Coyote Blog

Via the AZ Republic

The true cost to operate Jobing.com Arena ranges from $5.1 million to $5.5 million a year, which is about $10 million to $20 million a year less than the Glendale City Council has agreed to pay hockey-related interests to manage the facility in recent years.

The net management costs, included in documents recently published on the city’s website, are bundled in the city’s solicitation for a new company to operate the city-owned arena.

Glendale council members interviewed by The Arizona Republic said they hadn’t reviewed the documents and were surprised by the figures.

“I wasn’t aware of that,” Mayor Jerry Weiers said. “Then again, I know damn good and well that the way it’s been run, they’re not putting anything extra into it whatsoever.”

This is unbelievably easy to understand .  It is a hidden subsidy, and everyone knows it.  The pictures of politicians running around saying "what, we had not idea" is just hilarious.  The Phoenix Coyotes hockey team has the lowest attendance in the league, and loses money.  In addition, the NHL, which owns the team, has committed to its members that it will not take a loss on the team, meaning that it needs to sell the team for north of $200 million.  The team is worth over $200 million, but only if moved to Canada.  In Glendale, it is worth $100 million or less.

The city was close to a deal a few years ago to sell the team.  It tackled the team value problem by basically throwing $100 million in taxpayer money into the pot for the sale (to make up for the difference in value between the asking price and actual worth).  When this encountered a Constitutional challenge (under the AZ Constitution corporate welfare is illegal though you would never know it living here) the city council disguised the subsidy in the form of an above-market-rate payment for running the arena.

So absolutely everyone knows what is going on here.  This has become a massive black hole for the town of 250,000 people that achieves nothing but the self-aggrandizement of the local politicians, who feel like bigshots if they have a real major sports franchise in town.  Oh, you heard that this all actually pays for itself in tax money?  Hah!

The justifications for previous management deals revolved around a commitment to keeping the team in Glendale. Loyal fans pleaded with council members for the team’s future. And a council majority saw advantages, including thousands of fans trekking to their city 41 nights a year to watch hockey and spend money in the city’s restaurants and shops.

The city collects revenue associated with the team and arena through leases, parking fees and tax collections for food and merchandise sales in the nearby Westgate Entertainment District. Those figures have been on the upswing, particularly since an outlet mall opened last fall.

Total collections were $4.7 million in fiscal 2011, and reached $6.4 million through just the first eight months of the 2013 fiscal year, according to the city. That money helps pay, but doesn’t fully cover, the city’s debt to build the arena.

The town spent $300 million on a stadium and subsidized the team between $25 and $40 million a year, depending on how you count it, all to get an "incremental" $6-8 million in tax money.  And by the way, just because they collect it in this area does not make it incremental -- these sales could well have cannibalized another area of town.

Those of you who are regular readers are probably tired of hearing me rant about the proposed Glendale, Arizona subsidy of the Phoenix Coyote's team (here, here, here), a subsidy that runs afoul both of our state Constitution and of common sense.  This week, George Will enters the fray, and actually quotes me at the bottom of his column.  Most of the column should be familiar to those following the story here, but of course being George Will it is so much pithier than I could tell the story.  I liked this bit:

NHL Commissioner Gary Bettman agrees with McCain that the world is out of joint when people can second-guess the political class: “It fascinates me that whoever is running the Goldwater Institute can substitute their judgment for that of the Glendale City Council.” He will learn not to provoke Olsen, who says, “It happens to fascinate me greatly that the commissioner thinks a handful of politicians can substitute their judgment for the rule of law.”

I was absolutely astounded several years ago when the city of Glendale (a suburb NW of Phoenix) agreed to shell out $180 million to build an arena to try to keep a pro hockey team (the Coyotes) in town.   Now, they are considering doubling their investment:

Will the Glendale City Council vote to shell out nearly $200 million in a deal aimed at keeping the Coyotes in town for at least 30 years?

But there is nothing simple about the decision facing elected officials in the West Valley city that has yearned to build its reputation as a sports and entertainment hot spot.

The deal involves Glendale taxpayers giving $100 million to Matthew Hulsizer, a Chicago businessman poised to buy the Phoenix Coyotes from the National Hockey League.

And, the Arizona Republic's Rebekah Sanders reports that "Glendale would pay Hulsizer $97 million over the next 5 1/2 years to manage the arena, schedule concerts and other non-hockey events."

Unbelievable.  The value destruction here is amazing.  A few years ago, the Coyotes were only valued at $117 million.  So the government will have subsidized an entity worth just north of $100 million with $400 million in taxpayer dollars?  Nice investment.  Of course they have a BS study about net economic impact of the Coyotes, with a sure-to-be exaggerated figure of $24.5 million a year.  But even accepting this figure, they are spending $400 million for at most $24.5 million in economic impact, which at best maybe translates into $2-3 million a year in extra taxes.  That works, how?

Losing more than 40 major events, that is hockey games, per year at the arena would be a punch-in-the-gut to bars, restaurants and retail shops that also call Westgate home.

Here is a hint:  I pretty much guarantee the buyout value or moving cost of these businesses is less than $200 million.  But here are the most amazing "economics"

that would only further jam up Glendale, which counts on sales tax revenues those businesses generate to pay off the debt it has amassed in trying to build its sports empire.

So we are going to spend $200 million to make sure we can keep up the debt service on the previous $180 million?  So where does the $200 million come from.  I am increasingly buying into Radley Balko's theory that the media is not liberal or conservative, just consistently statist.  Here is the comment on the Goldwater Institute's legal challenge

City officials also may face a legal challenge from the Goldwater Institute over the conservative think-tank's belief that the deal Glendale has cooked up violates state laws that prohibit government subsidies to private entities.

That, of course, means that the city will rack up untold legal fees to defend their deal.

Waaaaa!  More legal fees.  Is that really their biggest concern?  How about the strong possibility that Goldwater is correct, or a mention that they have won in court recently in similar cases.  But we will end with this happy thought:

Now, if they say yes to the $200-million giveaway, they may keep the team in town but are only piling on to that massive debt.

And as their initial deal with the team and previous team owners has proven, there are no guarantees that the $200 million will be enough.

Postscript: Local papers have never seen a sports team subsidy or new stadium they did not love.  Given the quality of their news departments, local sports teams sell newspapers.

PS#2: Long ago I wrote a post on subsidies for business relocations and the prisoners dilemma.