by PuckStopsHere on 01/12/09 at 03:16 AM ET
The global economy influences the NHL. The current economic problems in the world have led to and made worse economic problems in the NHL. There is speculation that the 30 team NHL may not survive the current economic slowdown. The team that has jumped to the forefront as the most economically troubled (replacing the Nashville Predators who are yet to solve their financial issues) is the Phoenix Coyotes.
The primary owner of the Phoenix Coyotes is Jerry Moyes. Moyes has made his money through the trucking company Swift Transportation. In 2006, Moyes decided to take the company private (buy out all the stock not owned by his family). In doing this he took on $2.4 billion in debt. The sharp rise in fuel prices last year coupled with the global economic slowdown have made this a questionable decision. Moyes is no longer willing to (or possibly able to) afford the Phoenix Coyotes.
The Coyotes have not been a good investment. They are poised to lose about $30 million this year and lose similar amounts of money annually. Forbes has the Coyotes as the least valuable NHL franchise and dropping in value.
The Coyotes owe approximately $80 million to a venture capital firm called SOF Investments who loaned them the money to build the Jobing.com Arena in which they play. As collateral, SOF has rights to almost all of the team’s assets and revenue. Further loans were issued in 2007. With the global credit crunch, the loans from SOF Investments have been a large problem.
The NHL has fronted the money to the Coyotes to keep them alive. They have been advanced from the league’s shared revenues (mostly television and merchandising money). As a result, the NHL has a say in any major new contractual or personnel decisions. There have been layoffs in the Coyotes front office. The NHL is effectively running this team because Moyes cannot. While the NHL is pledged to get through this season with a Phoenix Coyote team, it is unclear what will happen in the future.
It would be very hard for any owner to successfully run a team in Phoenix. Financially it isn’t working. Too much money is being lost. The option to leave for another market is a tough one because of the team’s lease with Glendale, Arizona for the new arena. In order for the largely public financing of their new arena, the Coyotes signed a restrictive 30 year lease. This lease would be very hard to exit to move to a new market. Even if its terms are renegotiated to be more favorable to the Coyotes it cannot make up a $30 million annual loss.
One solution may be bankruptcy. The Phoenix Coyotes and/or Jerry Moyes declaring bankruptcy would void the lease. This would allow a team sold in bankruptcy to be moved. Another solution is contraction. The Phoenix Coyotes could cease to exist as a franchise. It is clear that NHL hockey in Phoenix is a money losing proposal and will not be sustained for much longer.
The lockout was brought in to attempt to save the weak hockey markets that were struggling. It hasn’t. It may have kept them alive a couple more years, but the global economic crisis will likely kill some of them. That leaves the NHL with an economic system that failed in its goals, but nevertheless is still there. If Phoenix and a few other markets fail and the NHL wind up contracting, the league’s economic picture will have changed significantly and they will be left with a failed CBA that cost the league a season to be implemented and did not offer the biggest gain it promised.
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