Good Money After Bad

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.

  • me

    This to me has been a most puzzling aspect of living in the States - the conservatives I hang out with are adamant that it's a terrible idea to socialize healthcare or spend tax money on base shelter and food for folks unlucky enough to need it but at the same time believe it makes perfect sense to finance the cost of stadiums for commercial sports from taxes.

  • Rick Libertarianski

    What's really astounding is the statistic that just 18% of the populace even gives a damn about sports!

  • DrTorch

    When I was first in AZ, and they were courting MLB for a team, and trying to get a stadium built w/ taxpayer dollars, a study (from U IL I believe) pointed out that the net return on pro sports is far less than estimated. Mostly it's because the dollars attributed to sales supporting the new team, tend to come from other recreational activities in the area.

    So, when people go to see the Coyotes, it means they are not going bowling, or playing pool. That means you didn't really get new dollars into the economy. Maybe a few, but far, far less than promised.

  • el coronado

    not surprising a bit. when has any government body/agency EVER admitted making a mistake without waiting at least 2 generations so the perpetrators of said mistake can retire and die off in peace? last time i can think of is the ending of prohibition - a mere 75+ years ago. cops with their 'blue line of silence' and the mob's 'omerta' have nothing on politicians.

    of COURSE they're doubling down: not to do so would be seen as a sign of weakness and a tacit admission they screwed the pooch the first time. then too, it ain't like it's *their* money.

  • http://offwing.com Eric McErlain

    As a long-time hockey fan, I've been watching the Coyotes situation with growing alarm over the last few years. While every NHL team has a dedicated core of fans, it's clear that hockey in the desert has failed economically and that the team ought to be allowed to move to a market that wants hockey more than Phoenix/Glendale.

    So why not let them move? From the league's perspective, seeing the team leave one of the largest American metro areas for a Canadian city would be work against their long-term goal of securing a large national television contract. Moreover, if the Coyotes leave, it would make it that much tougher for NHL teams to obtain arena financing, public or otherwise. Any NHL owner that asked for help going forward would be met with plenty of local politicians who would point to the Coyotes as an object lesson in why the risk isn't worth it (which, as we've seen from any number of studies, it isn't).

    As to the city's side of things, I think additional reporting is in order. My guess: the departure of the Coyotes wouldn't just deprive the city of tax revenue, it might just trigger some fiscally disastrous terms in the bond covenants for the arena. The city probably figures that if they just prop the team up a little longer, they can avoid the worst case scenario and muddle through until the economy turns. Maybe it will, but it's not a bet anyone ought to be allowed to make with public money.

  • mahtso

    “…it’s clear that hockey in the desert has failed economically and that the team ought to be allowed to move to a market that wants hockey more than Phoenix/Glendale.”

    I’ve been to about 6 games in the last four years (I went to 15 the first year). I think the tickets cost too much. Sure the nose bleed sections may be reasonably priced, but why should I pay anything to sit up there when, at the games I attended, the good seats were half empty.

    In a bit or irony: some people contend that that other market was Scottsdale, but once the public funding for a stadium in Scottsdale fell through, Glendale took it on, and (so they say) the fans won’t travel to Glendale.

  • Greg

    Why doesn't the city just buy the team? If they're so dependent on it, cut out the middleman. Buy the team and hire your own management team and voila.