Coyotes Respond to Lease Termination

Just when the Arizona Coyotes feel it’s safe go back in the water, sharks, not the San Jose Sharks, are circling once again.

This time, it’s the majority on the Glendale, Ariz. City Council. Because the city owns the Gila River Arena, the Coyotes’ home rink, the council now wants to terminate its lease with the hockey franchise.

Following purchase of the Coyotes operation by IceArizona from the NHL and a subsequent tax re-restructure of the team on December 31, 2014, pundits believed years of uncertainty and doubt were over.

After acquisition of the franchise by IceArizona, and the subsequent procurement by American financier Andrew Barroway to hold majority shares in the team, stability appeared in place.

At the core, this was a franchise owned by the NHL for a four year period. At the same time, Commissioner Gary Bettman remained adamant that the Phoenix market would not be lost. Bettman continued to rationalize the NHL needed the Phoenix TV market, and pushed against any relocation. In the end, Phoenix and its environs were much more desirable to the league than Quebec City, Seattle, Hamilton, Ont., Kansas City or Las Vegas.

It’s no secret the franchise continued to lose money, and for that reason, the Glendale city council, voted, during its Wednesday night meeting, to terminate the existing lease with the Coyotes. With city ownership of the Gila River Arena, the council believes it has the legal right to end the arrangement. Conversely, the Coyotes contend this was a negotiated deal and the city, acting alone and arbitrarily, illegally broke the agreement.

The original purpose of the 10-year lease agreement was essentially two-fold.

First, the city gains a principal tenant for the building. Plus, the surrounding Westgate district, with shops, bars, restaurants and locations of destination, thrives as a viable economic entity.

Shane Doan (Andy Martin Jr.)
Shane Doan (Andy Martin Jr.)

Because the Coyotes have been reported to lose a substantial amount of money, some estimates as high as $20 to $30 million a year since moving from Winnipeg to start the 1996-97 NHL season, the council wanted out of any further obligation to the Coyotes. The agreement, signed last year, calls for the Coyotes’ organization to manage the arena and book as many non-hockey events, such as concerts, business trade shows, monster truck pulls and athletic events, as possible.

As a result of the lease agreement deal, the city pays the Coyotes an estimated $15 million per year. Now, the council wants out.

Council’s action, by a 5-2 vote Wednesday night and led by Mayor Jerry Weiers, came as both a surprise and shock to the hockey organization. Giving word on Tuesday that the council was ready to move on the lease agreement, the Coyotes management began an uneasy period of response.

“The council action came out of left field,” team president Anthony LeBlanc told reporters Thursday afternoon during a conference call. “Immediately, we have a three-prong response and ready to take legal action. I have no idea why the council took this action. I can tell you that we are committed to this market and will fight the council action with every legal means we have at our disposal.”

In their defense, the Coyotes will respond on three levels.

Once the organization receives “an official document” of the council’s action to termination the lease, the Coyotes will sprint to council chambers with “a cease and desist” letter. The Coyotes will ask the council to stop unlawful activity and an activity initiated on purpose.

Second, LeBlanc said, the Coyotes will ask the courts for a temporary restraining order which will prevent the city of Glendale from enforcing the council’s decision. Third, the Coyotes will go after the city of Glendale for damages.

“What the council did is clearly detrimental to our business operation,” LeBlanc said. “This impacts our season ticket sales, relationships with corporate partners and stopped our bid to try and get the World Junior Championships here in 2017. Plus, this will affect the hockey side and our ability to get good free agents to come play here in Arizona.”

City Council’s Position

By their account, the city council thinks it has a legal right to break the lease.

The city bases its action on Arizona Revised Statue 38-511, called “Cancellation of Political Subdivisions and State Contracts.” This prevision states, as it is written, “if any person significantly involved in initiating, negotiating, securing, drafting or creating the contract on behalf of the state,” the agreement then can be terminated.

The individual to whom the council points to Craig Tindale, former Glendale city attorney. Tisdale was terminated by the city of Glendale in February, 2013 and then began working for the Coyotes in August, 2013.

The lease agreement was ironed out by the Coyotes and the city after Tindale left the left the city and the deal was finalized in July, 2013. That was before Tindale began working for the Coyotes.

For his part, LeBlanc said he was not aware of a non-compete clause Tindale had with Glendale.

“After Craig left the city, we felt he was a perfect fit for us,” LeBlanc said. “We had a need for general council, and Craig then came on board.”

Until the “official” declaration from the city arrives, LeBlanc said the Coyotes will continue to function as both a business entity and hockey operation.

Should the courts eventually rule in the city’s favor, the Coyotes would have two options.

If the team wishes to remain in Arizona, they would have to share the U. S. Airways Arena, in downtown Phoenix, with the NBA Suns. The Coyotes moved from that facility in 2003 to their present home in the western suburbs of Phoenix.

The other option would be relocation.

“At this point, we’re committed to this market and to our loyal fans,” LeBlanc said. “We are not open to renegotiate the lease, but willing to discuss issues which will make the relationship beneficial for both parties. We continue to believe in this hockey market and what the city did is a blatant violation of the existing lease agreement. Unfortunately, we are at the mercy of the courts right now.”

From the players standpoint, the experience seems like deja vu all over.

“Overall, I feel good about the outcome,” captain Shane Doan told a Phoenix sports talk show Thursday afternoon. “It’s hard for me to believe what the mayor is doing. We’ve appeared many times together for functions. He says he wants to be my friend, wants to partner with the team, and now this. I think it’s hard to be a partner where you’re not wanted. To me, this is another self-inflicted wound to our image.”

Should the courts sustain the city’s position, and do so through the appeals process, the burden of filling 40 regular season nights of hockey, plus pre-season and post-season games, could become as an economic quagmire.

Plus, the city loses a viable economic and tax base in the Westgate district. Vacant signs would likely appear in the windows of bars, restaurants and shops throughout the complex.

Westgate is part of a mixed-use campus that includes the Gila River Arena.


Follow Mark Brown on twitter, @journalist193