Keith Yandle (3), Ilya Bryzgalov and teammates seek security in the desert,
At his point in time, sale of the Phoenix Coyotes to Chicago businessman Matthew Hulsizer appears as remote as a Stanley Cup parade in the desert.
After the Glendale, Ariz. city council approved borrowing an amount not to exceed $125 million last December 14th as part of the Hulsizer transaction, the euphoria was telling.
The council chamber was filed with Coyotes fans giving Hulsizer high fives and the council vote assured the franchise was secured among cactus, tumble weeds and coyotes.
Now, the city of Glendale is having difficulty securing the money and their financial commitment in the on-going Coyotes saga may be more involved than first publicly thought.
Following the council’s Feb. 8th meeting, Mayor Elaine Scruggs was approached for a current assessment of the city’s attempt to secure up to the $125 million.
Quickly, Julie Frisoni, the city’s Communication Manager, zipped the mayor’s lips, and said, “Mayor, I can handle this.”
Glendale is moving forward (with the transaction) Frisoni said, but would not give a timetable in which both the money would be secured and a date when Hulsizer could take management control of Jobing.com Arena.
During his news conference at the recent All-Star game in Raleigh, NHL commissioner Gary Bettman indicated the Phoenix situation is not open ended. With Winnipeg, Hamilton and Quebec City itching to get an NHL franchise, Bettman indicated the Coyotes fate needs to be resolved within a reasonable time frame.
At the same time, Bettman has left the door open for moving the Coyotes and that’s something the city of Glendale, owners of Jobing.com Arena and site of the Coyotes home games said they would not tolerate.
“What I’ve said consistently is not that we plan on relocating, but if we relocate or if we expand, we are going to consider all of the opportunities in Canada,” Bettman told The Toronto Star in October of 2009.
“That’s assuming people want to own franchises in any one of the possible markets.”
Frisoni responded by simply saying, “we’re partners with the NHL.”
That may not be the case for much longer.
When the NHL took over operations of the Coyotes last season, the league reportedly lost $25 million. Not to repeat this financial debacle, the NHL told the city of Glendale if you want to keep the Coyotes, find ways to pay for up-keep of the franchise.
Glendale then agreed to set aside $25 million for the 2010-11 hockey season and continues to address this protracted financial scenario.
The issue was securing money for the Coyotes operation.
At the Glendale city council meeting of Oct. 26, 2010, the council voted unanimously to secure $48 million in general obligation bonds. Minutes of that meeting indicated the city was supposedly borrowing to pay off debts from 2002 and 2003 when the rate was higher.
In effect, the city said it was borrowing money at a lower rate.
According to the meeting minutes, use of the money was not identified.
The timing of this transaction appears interesting. That’s because this is essentially the same time when the NHL told Glendale to take over the Coyotes’ financial obligations.
If the city of Glendale is putting out $25 million for the current season, the rest of the $48 million secured could be used for the 2011-12 season—that is, if the city is unable to secure the $125 million and hand that over to Hulsizer to help purchase the team from the NHL.
If the NHL extends the time window for completion of the sale another year, the remainder of the $48 million could possibly be used to pay day-to-day operation costs.
Acquisition of the $48 million did not sit well with rating agencies. In characterizing the transition, Standard and Poor’s gave Glendale AA/negative and review of the transaction as negative.
The first payment on the $48 million obligation is due July 1, 2014.
At the same time, Moody’s, also important rating agency, downgraded the city of Glendale. In its Dec. 3, 2009 assessment, Moody’s gave Glendale Aa2 and a stable outlook. On Nov. 3, 2010, nearly a year later, Moody’s identified the rating as Aa1 and a negative outlook for general obligation bonds.
Now, Glendale is having difficulty in securing the $125 million in the public marketplace at six percent. One report has the city seeking $125 million in general obligation bonds in the private market at nine percent.
If the bonds are eventually secured, then the city gives that money directly to Hulsizer to manager the arena. In exchange, Hulsizer gives naming rights of the parking lots around Jobing.com Arena, and the ability to charge for parking to the city.
Hulsizer would then use the $125 million to help purchase the Coyotes from the NHL.
Currently, Glendale’s difficulty to secure the $125 million remain influenced by two factors.
First, reports indicate Glendale would be hard pressed to recover the $125 million, plus another $97 million in loans, solely from parking revenues over the next 20 years. Glendale’s commitment of nearly $200 million, some argue, is beyond the city’s reasonable means to pay back.
Plus, the city is threatened with a law suit from The Goldwater Institute, a conservative think tank, which says the money committed to Hulsizer is a gift and in violation of the Arizona Constitution. In January of 2010, the Arizona Supreme Court agreed with The Goldwater Institute in a similar case.
That’s when the state’s highest court ruled that money given to a shopping center developer from the city of Phoenix was indeed a gift and in conflict with the state constitution.
While the Coyotes continue to be competition the Western Conference, they are not competitive at the gate. In 27 home games through Feb. 7th, they have drawn less than 10,000 in 10 games, including a season-low 6,708 on Oct. 21st against the Los Angeles Kings.
In television ratings, the Coyotes continue to struggle to gain viewers and ratings numbers remain abysmal.
Clearly, that’s an economic reality Hulsizer needs to address if indeed he assumes ownership of the Phoenix franchise any time soon.