Why Glendale Said Yes to the NHL

 

To paraphrase one of the most important sports authors of the 20th century, Jim Bouton, the worst people in the world to analyze the business aspect of sports is the sports writing community (and by extension, the sports radio talk show hosts and talking heads on sports cable TV “news of sports” productions). The collective body of sports reporters do not understand how the politics of sports business operates, and in virtually every case, the collective body does not care.

The sports media and fans seemingly are upset that Glendale signed a lease to make sure the National Hockey League’s (NHL) Phoenix Coyotes franchise remains in town for five years. The familiar cry is what do you expect? Hockey in the desert doesn’t work. The Canadian sports media and fans think Quebec City should have that team (they neglect to actually look at the Province of Quebec’s financial problems and the possibility of another new round of Quebec separatists looking to get out of Canada and start a Quebec nation). After all, Quebec is hockey country.

The desert isn’t.

Tell that to Qatar, which is now a member of the International Ice Hockey Federation.

The reason the NHL has not worked in the desert can be traced to the city of Phoenix-elected officials’ rather stupid decision to build an arena for basketball, forgetting that other events would like to use the building in the late 1980s. The Phoenix arena was poorly designed. Great for basketball, but awful for other events.

Glendale has five more years in the hockey business, at least. Things can change. The Arizona Coyotes franchise has owners who can go to area big money businesses and sell big ticket seats. There could be a bump in cable TV rights or in five years, a push to replace the aging Phoenix downtown arena for the Suns and Coyotes.

Elected officials in Glendale, Ariz., had virtually no choice but to give the new owners of the Arizona Coyotes NHL franchise millions of dollars in handouts. The reason was quite clear: the city would have a white elephant on its hands—the city built and financed arena—and needed an anchor tenant that could bring people into the business complex.

Debt payment on the facility was not going away, and while the solution is far from ideal, Glendale, Ariz., is just another municipality handing out money to sports franchise owners. The city follows in the football steps of Louisiana, which has been giving cash to Tom Benson, who happens to own the National Football League New Orleans Saints since 2002, and that number is more than $186.5. Glendale also follows in the footsteps of the state of New York, which has been handing over $3 million annually to Ralph Wilson, the owner of the Buffalo Bills.

How did Arizona politicians get into the sports business and when did they go wrong? It started about a quarter of a century ago when Phoenix started to experience a population growth. Urban planners and historians should study the entire history of the “big-time sports industry” of the Phoenix area because no city or region has been dumber than Phoenix-area politicians.

Had the Phoenix city council been smart, which they were not, they would have approved a multipurpose arena back in the late 1980s that would have accommodated the NBA’s Phoenix Suns and an NHL team. Instead, lawmakers approved a $90 million expenditure that was designed to appease Suns owner Jerry Colangelo. The arena was built in such a way that the building was only good for basketball and not hockey, arena football, or indoor soccer, and that severely limited the potential revenues that could be generated in the place. Making sure they further satisfied Colangelo, the terms of the lease between the city and the NBA team required the franchise to pay the bulk of lease payments in years 36-40 of the 40-year lease agreement. The real rent is supposed to kick in around 2028, but given the lifespan of facilities (the Miami Arena was viable for about 11 years, the Charlotte Coliseum for about 13), it is doubtful that the team will even be playing in the arena in 2028 or 2029.

The arena opened in 1992.

In 2003, the city kicked in another $17 million to modernize the place when a second Valley of the Sun indoor athletic facility opened in Glendale, which is west of downtown Phoenix.

After taking care of Colangelo, Phoenix planners decided that a new downtown could be built with the arena and a baseball park as anchors. Phoenix politicians went about the task of getting a referendum in front of the public asking for support to build a ballpark for a MLB team.

Over in Tempe, Phoenix/Arizona Cardinals owner Bill Bidwill, who came to the Valley of the Sun with his St. Louis Cardinals football team in 1988, wasn’t too happy with his stadium in Tempe. Bidwill started to shop around looking for an Arizona community that wanted his team and was willing to build a stadium that the public would fund and put most of the stadium revenues in Bidwill’s pocket.

It took 12 years for Bidwill to find the right partner — Glendale — as votes in 2000 said yes to putting up $300 million of the estimated $465 million dollars needed to build a stadium. The money would come from a rise in the hotel/motel tax and car rentals (that is a mechanism designed to placate the locals that out of towners will pay, you won’t; however, most of the money on the car rental side comes from locals who rent cars more than visitors). Bidwill would recoup the $165 million through stadium naming rights and a loophole in the 1986 Federal Tax Act that limits the money a municipality can take from stadium-generator revenues to eight cents on a dollar.

