Some notes on the Phoenix Coyotes situation

Glendale shares details of deal with potential Phoenix Coyotes buyer:

A proposed 20-year agreement with a likely Phoenix Coyotes buyer may cost Glendale more than $45 per resident each year over the life of the deal. The city appears poised to pay a group led by former San Jose Sharks chief executive Greg Jamison nearly $325 million over 20 years to operate and make improvements to the city-owned Jobing.com Arena.

[….]

But such success may not translate into smaller payments for Glendale. A Republic analysis revealed that even if the Coyotes went to the Stanley Cup Finals for the next 20 seasons and the arena booked 30 sold-out concerts each year for the next 20 years, Glendale could still expect to lose about $9 million annually.

Among the many pieces that have been written about the Coyotes, one thing typically missed is that even if the Coyotes leave Glendale for another city, the arena stays, and with the arena, the debt the city took on to build it. That was $180 million of a $220 million price tag (Look at this article for a good overview of the building financing and the assumptions and dreams of the time).

Looking back at the deal through hindsight, it’s clear now that the deal was a combination of bad assumptions and this dogged belief that somehow the deal had to be made. One key assumption that was made (and Glendale and the Coyotes ownership at the team wasn’t alone in this) was that the economy would never stop growing — no air pockets allowed or planned for. Once the economy went into recession and notes’ other businesses faltered as well, all hell broke loose (this is not the first time this has happened in the NHL, either. Peter Pocklington’s ownership of Edmonton ended when his oil businesses faltered, and that was part of his reason he traded Gretzky; the old Atlanta Flames team failed primarily because of the owner’s other businesses faltering as well).

The old Winnipeg Jets moved to Phoenix with everyone seeing the potential, but they needed a new building. Glendale decided they’d build the building, but the ability for everyone involved to find a deal everyone could live with — this was a difficult set of negotiations before everyone had numbers they could sign a deal one. We realize now that deal was a house of cards; everyone just kept rolling the numbers until they “worked”, but at some point, they moved into “unworkable” territory. The first economic windstorm toppled the whole charade.

In reality, it seems clear now the Glendale building shouldn’t have been built, and the Coyotes, after a stay in Phoenix, should have relocated again. That goes against so many of the built in assumptions of deals like these that it didn’t happen, and now everyone is paying for it, and will continue to. It’s a great case study of how NOT to make these deals happen; at some point, someone needed to pull the plug and say “this can’t work”. but nobody did, not within the City, not within Noyes’ management, not within the league. If there’s a lesson to learn here, it’s that “make a deal at any cost” usually leaves you with a cost you regret.

But knowing that now doesn’t fix the problem. And nothing will. If the city of Glendale decides to cut the Coyotes loose, that doesn’t make the building go away, and doesn’t remove the debt from their obligation. They could, I suppose, default on the bonds, but that creates other massive problems for them that I can’t see a city wanting to face.

So the question in Glendale really isn’t about “do we pay to keep the Coyotes or not?”, it’s “Will we lose less money if the Coyotes stay or if they leave?” — will having an NHL team cost more or save more? Either way, the debt on the building exists and has to be paid, and all the wishing you can upgrade parks won’t make those bonds disappear.

They way an arena makes money is light dates — how many events does it have a year? A decent building might have 150 dates a year, a really busy building over 200, maybe closer to 230. A hockey team fills 40 light dates a year. The big question for Glendale is really whether they’ll net more money with or without the Coyotes. If you replace 40 Coyotes games with 5 monster truck rallies and two weeks of RV flea markets, the answer is going to be a major “no”.

To make money in an arena, it needs to be managed by a team that knows how to fill those light dates, and more importantly, fill them with higher value, higher-grossing events. That doesn’t happen overnight, and it takes understanding the business of booking events, and having the right connections to bring in the right events.

Being here in San Jose, I got to watch Greg Jamison and his team make the San Jose Arena work. Over the years, I ran into Jamison at times and we would talk, and I even interviewed him once (there are some interesting comments in there that give some illumination to how he’ll work to improve things in Glendale if he ends up there).

My belief is that if Greg Jamison thinks he can turn the arena around, they should let him. The core to build that around is a major sports team, so you won’t get someone like Jamison or his management team in there without a sports team. This looks to be a 3-5 year process of adding events, boosting revenue surrounding the team, and stealing higher profile and profit events from the other arena in the city. Oh, sorry. not stealing, convincing them to come to Glendale.

If you don’t have someone like Jamison running the operation, that’s going to be difficult to impossible. If you don’t have the Coyotes, you won’t have someone like Jamison. If you don’t have Jamison, you’ll still have the bills; will you have a team in place that can get the revenues up to pay for them?

That’s the big issue here — not whether the Coyotes stay or go, but that there’s a big wad of financial pain in Glendale, and how can the city put things in place to limit that pain and hopefully over time create enough revenue for those bills to get paid. Decisions made ten and more years ago have come home to roost, and the Coyotes are not the answer no matter what they do; but the Coyotes might be part of an answer that brings in a team that can, over time, figure it out.

And I know from watching Greg Jamison and how he managed the San Jose Arena that if he thinks he can figure out how to fix the Glendale Arena, it’s probably worth a shot to let him try.