We’re in for a real treat tonight, folks. It’s another night of back and forth action punctuated by the inane ramblings of crazy people with microphones.
No, I’m not talking about the Rogers or NBC broadcasts Game 4 of the Stanley Cup Final between the Hawks and the Lightning. We’re heading back to Glendale for a best of seven vote on the fate of the Arizona Coyotes’ arena lease.
Finally, Coyotes fans have an opportunity to cheer on their team in June!
In a development that caught everyone in the hockey world by surprise, Glendale city council announced that they will be holding a special session to vote on whether to terminate both the arena lease and arena management contract with the Coyotes. The intention to hold this special vote was revealed just one day after the Coyotes held their annual town hall, including what was described as a “good meeting” with Glendale city council.
For those that haven’t been following this situation closely, the lease arrangement between Glendale and the Coyotes (and when I say Coyotes, I’m speaking of the overall ownership organization, which would include a variety of holding companies for various parts of the business) includes a professional management services contract that pays the Coyotes $15 million to operate the Gila River Arena. As part of that deal, Glendale gets a share of the revenues generated from all of the events, concessions and parking at the arena. However, the arrangement has resulted in a net loss of $8-9 million per year since it was signed.
On a related aside, you may have noticed that the arena has a new name. While it was called the Jobing.com Arena for years, the contract expired and the naming rights were sold to Gila River Casinos last summer. Given what they are doing to the city of Glendale, I didn’t think the Coyotes could find a more appropriate name for their arena that “jobing”, but I guess I was wrong:
But back to the matter at hand…
It if wasn’t clear before, it is apparent now that the arena lease/management arrangement is a money loser for Glendale. I suspect that city council, some of which was not re-elected after voting for the amended lease arrangement with the new ownership group a couple of years ago, has come to the realization that they are locked into a long-term deal that will likely be a continuous drain on city coffers.
Heck, the best case scenario under the contract might be that the Coyotes exercise their out clause if they rack up more that $50 million of losses over the first five years of the lease. But considering that the Coyotes lost $34.8 million in just the first year of the deal, I don’t think that’s an especially large threshold to meet.
And that’s exactly what I think is happening here. Glendale has wised up to the fact that the Coyotes could very well be leaving town in three years, but in the meantime, that means another $27 million in losses for the city. If that’s the case, why not just rip the band-aid off and cut your losses?
Another, perhaps more important, factor to consider is that a recently released report on the arena operations over the first two years of the agreement show a huge increase in non-hockey attendance and revenues, while hockey revenues declined slightly. Now, keep in mind the Coyotes are still the main tenant and as such represent the majority of the revenues but it’s the trend that is important.
There’s a few more similar charts in the infographic on the report.
So my guess is this is a calculated move on Glendale’s part. They think the Coyotes will probably excercise the out clause in the lease after five years, leaving Glendale without a major tenant for their arena and a futher $27 million or so in the hole. In the meantime, they see a venue with hockey revenues stagnating, if not outright decreasing, while non-hockey revenues are increasing. So if you’re losing money having the Coyotes as your tenant anyway, why not cut them out of the picture and make some other arrangement with an arena manager to try and capture the rising non-hockey revenues. Sure, you might still lose money, but losing a million dollars or two is a whole lot better than losing $9 million a year.
At the very least, if you cancel the deal, you have a chance to renegotiate it with the team. If it were to go through and hold up in court, it would leave the Coyotes with very little leverage given hockey season is a scant three months away. And, as if right on cue, it turns out the city is indeed open to renegotiation, issuing the following statement:
The City Council has scheduled a discussion and possible vote regarding Glendale’s contract with the Arizona Coyotes. Discussions and negotiations regarding the contract have been ongoing for months. Specifically, the City is open to a resolution but it must be one that provides certainty and fairness to both parties, especially the taxpayers. The Council has agreed to stand for transparency and the highest standards of ethics for any future agreement with the Coyotes.
Which leads me to the Coyotes’ side of the equation.
It’s my guess that the Coyotes are indeed just biding their time until they can exercise their out clause and move the team. This is strictly supposition on my part, but I suspect a move to Seattle is probably in the works. There’s a new basketball/hockey arena about to be built, but likely without any public funding if it’s built for a hockey tenant. So any NHL franchise ending up in Seattle is going to be on the hook for either the costs of a new arena or significant lease payments. This would make it much less likely that an owner would be willing to also pony up an expected $500 million expansion fee. But maybe not so unwilling to pay a much smaller relocation fee to move an existing team to a prime hockey market.
Pending approval, the proposed Seattle arena would be ready right about the same time as the Coyotes’ lease with Glendale hits that five year mark.
So, what we might be seeing here is Glendale seeing the writing on the wall and deciding to strike first in an effort to minimize their losses over the next three years. And the Coyotes, much like their blue line, appear to have been caught flat-footed.
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