Mesa said no to Bidwill in 1999.

Colangelo spearheaded the baseball stadium drive. He wanted a MLB team and went back to Phoenix-area politicians to make his pitch. They listened again.

In 1994, the Maricopa County Board of Supervisors (despite huge budget deficits and cutbacks in the funding of services) said yes to Colangelo and gave the go ahead for a quarter-cent increase in the county sales tax to pay for a part of the stadium’s cost.

There was a string attached, the approval had to come by March 31, 1995 which meant MLB had to either relocate a team to Phoenix (unlikely as there was nowhere to play in Phoenix) or expand. MLB awarded Phoenix and St. Petersburg teams beginning in 1998 when the Phoenix stadium would be completed.

However, the Maricopa sales tax hike was a problem. Maricopa County residents were not allowed to vote on the issue of funding a baseball stadium with general sales tax revenue. In August 1997, Maricopa County Supervisor Mary Rose Wilcox was shot by Larry Naman after leaving a county board meeting. The shooter testified in court that Wilcox’s support for the tax justified the attack. In May 1998, Naman was found guilty of attempted first-degree murder.

Colangelo had his stadium whether Maricopa County residents liked it or not.

Colangelo’s stadium was supposed to have cost $279 million, but the ballpark’s actual price tag was over $350 million and Colangelo’s group had to make up the difference. Colangelo’s group paid $130 million for the expansion team, but there were cost overruns and a high payroll, and MLB didn’t give Arizona and Tampa Bay full revenue sharing between 1998 and 2002. All of that nearly caused the team to declare bankruptcy by 2004.

While Colangelo was looking for a baseball team, he also wanted a NHL team to take up dates in the city’s new arena. In 1994, Colangelo told this reporter that Phoenix was a perfect spot for the NHL. The NHL needed to fill the Mountain Time zone for TV purposes and Phoenix and Denver were in the mix for NHL franchises.

Colangelo, who was not a hockey guy, was spot on. Denver investors bought the Quebec Nordiques in 1995 and moved the team to the Colorado city, and Richard Burke put together a group that included Steven Gluckstern and bought the Winnipeg Jets. Burke and Gluckstern moved the team to Colangelo’s building in 1996 and that is when trouble started.

The building, approved by Phoenix politicians in 1988, had more than 3,000 view-obstructed seats or about 25 percent of the house. No NHL team can survive in a flawed arena even if the building was just four years old. Burke bought out Gluckstern in 1998 after Gluckstern teamed up with Howard Milstein to buy the New York Islanders in a real estate deal

In 1999, Burke was hoping to move the team to Scottsdale. Bidwill had struck out in his bid to win voter approval for a $1.8 billion football stadium-village on May 18 of that year, but Burke had won a preliminary vote on that date for a new arena with the help of Steve Ellman.

Burke got his arena project approved by Scottsdale voters in November 1999, but the arena was never built. Ellman bought the Coyotes in 2001 after the Scottsdale deal fell through. Ellman worked out an arena-land developing deal with Glendale officials in 2001 and moved his Coyotes to a new arena in 2003. Glendale paid $180 million for the building. Ellman did some developing but the real estate deal turned bad.

Eventually, Ellman’s partner Jerry Moyes took control of the team and hemorrhaged money. The NHL took over ownership of the team in 2009. Moyes and the league battled after Moyes got Canadian investor Jim Balsillie to buy the team. The NHL stopped the sale and the confrontation ended up in court when a Phoenix judge said the NHL had the right to control individual franchises in terms of sale and market. The franchise remained in Glendale, and Balsillie’s plan to move the franchise to Hamilton, Ontario fell through.

Glendale has been kicking in as much as $25 million annually to keep the team going since 2010-11.

In the fall of 2010, Colangelo was back in business in the Valley of the Sun in Glendale. Colangelo wanted to build the USA Basketball headquarters in Glendale and why not? Glendale had an open checkbook for Bidwill, Burke, Reinsdorf’s White Sox, and McCourt’s Dodgers. Colangelo was not able to put together a deal in Glendale, but found a willing partner in Tempe.

Meanwhile, Glendale had another problem in 2010. The Arizona Stadium and Tourism Authority (AZSTA) was broke. That is the group that raised funds for the Cardinals Glendale stadium and various Major League Spring Training ballparks that ring the Valley of the Sun. The state agency is doing a bit better as revenues generated from tourism dollars have picked up and the area unemployment rate has dropped.

