Glendale, Ariz., is selling about $136 million in debt in the municipal-bond market this week, just days after Moody's Investors Service cut its bond rating because of the desert city's obligations to cover losses on a National Hockey League franchise.
In exchange for the NHL's promise to manage team operations and keep the team in Glendale until a new owner is found, the city agreed to compensate the league, the city's executive communications director, Julie Frisoni, said.
The Coyotes filed for bankruptcy protection in 2009, and that spring, the NHL became the owner of the team. In exchange for keeping the team, the city signed an agreement to absorb up to $25 million of the team's losses in both 2011 and 2012, in anticipation of finding a new owner, Moody's analysts said.
Glendale is slowly sinking itself in a mountain of debt to pursue its insane strategy to subsidize every billionaire sports owner in Arizona. The town of 225,000 people is spending $25,000,000 to fund the operating losses of a freaking hockey team -- that's nearly $500 a year for every 4-person family in the city. Nuts. And this is just their operating subsidy, it does not include debt service on the $300 million stadium it built for the team.
The problem is that the team is worth less than $100 million in Arizona (based on recent sales comps of other NHL franchises in warm cities like Atlanta) but might be worth $300-$400 million if moved to Canada (Jim Balsillie made an offer in this range, including an offer to pay down $150 million or so of the city's debt, before RIM stock started to crash). The NHL, which owns the team now, has promised owners that they will not take a penny less than $200 million for the team, and that they will not suffer any operating losses.
So, because they simply cannot admit they were wrong to subsidize the team the first time around, to keep the team in Glendale the city must either fund $25 million a year in team operating losses or it must pony up $100 million or so to bridge the team's $100 million value in Arizona and the league's $200 million price tag (something they tried and failed to do last year when the Goldwater Institute pointed out that such a subsidy was unconstitutional in AZ.
I repeat, what a big freaking mess. How do you avoid it? The only way is the Wargames strategy, ie the only winning move is not to lay the sports team subsidy game in the first place.