6 Potential Roadblocks Regarding the Sale of the Phoenix Coyotes

by

Almost three years after the beginning of the desert saga when the NHL bought the franchise out of bankruptcy in October 2009, we still don’t know what is going to happen to the Phoenix Coyotes in a near future. Will they stay in Glendale for the year to come, or will they move to another city where the organization will be more profitable?

Will the Coyotes remain in Glendale?

Now with the 2012 playoffs well under-way and the deadline to make a decision regarding the future of the franchise looming, let’s have a detailed look at this messy situation that has been dragging for a while, as the NHL and the City of Glendale will need to decide whether or not they will keep the Coyotes in Arizona despite years of financial losses.

Potential Owner

Potential owners are not scrambling to acquire this less-than-profitable franchise, especially after Matthew Hulsizer failed to reach an agreement with the City of Glendale in 2011. A deal had been reached between Glendale and Hulsizer that involved the sale of bonds by the city to pay Hulsizer over $100 million against future parking revenues at the arena. However, the Goldwater Institute, a taxpayer advocacy group, announced that it would challenge the lease agreement in court. The threat led to the failure of the bond sale and, as a result, Hulsizer abandoned his bid for the Coyotes on June 27, 2011. It’s not quite as simple as finding the best Samsung galaxy s3 deals, buying an NHL club is a very complex transaction.

Now there is only one potential owner interested in buying the Coytes, namely Greg Jamison. Jamison is a former San Jose Sharks CEO who was once on the NHL Executive Committee. The businessman is well-known in the NHL and has a good reputation. However, Jamison doesn’t have the financial assets to buy the team alone and has tried to put together a group of investors to keep the team in Glendale. Jamison, who has been interested since August 2011, was close to a deal in February alongside other investors, but his group is still trying to secure partners and cash to close the deal.

It will be interesting to see what role the NHL and commissioner Gary Bettman are playing in rounding up investors for the anointed Jamison bid in an effort to keep the Coyotes in Glendale.

Sale Price and Management Fee of the Arena

While the sale price of the Coyotes is unknown, speculations have been rampant regarding a potential sale price of $140-million for an owner that would keep the team in Glendale. But, since the NHL previously demanded $170-million and Bettman promised the league owners they would not lose money on the Coyotes, it would be difficult for the NHL to accept that offer. Especially since there are prospective owners willing to pay as much as $200-million if they are allowed to move the team to another city, including Pierre-Karl Peladeau and Quebecor who are waiting in the wings to buy the franchise and move it to Quebec City.

Glendale city councillor Phil Lieberman is skeptical that Jamison has raised the money he needs and said that Ed Beasley, Glendale’s chief negotiator, refused a request for Jamison to meet with council to discuss his plans. It is reported that Jamison would be able and willing to put $100-million to purchase the team, which means he would need an up-front $40-million subsidy from the City of Glendale.

The city would have to borrow the money through its Enterprise Fund, which is for sewers and water, and pay $1-million per year back into that fund for 40 years from its General Fund. This financial maneuver will certainly attract the attention of the Goldwater Institute as the $40-million payment would not pass legally under Arionza’s gift clause.

In addition, Glendale would pay $16-million per year to Jamison as a management fee for the arena. The argument would be it is keeping the Coyotes for only $17-million per year (the loan payment plus the management fee) compared to the $25-million it paid for the 2010-11 season and this season. However, earlier this month, outgoing Glendale Mayor Elaine Scruggs said during a diatribe against the NHL she would never vote for a management fee of more than $11-million. Hence, the never-ending negotiation between Jamison and the city in order to find a compromise regarding the management of the arena.

Goldwater Institute

There is a concerted effort by the league and Glendale to avoid a repeat of Hulsizer’s pursuit of the Coyotes. The Goldwater Institute watchdog group helped unravel that deal when the city tried to sell bonds aimed at financially facilitating Hulsizers’s purchase of the team.

Phoenix-based Goldwater threatened to sue the city over the bonds citing Arizona’s gift clause ban on overzealous government subsidies to businesses. Goldwater attorney Carrie Ann Sitren recently said her group has not received much information lately from Glendale about the Coyotes deal, but is ready to scrutinize a possible deal with Jamison or any other prospective owner. This is why the NHL and Glendale will need to be very creative in order to conclude a deal that doesn’t contravene the state constitution’s gift clause.

