The Phoenix Coyotes: Things Get Messier In Glendale

More than two months after my last article on the messy situation in Glendale, the future of the Phoenix Coyotes remains bleak in the Arizonian desert. Greg Jamison, the former CEO of the San Jose Sharks who has been interested in buying the Coyotes since August 2011, has yet to officially purchase the team from the NHL despite mentioning that he is ready to sign the arena management fee (AMF) agreement with the City of Glendale to make it official.

In September, there were reports that Jamison had secured enough money to buy the Coyotes and satisfy the NHL’s rumored asking price of $170 million. But despite these reports, Jamison still has not disclosed who his investors are and why he doesn’t want to name them. Jamison had previously concluded a deal with the City of Glendale for a 20-year arena lease for which he would receive a total of $324 million over a period of 20 years.

A few weeks later, Interim City Manager Horatio Skeete approached Jamison to rework the terms of the agreement due to the financial problems plaguing the suburban city.  They agreed to terms that would see the first-year payment drop from $17 million to $11 million. The following four years would also see the yearly amounts drop from their original planned payments before increasing from year eight onwards. The total back-loaded arena management payment would decrease from $324 million to $320 million over the 20-year term of the arena management agreement.  Skeete also managed to add two additional provisions to the agreement. The first option is a five-year renewal option of the agreement and the second is a lockout/strike provision that would reduce the AMF by $60,000 per game not played during a lockout or a strike.

Before Jamison can formally sign the lease with Glendale, though, he must officially buy the team from the NHL.  The City of Glendale must also find a way to make some additional changes to the terms and details of the agreement. The Coyotes lease must then be voted on by the city council on November 27th, 2012, before the parties can go forward with the AMF.

Pro-Coyotes council member Joyce Clark is urging the other members to accept this deal before it’s too late, even though she was defeated by former firefighter Sam Chavira in the Yucca district. Chavira is not opposed to the deal, but he wants what makes more sense financially for the city, and right now it’s not the Coyotes. The same could be said for newly-elected mayor, Jerry Weiers, who will replace the outgoing Elaine Scruggs.

A former lawmaker, Weiers issued a warning to the Coyotes the night of the election. He said that Glendale, a cash-strapped city of 250,000 citizens already facing a $35-million deficit in its 2013 budget, “is not your cash register.” He also declared his profound love for the team but added, “we cannot sacrifice our way of life so they can maintain theirs.”

Back in May, council members Joyce Clark, Steve Frate, Manny Martinez and Yvonne Knaack all voted in favor of the lease, while council members Norma Alvarez and newly-retired Phil Lieberman, as well as Mayor Scruggs, all voted against the lease. The problem is that Knaack, who is facing a recall effort, might change her vote to keep her job and appease the public opinion regarding the arena lease with Greg Jamison, and that change of heart has Joyce Clark worried.

I am Not going to explain my concerns by public tweet. If you want my assessment email clarkjv@aol.com. Will answer whomever tomorrow

— Joyce Clark (@clarkjv) November 14, 2012

Luckily for Coyotes fans, nearly two-thirds of the voters on November 6th said “no” to Proposition 457 aimed to undo the 0.7 percentage-point increase proposed by the struggling city and require future sales-tax hikes to go to voters for approval. The City Council had approved the hike, which took effect last August, to help support a $35 million shortfall in the Glendale’s operating budget. City staff estimated that the increase would bring in as much as $25 million a year through its end in 2017.

Now that the tax hike has been accepted by the citizens of Glendale, mainly to avoid potential cuts that could affect city services including police and fire, let’s look at the remaining hurdles before the AMF agreement can be concluded and made official (coming from my last article on the saga).

 

1. The City of Glendale and Greg Jamison need to officially finalize and sign the arena management lease. 

What was a certainty a few months back doesn’t seem set in stone any more since Glendale wants to change some terms of the original deal, which could prove detrimental to the value of the original deal that was developed last Spring between the parties.

2. Greg Jamison and his group of unknown investors need to have all the money necessary to purchase the team.

While Jamison has said that he finally secured the necessary equity required to buy the team, he hasn’t made any official announcement to the public, whether by press conference or press release. Moreover, he has yet to name his financial backers after more than one year of negotiations with the city.

