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Glendale Should Not Be Supporting A Sports Team

from Amanda J. Crawford of Bloomberg BusinessWeek,

Glendale officials are negotiating an arena lease that would give a potential buyer of the team $17 million a year to manage the arena, while they work to close a $32 million budget deficit for the coming year. The city fired 49 workers last week and is considering a sales-tax increase that would make its rate one of the highest among major U.S. cities, according to the Washington, D.C.-based non-profit Tax Foundation.

“They said under the worst conditions financially we would make over $100,000 on the arena” each year, said City Councilman Phil Lieberman, who has served for 20 years. “How could we go wrong? It would cost us nothing.”

The losses underscore the risks cities confront when they offer incentives to lure professional sports teams and develop nearby properties in anticipation of an economic surge, said Timothy James, an economics professor at the W. P. Carey School of Business at Arizona State University in Tempe.
’Big Hole’

“They’ve got a big hole in their budget to keep the ice hockey team in town,” James said. “It’s not like a road system or hospital where there are benefits everyone gets. It’s a sports team. It should be able to stand up on its own.”

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Comments

Savage Henry's avatar

Yes, this.  I was upset to see the Thrashers leave town, but would have been more upset to see a bunch of tax dollars given to the (idiotic) owners to keep them in town.

Posted by Savage Henry on 05/21/12 at 07:00 AM ET

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Folks don’t seem to understand the financial issues involved here. This has very little to do with the Coyotes this is about Westgate Center and the payments on Jobbing.  Without the Coyotes the entire center goes broke. They lose close to a billion dollars of investment and still get to make the payments on the 250 million dollar arena. There are no potential tenants for the building because of the US Airways Center where the Suns and AFL team play. They have to compete for concerts, the building cannot stay solvent. The 17 million reflects the cost of the arena and the lost sales tax revenue and investment in Westgate. So the city has a choice, lose the Coyotes, lose Westgate Center and still get to make the bond payment. Or pay the money to the Coyotes, keep the arena and Westgate and in 20 years be out from under this debt. You can say they shouldn’t have done it, but at this point it is a done deal.

Posted by timbits on 05/21/12 at 10:16 AM ET

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So timbits are you saying they’re too big to fail?

How about just letting ‘the market’ sort things out? I’ll miss them as I’m going to the game tomorrow but this should be a lesson to all municipalities. Which of course it wont be.

Posted by Hank on 05/21/12 at 11:56 AM ET

Primis's avatar

How many towns need to build an expensive venue and then have it blow up in their face before they learn?

Posted by Primis on 05/21/12 at 12:16 PM ET

awould's avatar

How about just letting ‘the market’ sort things out?

This is actually HOW the market sorts things out. The $17MM is an investment to minimize their loss. It is a restructuring of the lease to keep the tenant. This has been happening thousands of times with private businesses over the past few years. Restructure the lease to recognize the economics have changed, give your tenant some breathing room and keep the lights on. The alternative is to let the primary tenant vacate and be left with nothing but payments to make on an empty building. If this were a private business, this arrangement would be seen as smart business.

The mistake was the original deal to bring the Coyotes to Glendale to begin with. I don’t fully agree that a city should never give some subsidies for to get an arena in town, but those subsidies should be performance driven, not just hand-outs. A new arena built in any city anywhere in the world will foster growth of a ton of supporting retail, lodging and other businesses. This brings jobs to the area and big dollars in sales tax for the city. So as an owner of a sports team, I would expect to see a piece of that, somehow, for shelling out millions of dollars to build the arena in the first place. The problem is, the arrangement has gotten so far out of wack that the owners now expect it all to be handed to them, the city governments are weak and/or out of their depth, and the public just wants their team. Glendale got caught in a perfect storm of giving up too much for a team with no solid foundation right when the economy was about to tank. The bet big on continued growth and instead everything stopped.

Posted by awould on 05/21/12 at 12:29 PM ET

redxblack's avatar

I’m pretty tired of welfare for the wealthy, which is what this is. Publicly Subsidized - Privately Profitable is a losing model for the rest of the area. If this is about the Westgate zone, the responsible thing would be to have those merchants underwrite the costs. These would be the merchants benefiting from the location. Perhaps the NHL itself could help float the debt since they own the loss leader in the big gray elephant.

Posted by redxblack from Akron Ohio on 05/21/12 at 12:59 PM ET

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‘This is actually HOW the market sorts things out. The $17MM is an investment to minimize their loss. It is a restructuring of the lease to keep the tenant.’

Then what was the $25M that has been ‘given’ to the owners (NHL) the past few years to subsidize keeping the team in Glendale? An investment?

Glendale did not get caught in the ‘perfect storm’ (which IMHO is a vastly overused phrase for when things go wrong giving the ‘its out of our control’ perception). If this were a private business they would just go BK like Moyers did. That is how the ‘market sorts itself out’ under our current notion of capitalism here in the Colonies.

And I could not disagree more about cities providing subsidies to private sports teams. Perhaps a few tax breaks for land use may be in order under the right circumstances (which I have no idea what those would be), but a partnership would be more in order in alignment with the performance drive milestones you suggest. I remember reading some time back about the Russian who bought the NJ Nets and then worked with Brooklyn or wherever they’re moving to to seize some prime real estate under eminent domain. Turns out he dangled a sports team to get the land and the city took to him like a junkie to crack. I confess to not following the story but I did see the Nets are moving.

Posted by Hank on 05/21/12 at 01:31 PM ET

awould's avatar

Posted by redxblack from Akron Ohio on 05/21/12 at 11:59 AM ET

Yeah, often they will create a special district for these area where the landowners will pay an extra tax that will get kicked-back to the arena owner. The special tax is passed on to the tenants in higher rent or as a reimburseable expense.