Glendale City Council

An arena management fee also has the potential to make or break a Coyotes sale coming from the city of Glendale. Mayor Elaine Scruggs and councilman Phil Lieberman don’t want spend a lot of money to pay a new Coyotes owner to run the arena. Other members of the City Council either will support a Coyotes arena payment (i.e. subsidy) no matter what or feel resigned that they have to save the team to keep Jobing.com Arena and Westgate viable and prevent the building from turning into a white elephant.

Yet, Glendale is facing a deficit of as much as $30-million for the upcoming budget. Unpaid furloughs for policemen and fire fighters, and cutbacks to public services are likely in the next year, which makes big payments for the Coyotes a tough sell to taxpayers. Also, a majority of the six members of the city council will need to approve the next budget before concluding a deal with Greg Jamison, and in case of a deadlock, Major Elaine Scruggs will have the swing vote.

Declining Fan Base

While the Coyotes are selling out their home games during the Stanley Cup playoffs, it is a totally different story for the regular season. According to ESPN, Phoenix has been among the worst teams in the NHL in attendance for the past few seasons, and the number of fans attending Coyotes home games has been declining since the lock-out as shown below.

2011-12 – 30th with 12,420 fans per game

2010-11 – 29th with 12,188 fans per game

2009-10 -30th with 11,989 fans per game

2008-09 -28th with 14,875 fans per game

2008-09 -28th with 14,875 fans per game

2007-08 -29th with 14,820 fans per game

2006-07 -24th with 14,988 fans per game

2005-06 -22nd with 15,582 fans per game

You can see a decline in attendance since the team went bankrupt in 2009, but even prior to that, the Coyotes had not managed to rank in the top-20 attendance-wise despite having a capacity of 17,125 fans (17,539 with standing room) at Jobing.com arena.

Financial Losses

Finally, the biggest challenge to the Coyotes deal remains to find an owner willing to sustain massive financial losses in the Arizona desert for the years to come. According to Forbes, the Coyotes are being worth about $134-million, with around $24-million in losses per year. That makes the Coyotes the cheapest franchise in the NHL behind the New York Islanders and the Columbus Blue Jackets which are worth $149-million and $152-million, respectively. Unsurprisingly, The Toronto Maple Leafs, the New York Rangers and the Montreal Canadiens lead the way with an overall worth of $521-million, $507-million and $445-million, respectively.

According to Bob McCown of Prime Time Sports, sources have told him that the Coyotes have lost $95-million over the last two seasons, which is a far bigger number than the estimated $24-million losses: http://pmd.fan590.com/podcasts/pts/P…04-18-5-pm.mp3

McCown also said they are past the April 15th, 2012 deadline to resolve the situation Bill Daly told him about earlier.

But can the Coyotes be profitable over the long term?

Let’s extrapolate and have a closer look at the situation:

Coyotes Average Attendance (ESPN): 12,420
Coyotes Average Ticket Price according to Andrew Star’s page: $36.15

Total: 12,420 fans x 43 games (41 regular-season and 2 pre-season) x $36.15 = a little more than $19-million

Cost of running an NHL Franchise : $75M to $95M depending upon travel, so let’s say $95-million because the Coyotes play in the Pacific Division.

Cost to run the Coyotes: $40-million + Team payroll: $55-million = Total Expenses $95-million

Ticket Revenue (regular season): $19-million
City of Glendale generous donation or arena management fee: between $17M and 25M

TV Contract: $10-million
20 luxury suites @ $200,000: $4-million
Concessions: $10-million
Advertising inside the arena: $3-million

Total Revenue:  $71-million

Conclusion

If the new owner of the Coyotes doesn’t increase the average price per ticket to a minimum of $60 and the team doesn’t attract at least 16,000 paying fans per game ($60 x 43 games x 16,000 = $41.28-million/year in ticket revenue instead of the current $19-million) the organization will never turn a profit in the Arizona desert. While the above numbers remain to be confirmed, they give us a good idea of the Coyotes’ overall situation and the thin possibility that Greg Jamison will turn his investment into a profitable endeavour.

Jamison and his group of investors will need to have a strong back in order to survive massive financial losses in the first few years following the purchase of this franchise if they want to have any hope of turning things around in the desert and avoiding to go bankrupt like the previous owner, Jerry Moyes.

Jamison will need a strong marketing team to convince the fans to come in greater numbers to the arena despite almost doubling the sale price of the tickets if he hopes to even break even!

