Chickens Roosting in Glendale

Via the WSJ

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.

  • Smock Puppet, 10 Dan Snark Master

    >>>> 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.

    No, there is another... (chanelling The Empire Strikes Back)

    Shoot one of the bastard sumbitches that keep voting for this crap in the head.

    Amazing how quickly that'll fix things. :-S

  • http://www.kipesqsuire.net KipEsquire

    And they didn't even have the balls to insist that the name be changed to "Glendale Coyotes."

  • bob sykes

    Some time ago, the citizens of Columbus, OH, were asked to approve a bond issue to build a hockey/basketball arena. They refused, and the hockey team owners went ahead and built it anyway. At the same time, Ohio State University built its own hockey/basketball arena, despite analyses that the metro area (1.4 million) could only support at most one.

    Both arenas lose money, and nowadays OSU manages (but does not own) both. The Columbus Bluejackets are a very bad hockey team, have always been a bad team (meaning they have bad owners), and will likely leave Columbus.

    The City at least won't be on the hook for the Bluejackets arena, but their departure will turn the arena district into a Detroit-style dump. And the City did spend a lot of money on the district.

    OSU has no obligations to the Bluejacket arena, and its demise will shore up the finances of its own arena. It might even break even, so the students won't have to be charged to subsidize it, as they now do.

  • Russ R.

    There is another way to avoid it. Move out of Glendale.

    Unlike North Korea, Cuba, or the former Soviet Bloc, there's no wall or guards stopping Glendale taxpayers (i.e. residents and businesses) from heading for the exits.

    Just like businesses have to compete for customers, municipalities have to compete for taxpayers.

  • http://www.ianrandom.com Ian Random

    Isn't is amazing how a city will actually defend a private business, although heavily subsidized one. Imagine that next time you go down to city hall to get something done.

  • Tim

    There are a whole bunch of tails to this problem, too.

    - The Atlanta team was just sold and moved to Winnipeg; which eliminated one solid market for a franchise.

    - Balsillie wanted to move the Coyotes to Hamilton, ONT; which is in the marketing area of two existing franchises, Buffalo and Toronto. The league and other owners won't allow this -- there just isn't enough support for three teams in that area. It was a long-term loser.

    - There are maybe two areas left that could possibly support a team (Quebec City, Kansas City); but there's 4 teams in trouble (Columbus, Florida, St. Louis, Phoenix) and at least two that are looking for a new arenas (Detroit and Long Island).

    - Atlanta's move to the 'Peg has caused divisional alignment problems, the league wants four geographic divisions; but has 30 teams, which leaves the divisions unbalanced.

    - Lastly; the labor situation between the league and the players association is tenuous, and there's lots of speculation that when the CBA expires, there will be another strike; possibly another lost season. The city's support of the Coyotes has become a point of contention between the PA and the league; with the PA arguing the support should count as hockey income for salary cap/floor purposes, and the league saying no.

    In summary, the Coyotes are the odd team out. The common speculation is that they will be contracted if the city cuts funding; which leaves Glendale holding both bags -- the debt from the subsidy, and an unusable arena.

  • Smock Puppet, 10 Dan Snark Master

    >>> There is another way to avoid it. Move out of Glendale.

    That doesn't really fix the problem as much as put it on the shoulders of an ever-decreasing base.

    In the case of Cali, that makes sense, they keep electing these idiots, but I suspect the G-AZ problem is a steady stream of idiots in office that aren't likely quite so visibly stupid.

    Besides which, my suggestion improves the gene pool...

  • http://sevencontinents@mindspring.com Benjamin Cole

    Mr. Coyote doesn't get it. Subsidies for rural industries and communities, sports teams, military coprolite and automakers is okay.

    But try to run a privately financed push-cart hot dog stand in Los Angeles, and they will throw you in jail.

  • Rick C

    "That doesn’t really fix the problem as much as put it on the shoulders of an ever-decreasing base. "

    On the contrary, it throws the problem into sharp relief, as the ever-decreasing base will become more likely to tell their elected representatives to cut it out (one way or another).