I agree about the NHL as well. The Coyotes is a franchise. With a lot of other franchises, the corporate parent will guarantee the lease. I’d like to see cities require a lease guarantee from the league with any arena built w/ tax dollars. Let Bettman put his money where his mouth is. The owners of all the other teams would have to think a bit harder before expanding into weaker hockey markets.

Posted by awould on 05/21/12 at 01:32 PM ET

Kate from Pa.-made in Detroit's avatar

“They’ve got a big hole in their budget to keep the ice hockey team in town,” James said. “It’s not like a road system or hospital where there are benefits everyone gets. It’s a sports team. It should be able to stand up on its own.”

This. How many residents have paid a sales tax imposed to build Chase Field, formerly the Bank One Ballpark, but will never attend one game? If an owner wants to build an arena, and have a professional sports team, then said owner-owners and the league(whatever the sport) should foot the bill. Period.

I have read about too many people in Arizona needing the most basic of necessities or dying from lack of medical assistance to even consider financing any more corporate welfare.

They built it and still nobody came.

Posted by Kate from Pa.-made in Detroit on 05/21/12 at 01:53 PM ET

Vladimir16's avatar

I agree about the NHL as well. The Coyotes is a franchise. With a lot of other franchises, the corporate parent will guarantee the lease. I’d like to see cities require a lease guarantee from the league with any arena built w/ tax dollars. Let Bettman put his money where his mouth is. The owners of all the other teams would have to think a bit harder before expanding into weaker hockey markets.
Posted by awould on 05/21/12 at 12:32 PM ET

This ^^^^

Posted by Vladimir16 from Grand River Valley on 05/21/12 at 01:54 PM ET

awould's avatar

The city is a loser in this deal no matter how it plays out, and it is there fault for sticking their necks out too far and counting on too many unknowns to go their way.

So the argument I’m making has nothing to do with SHOULD a city fund an arena - I don’t believe they should, at least not in any way that assumes anywhere close to a majority of the risk. My argument is that, given the reality of the situation, Glendale should be free to make the best of a bad situation and the GI is intent on taking all options off the table. And their motivation is completely ideologically driven and has nothing to do with what is best for the Glendale taxpayers in this situation. The time to have stepped in was before the arena was built.

And unfortunately, there is a high ceiling as to what the city can pay and still have it be a better deal than losing the team and, as a result, all the economic activity of Westgate.

Posted by awould on 05/21/12 at 02:12 PM ET

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I agree GWI should have stepped in at the onset but here we are currently. I believe the COG should make a deal that would preclude them laying off any additional personnel and IMHO that does not include paying a 17M mgmt fee for the arena. Here’s a novel concept - put the contract out for bids.

Not sure this is necessarily germane here, but the COG decided to provide some land at the head of Westgate for an outlet mall (sadly, 70% of GDP depends on people buying stuff). Unfortunately said land was guaranteed to the Cardinals as parking spots. Tho I understand the city offered up some land about 1/2 mile away with shuttle services, the privately owned football team sued the city for their parking spots. So when a business chooses to not do what it can to stop a bad situation from getting worse, then at some point the insanity must stop. If like Jefferson County this means COG goes BK, so be it. Too many incorporated towns here anyways looking for a piece of the ‘pie’.

Posted by Hank on 05/21/12 at 03:59 PM ET

awould's avatar

I believe the COG should make a deal that would preclude them laying off any additional personnel

I don’t understand what you mean here.

Any deal they make will cost them money. Letting the Coyotes walk will most likely cause more harm to their bottom line than paying the $17MM, that’s the argument anyways. It is unclear if that’s true, however, because the amount they’ll pay is based on a bunch of assumptions. Part of the GI tactic is to attack these assumptions - if the assumptions are determined to be reasonable, and $17MM is deemed to be a fair rate for the arena operations under these reasonable assumptions, then it is not afoul of the ‘gift clause’ and is a legal deal. My guess is that the NHL and the buyers have crafted the agreement to get around the GI threat. The GI showed their cards w/ the Hulsizer deal. Doesn’t mean it won’t get dragged into court, but I think the GI will be hard pressed to overturn it.

In general, the COG seems to be run by a bunch of idiots. The deals w/ the Coyotes and Cardinals were short-sighted because these idiots just believed things would work out easily since development was happening so fast. This is what I meant by a perfect storm. Everything they counted on to make it work fell like a row of dominoes. If you listed the conditions that were necessary to make it work, the whole list failed, and in short order. The problem from the start was they counted on too many things to go right, which wouldn’t be necessary if they had any solid foundation to start with.

The parking fiasco w/ the Cardinals is just the latest example. The parking agreement was probably an after-thought by the City, thinking surely the whole area would be developed and they’d require a huge massive parking garage be built by somebody so it would never be an issue. And that the City didn’t know they were violating their own parking agreement is ridiculous. That the mayor didn’t know the City didn’t have access to the Coyotes escrow account is ridiculous. Most of the city council members probably don’t understand 75% of the agreements w/ either team and probably most of the agreements were originally drafted by lawyers for the teams in the first place.

Posted by awould on 05/21/12 at 04:59 PM ET

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put the contract out for bids.

That is a reasonable concept, so the winning bid would need to include a professional sports franchise with 45 nights per year and at least 10,000 per game average attendance. So tell me who could meet that minimum qualification? The Suns aren’t moving anywhere, the AFL plays 8 games, the WNBA team is owned by the Suns. The AHL can’t draw that much, if the Coyotes struggle to draw 12000. The NLL already folded and averaged 5000 per game or less. Arena Soccer?  The MISL folded.  So…???

So timbits are you saying they’re too big to fail?

Essentially for Glendale, the answer appears to yes!

Posted by timbits on 05/21/12 at 10:33 PM ET

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