——————————

Do you think the Coyotes will be in Phoenix this season? Or do you think this whole saga is about to come to an abrupt end after the interested parties, namely the NHL, the City of Glendale and Greg Jamison, can’t conclude an agreement because of the above roadblocks?

You can follow me on Twitter for more information on the NHL.

28 thoughts on “6 Potential Roadblocks Regarding the Sale of the Phoenix Coyotes”

  1. Julie, I guess you don’t understand that people are not going to put their full support behind a team not knowing if it will be here the next year. Stable ownership will help this situation tremendously. Other markets have had similar problems and been solved by stable ownership.

    Just because you want a hockey team, doesn’t mean you will get one. So you go out and bully the kid with the most problems to try and take it away from them? Whose next, NY Islander, NJ Devils (they are in financial troubles even though being in the the largest Metropolitan market), Florida Panthers, Columbus Blue Jackets? Heck, take all 23 remaining teams in the US and see how fast the NHL collapses in Canada.

  2. The assertion that it is unlikely the attendance will rise is faulty. Attendance went from an average of @15.5k per game into a decline when the team was doing poorly, and there was terrible coaching and mismanagement that allegedly involved the owner pocketing money that could have been used to improve the team and to built the fan base.

    The last few years, fans have consistently heard rumors about sales and been demoralized by the interference of outsiders that have involved themselves in Glendale politics to try to influence the sale (as happened when the Goldwater Institute began getting bucketloads of funding from Canadians interested in any deal failing). This is another factor that influences whether fans buy seasons tickets or become emotionally invested in a sports franchise that might move to another city.

    Once this team has an owner, fan interest and attendance will again begin to climb to what it was when the team first came to Arizona. Right now there is very little promotion of the team because its owned by the NHL and fans are waiting to buy seasons tickets until they know the team will be here another season. 

    • Fair argument there, but for that to happen the Coyotes need to find a devoted owner willing to lose millions in the first few years, and that very quickly. Jamison has been looking for financial backing for the past year without much success.

  3. Hey guys you forgot something in your revenue schema. The Coyotes would also qualify for the leagues’s revenue sharing. It should bring in another 7 or 8 million.

  4. Just out of curiosity – Why should the arena-management fee be tied to the (potential) new ownership?

    Why is this not addressed separately, as most prudently-governed municipal contracts are? With the City of Glendale announcing it will accept tenders for the maintenance contract.

    Then, based upon due-diligence and a posted bond, to ensure quality and compliance, it grants the contract to the lowest bidder, whomever that may be?

    The current structure of this arrangement makes one wonder if this fee isn’t a back-door for overpayment for such a service; thereby an indirect subsidy for new ownership, through the sweetening of a potential deal, by such means.

    The management fee shouldn’t even come to bear, in such discussions. It’s a stand-alone issue, and should be dealt with as such, for the sake of transparency and fiscal responsibilty.

    • You have a very valid point here and I agree with you that it looks like a subsidy to me. As a result, GWI will be all over this as soon as it’s made public. I really don’t understand how those council members think they’ll manage to conclude a valid deal without bringing the attention of the GWI on it.

      • Why wasn’t GWI all over the $25M that the City has paid to the NHL to do the same thing, manage the arena? They would have a very small basis for any kind of legal action. Don’t get your hopes up.

  5. Mr Pierre Karl Peladeau, CEO of Quebecor Media will be more then please to buy the team. I am sure the season ticket in Quebec city will be sold out in minutes….

  6. Incredibly naive article written by a wanna be writer.  Makes assumptions without research and has publicly stated on boards and Twitter is personal vendetta against teams in the south and specifically Phoenix.   Putting Freddy in charge of writing this is like putting an achoholic in charge of the bar.   The Hockey Writer’s site can do much better than having this pretend writer.  Please raise your standards and purge him from your roster.  We would all be better for it.     

    • I am not making assumptions, you should get your information straight. It’s not a personal vendetta against Phoenix, as I am simply stating facts whether you like them or not. At least have the courage to use your real name when you make comments like that. Finally, I am not the only one writing on the situation as Stephen Brunt, a well-known and reputable Canadian journalist, posted this news article today:  Glendale clings to melting ice: http://www.sportsnet.ca/magazine/2012/04/20/stephen_brunt_coyotes_glendale_clings_to_melting_ice/#.T5GRWR2n6Q1.twitter

        • Sunnocks know no more than anyone who is guessing like Shoalts.   If he is a god then god doesn’t exist.