Still, AZSTA has large bills stemming from debt from the Cardinals’ Glendale stadium and spring training venues.

The Maricopa County Stadium District and the Arizona Stadium and Tourism Authority are responsible for stadiums around Phoenix. The stadium district was formed in 1991 to make sure Phoenix area-based spring training teams were not lured by Las Vegas.

How expensive is spring training?

The Los Angeles Dodgers now share a new $110 million stadium in Glendale with the Chicago White Sox, who moved from Tucson. Glendale is providing $54 million in financing for the stadium.

Scottsdale and the stadium authorities put together a $23 million package to refurbish Scottsdale Stadium to make the San Francisco Giants ownership happy. About $13.3 million is from the AZSTA funds, $6.67 million from the Maricopa Stadium District, and $3.1 million from the city.

All of the maneuvering has left an impression. The baseball landscape has changed with all 15 MLB teams that train in Arizona located around Phoenix. Tucson has lost three teams (the White Sox, Colorado Rockies and the Diamondbacks). The arena in Phoenix has to fight Glendale for non-basketball events. Glendale, not Phoenix or Tempe, has the Super Bowl, and while Phoenix gets a piece of the event buck, it is Glendale that gets sports spending money from those crown jewel events.

The downtown envisioned with the arena and stadium as the pillars of a new downtown Phoenix has not materialized.

The question of whether it was worth spending billions in a state that is broke is never addressed by politicians. Arizona is selling off state buildings to plug a financial gap that in part was caused by poor sports decisions on every level.

They could have said no to Colangelo. They could have said no to Bidwill. They could have said no to the NHL. They could have said no to MLB. Don’t blame the owners for asking for money, they could have asked for whatever they wanted.

There was an awful lot of economic miscalculation when it came to sports planning in Arizona, and the battle is far from over. According to a March 5, 2013 Arizona Republic article, Spring Training is a loss leader for Phoenix area cities.

“Mesa has lost an average of $1.47 million annually over the past five years hosting the Chicago Cubs at Hohokam Stadium and Fitch Park.

“Phoenix lost an average of $1.7 million over five years hosting the Oakland Athletics at Phoenix Municipal Stadium and an additional $1.8 million annually at Maryvale Baseball Park, spring home of the Milwaukee Brewers.

“Peoria lost an average of $1.63 million annually over the past five years hosting the San Diego Padres and the Seattle Mariners.

“In four years of operation at Camelback Ranch, Glendale has lost an average of $18,882 annually. The Chicago White Sox and Los Angeles Dodgers are responsible for most day-to-day operations there. In 2012, the city’s revenue agreement with Phoenix kicked in, and Glendale made $57,804.

“The Salt River Pima-Maricopa Indian Community east of Scottsdale declined to provide comparable data for its operation of Salt River Fields at Talking Stick for the Arizona Diamondbacks and Colorado Rockies.”

Despite losing money, Mesa signed a long-term agreement with the Chicago Cubs ownership group to build a new stadium and then signed a deal with Oakland A’s ownership to bring the team to the Cubs old facility starting in 2015. The cost? About $100 million for the new stadium and the old stadium renovations.

The sports business is pretty simple: have the politicians get involved and make financial guarantees. It has been a good formula for sports owners and players, but not so good for taxpayers who have a financial stake in the sports industry whether they watch games or not.

There is an uncalculated value to sports. It is good for a community. There is a bonding of people, and that is important to the welfare of the community despite cutbacks in public service. At least that’s an excuse politicians use to justify debt.

It is just how business is done these days. And the business is repeated nationally in various forms from outright cash handouts to sweetheart leasea, which allow an owner to keep 92 percent of revenues generated with a venue (including parking) to the suspension of municipal property taxes.

Glendale elected officials chose to develop a sports hub. No one forced them to become a sports destination. The saga of the Coyotes was not caused by sports owners but by politicians who thought sports was a great idea and never thought through the consequences.

Evan Weiner can be reached at evanjweiner@gmail.com . His e-book, “The Business and Politics of Sports, Second Edition” is available at www.bickley.comand Amazon.com and his e-books, America’s Passion: How a Coal Miner’s Game Became the NFL in the 20th Century, From Peach Baskets to Dance Halls and the Not-so-Stern NBA and the reissue of the 2005 book, The Business and Politics of Sports are available at www.smashwords.com, iTunes, nook, versent books, kobo, Sony reader and Diesel.

 

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