3. The sales tax vote now officially on the November ballot has to go in Glendale’s favor, which is far from certain.

4. The deal, including the purchase of the team and signing of the AMF, has to close prior to December 31, 2012,  before the new council takes over.

With the uncertainty surrounding the financial situation of the city, several candidates at the November election asked the current city council to reject the deal with a prospective owner. And with pro-Coyotes councilwoman Joyce Clark voted out of office, the Glendale city government is poised for turnover which doesn’t bode well for the approval of the deal with Jamison.

5. The closed deal has to survive the gift clause challenge from the Goldwater Institute, which is far from certain.

The Goldwater Institute, a watchdog group patiently waiting in the shadows, would mostly challenge on the Arizona gift clause, on the grounds that the AMF (arena management fee) far exceeds market value and is truly a subsidy. It could also challenge that T.L. Hocking’s report seriously over-estimated the damage to Glendale if the Coyotes leave, in that other possible tenants/events were not seriously considered. The Goldwater Institute helped unravel a deal with shady investor Matthew Hulsizer when the city tried to sell bonds aimed at financially facilitating Hulsizers’s purchase of the team in 2011. It will make sure the city signs a deal that doesn’t contravene the state constitution’s gift clause.

The final hurdle, and certainly not the least, is that former city manager Ed Beasley, who retired last June after negotiating with Greg Jamison, managed to put Glendale into a major deficit. Following a public audit of the Risk Management (RM) and Workers Compensation (WC) accounts, it was determined that Ed Beasley directed senior managers to take part in a balancing scheme to make the General Fund appear whole. While municipalities are required by law to have a balanced budget (spending less than they have), Beasley cooked the books so as the General Fund appeared balanced, despite severely lacking the mandated funds.

Now, Glendale will have to replace the money immediately as it is required to meet minimum levels of funding in the RM and WC accounts where the money was taken. To achieve that, the city will have to transfer money out of the General Fund and  into the deficitary accounts. This means the city will have to make even more decisions on what services to cut to recover the missing money.

The audit also found that Beasley approved an early retirement incentive plan for city employees that was assessed a penalty of $3.2 million by the Arizona state retirement system (ASRS), because the state board determined the municipality screwed up the state’s forecasts. Beasley entered a $3.2 million bill, but he never reported it as an expenditure in any city budget. As a result, the General Fund now has to repay that assessment.

Beasley also created a scheme that allowed him to pay contractors on a “per project” basis, so the contract amounts would not have to be reported. For example, if the contractor performed services worth $350,000, Beasley allowed him to invoice seven separate projects so the whole contract did not have to be approved by the city council. Beasley also allowed independent brokers to perform services and receive payments beyond their request for proposals.

That same Ed Beasley, who should officially be indicted, developed the arena management lease for Greg Jamison.  Nonetheless, the city council members still want to approve that deal despite the fact they face massive budget problems and they are going to have to deal with this sudden and unexpected hit to the General Fund caused by Beasley’s financial gimmicks which resulted in a fund whose balance is “less than zero”.   (Interim city manager Horacio Skeete estimated it is probably $20 million in the red).

THE CITY BASICALLY WANTS TO PAY GREG JAMISON WITH MONEY THAT DOESN’T EXIST.

When the collective bargaining agreement (CBA) came to an end on September 15th, 2012, the NHL was certainly disappointed that the ownership situation in Glendale had not been settled.  Instead, it remains a distraction throughout negotiations on a new CBA that will have major impacts on revenue sharing as well as the salary cap. At this point, the best Coyotes fans can hope for is to see a lockout-shortened lame-duck season in Glendale before the league makes a decision regarding the future of the franchise, should there be no developments with Greg Jamison next spring.

***UPDATE***
On Tuesday, November 20, the city staff will present to the council members a revised draft arena management agreement for the city-owned Jobing.com Arena, home of the Phoenix Coyotes, during a City Council workshop session. The following documents outline the tentative agreement with Greg Jamison.

TENTATIVE ARENA LEASE AND MANAGEMENT AGREEMENT
NON-COMPETITION AND NON-RELOCATION AGREEMENT
COMBINED EXHIBITS

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