          • Based upon facts if so please share the source.  Since you and the writer quote each other as sources Im not sure that counts as fact.    A lot of people would cheer a team in Quebec but your methods make it hard to cheer for you to get a team.  You and the writer would put your grandmother on a street corner to justify getting a team.   That is deplorable.   Instead of circling and condeming the teams that are struggling (more than just Phoenix) just let the chips fall where they may. Its much more noble to get something because you achieved it  rather than getting it cause you damned it to hell.   I challenge the “writer” to prove his abilities by writing an article that articulates what the positives are for hockey in the southern markets or more specifically Phoenix.      I wont hold my breath.

            Good day,

            Slash   

      • Your facts are based upon your desired outcome of a team in Quebec.  It is not done with a neutral point of view that there are both positives and negatives reguarding the situation in Phoenix.  You openly root, with the same circle of like minded individuals, for the demise of the team in Phoenix.  It comes across clearly in your biased “writing” on every site you are on.  Thats why The Hockey Writers would be better of severing ties with biased “writer’s” like your self so that a fresh view of the current hockey environemnt is embraced and NOT a Canada only view.  And feel free to call me Slash if you dont prefer the Slasher 98.   

  7. “Now there is only one potential owner interested in buying the Coytes, namely Greg Jamison.”

    There were actually 3 reported owners, the City of Glendale optioned to only negotiate with one of them.

    “According to Bob McCown of Prime Time Sports, sources have told him that
    the Coyotes have lost $95-million over the last two seasons”

    Can we stop quoting McCown, he’s been wrong more times than I can count.

    “McCown also said they are past the April 15th, 2012 deadline to resolve the situation Bill Daly told him about earlier.”

    See what I mean? (and I doubt Daly really said that to him.)

    “Total: 12,420 fans x 43 games (41 regular-season and 2 pre-season) x $36.15 = a little more than $19-million”

    So say we get both those numbers by a small percentage lets say 15%:14.283 fans x 43 games (41 regular-season and 2 pre-season) x $41.58 (oddly the same amount a another non-traditional market team the hurricanes)= a little more than $25.5-million

    “20 luxury suites @ $200,000: $4-million”

    Good thing the Arena has 88 luxury suites, so we can bring that number up to 16 million

    “Advertising inside the arena: $3-million”

    With dynamite sponsors like “Booster Juice” and “Westgate” (the mall next to the arena) no wonder this number is only $3 mil… lets say $4 or 5 million

    “City of Glendale generous donation or arena management fee: between $17M and 25M”

    Generous!? Do you know any other city owned arena that gets its electricity and water for free? With a volunteer staff to boot?

    “Cost of running an NHL Franchise : $75M to $95M depending upon travel, so let’s say $95-million because the Coyotes play in the Pacific Division.”

    Big assumption on that one why don’t we split the difference? $85 Million

    So with my adjusted numbers:

    Ticket Revenue (regular season): $25.5-million
    City of Glendale generous donation or arena management fee: $17M

    TV Contract: $10-million
    88 luxury suites @ $200,000: $16-million
    Concessions: $11-million
    Advertising inside the arena: $4.5-million

    Total Revenue:  $84-million

    That brings the Net loss to $1 million…

      • I would have to assume because nobody is interested in buying season tickets or investing as a business in a team that, at least right now, may not be here next year.  Once there is some stability in ownership and a sense that the franchise may stay put, perhaps people will invest in the team.

      • I spell it out in my math at the end of my ramblings…

        “Why don’t we split the difference? $85 Million

        So with my adjusted numbers:

        Ticket Revenue (regular season): $25.5-millionCity of Glendale generous donation or arena management fee: $17M

        TV Contract: $10-million88 luxury suites @ $200,000: $16-millionConcessions: $11-millionAdvertising inside the arena: $4.5-million

        Total Revenue:  $84-million

        That brings the Net loss to $1 million…”

        • Fair enough, but for that to happen, the paying attendance would need to increase despite an increase in the price of the tickets, which I doubt is possible. As for the other numbers such as TV contracts and advertisement it’s hard to have a solid figure to determine the real income   it generates!

  8. glendale needs the coyotes more than the nhl needs glendale so the city must step up and make it happen.

Comments are closed.