena management fee" of nearly $25 million a year to the NHL, which three years ago bought the Coyotes out of bankruptcy.
 
The NHL has announced a tentative sale to a group headed by former San Jose Sharks executive Greg Jamison, under terms that would essentially institutionalize Glendale's commitments. Under the proposal that the NHL has laid out for city council members, the city would continue paying an arena-management fee that would average about $14.5 million a year. 
 
On top of the city's average $12.6 million in debt service, that amounts to annual expenses of about $27.1 million—to be offset by anticipated Coyotes-related revenue of $14.2 million, according to projections by Glendale's city management department. That adds up to a projected annual loss for Glendale of $12.9 million. 
 
By the time the new ownership deal ran its course in 2033, Glendale would have paid $271 million—nearly $1,200 for each of its 226,721 citizens—to keep the team.
 
These expenses outweigh Glendale's Coyotes-related revenue by such a degree that Moody's has downgraded the city's bond rating twice in the last 18 months, citing the city's ongoing hockey payments. In part due to the Coyotes, the city's reserve fund has fallen to $11.7 million from $72.5 million six years ago. Facing a projected $35 million budget gap—in a city whose general revenue funds in the most recent fiscal year amounted to $142.6 million—Glendale is proposing to raise its property and sales tax rates, while slashing library hours and hiking fees for city services.
 
The recession hasn't helped Glendale, a fact the NHL noted in a statement. "The Coyotes have outstanding management, an outstanding coaching staff, a passionate fan-base and they have reached the Western Conference Final. They have found a way to create their own internal stability, which has carried the day against external forces they cannot control. The foundation is strong and ownership would only make it stronger for the long term." 
 
The proposed sale requires approval of the Glendale City Council and a final vote isn't expected for several weeks. One possible opponent is the Goldwater Institute, a libertarian group that has previously argued that the arena-management fee violates Arizona laws prohibiting public subsidies to private businesses. 
 
Some Glendale business owners may also oppose the deal, including David Kimmerle, owner of Sanderson Ford car dealership in Glendale. A longtime sponsor and fan of the Coyotes, Kimmerle felt betrayed when Glendale officials recently proposed raising the city's sale tax, in large part to support the cost of the team. The proposed increase would make a $30,000 car on Kimmerle's lot $330 more expensive than in the neighboring suburb of Peoria. "No one is going to pay a premium to shop in Glendale," Kimmerle said. "If it is choosing between the Coyotes or a business that is been in my family since 1955 and employs 500 people, I have to choose my business."
 
Yet critics like Kimmerle are hardly legion in Glendale, concedes city councilman Phil Lieberman, who vehemently opposes prolonged taxpayer support for the Coyotes. "I'm really mystified by why the taxpayers in Glendale won't come to meetings and speak up," Lieberman said. "I'm outspoken about this, but I need 20 other people who are outspoken, too."
 
Four members of Glendale's six-person City Council have previously indicated their support for a sale such as the one the NHL proposed on Monday. 
 
Some city officials call the proposed sale Glendale's best—in fact only—option.
 
"We have an obligation to pay for the (arena) debt service and to manage the arena whether the Coyotes are in the arena or not," deputy city manager Jim Colson said. "We believe that financially this (proposed sale) puts us in the best possible situation moving forward."
 
Support for the team is growing amid its unexpected postseason success. In seven previous playoff appearances in Arizona, the Coyotes made seven first-round exits. But in recent days it won two rounds to earn a spot in the conference finals—and suddenly every seat in Jobing.com Arena is selling.
 

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