I wanted to leave Glendale's proposed $100 million subsidy of the purchase of the Phoenix Coyotes hockey team by Matthew Hulzinger behind for a while, but I had to comment on something in the paper yesterday.
The Arizona Republic, which is an interested party given that a good part of their revenues depend on having major sports teams in town, had an amazing editorial on Tuesday. Basically, it said that Goldwater, who has sued to bock the bond issue under Arizona's gift clause, needed to stop being so pure in its beliefs and defense of the Constitution and that it should jump down in the political muck with everyone else.
I encourage you to read the article and imagine that it involved defense of any other Constitutional provision, say free-speech rights or civil rights. The tone of the editorial would be unthinkable if aimed at any other defense of a Constitutional protection. Someone always has utilitarian arguments for voiding things like free speech protections -- that is why defenders of such rights have to protect them zealously and consistently. The ACLU doesn't get into arguments whether particular speech is right or wrong or positive or negative -- it just defends the principle. Can't Goldwater do the same?
My thoughts on the Coyotes deal are here and her. Rather than dealing with the editorial line by line, which spends graph after graph trying to convince readers that Darcy Olsen, head of the Goldwater Institute, is "snotty," here are some questions that the AZ Republic could be asking if it were not in the tank for this deal
- How smart is it for the taxpayers of Glendale to have spent $200 million plus the proposed $100 million more to keep a team valued at most at $117 million? (several other teams have sold lately for less than $100 million) And, despite $300 million in taxpayer investments, the city has no equity in the team -- just the opposite, it has promised a sweetheart no-bid stadium management deal of an additional $100 million over 5 years on top of the $300 million.
- The Phoenix Coyotes has never made money in Arizona, and lost something like $40 million last year. Why has no one pushed the buyer for his plan to profitability? The $100 million Glendale taxpayers are putting up is essentially an equity investment for which it gets no equity. If the team fails, the revenue to pay the bonds goes away. The team needs to show a plan that makes sense before they get the money -- heck the new owners admit they will continue to lose money in the foreseeable future. I have heard folks suggest that the Chicago Blackhawks (Hulzinger's home town team) are a potential model, given that they really turned themselves around. But at least one former NHL executive has told me this is absurd. The Blackhawks were a storied franchise run into the ground by horrible management. Turning them around was like turning around the Red Sox in baseball. Turning around the Coyotes is like turning around the Tampa Bay Rays. The fact is that the team lost $40 million this year despite the marketing value of having been in the playoffs last year and having the second lowest payroll in the league. The tickets are cheap and there is (at least for now) free parking and still they draw the lowest attendance in the NHL. Part of the problem is Glendale itself, located on the ass-end of the metro area (the stadium is 45 minutes away for me, and I live near the centerline of Phoenix).
- If taxpayers are really getting items worth $100 million in this deal (e.g. parking rights which Glendale probably already owns, a lease guarantee, etc) why can't the team buyer use this same collateral to get the financing privately? I have seen the AZ Republic write article after article with quote after quote from Hulzinger but have not seen one reporter ask him this obvious question. I have asked Hulzinger associates this question and have never gotten anything but vague non-answers. A likely answer is what I explained yesterday, that Hulzinger is a smart guy and knows the team is not worth more than $100 million, but the NHL won't sell it for less than $200 million (based on a promise the Commissioner made to other owners when they took ownership of the team). Hulzinger needed a partner who was desperate enough to make up the $100 million the NHL is trying to overcharge him -- enter the City of Glendale, who, like a losing gambler, keeps begging for more credit to double down to try to make good its previous losses.
- Glendale often cites a $500 million figure in losses if the team moves. Has anyone questioned or shown any skepticism for this number? My presumption is that it includes lost revenue at all the restaurants and stores around the stadium, but is that revenue really going to go away entirely, or just move to other area businesses? If your favorite restaurant goes out of business, do you stop going out to eat or just go somewhere different?
- We hear about government subsidies to move businesses from other countries to the US, or other states to Arizona, and these tend to be of dubious value. Does it really make sense for Glendale taxpayers to pay $400 million to move business to another part of the Phoenix metropolitan area?
- Why do parties keep insisting that Goldwater sit down and "negotiate?" Goldwater does not have the power to change the Constitutional provision. Do folks similarly call on the NAACP to "negotiate" over repeal of Jim Crow laws? Call on the ACLU to negotiate over "don't ask, don't tell"? This may be the way Chicago politics works, with community organizers holding deals ransom in return for a negotiated payoff, but I am not sure that is why Goldwater is in this fight. The Gift Clause is a fantastic Constitutional provision that the US Constitution has, and should be defended.
- Jim Balsillie offered to buy out the team (and move it to Canada) without public help and to pay off $50 million of the existing Glendale debt as an exit fee. Thus the city would have had $150 in debt and no team. Now, it will be $300 million in debt and on the hook for $100 million more and may still not have a team in five years when, almost inevitably, another hubristic rich guy finds he is not magically smarter about hockey and can't make the team work in Arizona. Has anyone compared these two deals? Private businesses cut losses all the time -- politicians almost never do, in part because they are playing with house money (ours).