The City of Glendale is Pathetic

For years now I have lampooned the crazy money Glendale, AZ has thrown at the Phoenix ice hockey team in a desperate attempt to trade taxpayer money for prestige.  Let me bring you up to date:

Years ago a town of about 250,000 people committed about $200 million in taxpayer money to build a stadium for a professional ice hockey team, to attract it away from Scottsdale or downtown Phoenix to what is frankly the ass-end of the metropolitan area  (I have no problems with the west side of town, but from a geographic, demographic, and economic logic standpoint this was roughly equivalent to moving the LA Lakers to Riverside or San Bernardino).

For some weird reason, moving an ice hockey team to the desert with no base of hockey fans and locating it a good 45 minutes from the wealthier parts of town caused the team to go bankrupt.  Lots of people were willing to pay good money to haul the team back to Canada where there are, you know, ice hockey fans, but few wanted to pay good money to keep it on the west side of Phoenix.

So enter the NHL, which took the team over.  The NHL commissioner promised the other owners that it would not lose money on the deal, so it set the price of the team not at the market price (which appears to be around $100 million based on the Atlanta sale) but based on its costs, which were about $200 million.   It has agreed to try to keep the team in Glendale, but only if the city covers its operating losses of $25 million each year, which incredibly, the city has done for two years (note this is $100 a year for every man, woman, and child in the city to subsidize a hockey team).

The team may be worth $200 million in Canada, but it is only worth $100 million in Glendale (at most) so it does not sell.  The city agreed to make up the $100 million difference  with a bond issue (and throw another $90+ million in to boot), which almost closed the deal with one buyer until the Goldwater Institute pointed out that this kind of subsidy was illegal under the AZ constitution.  And so the situation sits.  The asking price is still $200 million, which no one will pay if they have to keep the team in Glendale.  And the city keeps forking over $25 million a year to the NHL to keep the team running.

OK, so that is the background.  Here is the new news.

The league, which purchased the Phoenix Coyotes at a bankruptcy court auction in 2009, has been managing the team and city-owned arena until an owner willing to keep the team in Glendale can be found. The city paid $25 million to the NHL during the 2010-11 season and pledged another $25 million for the current season, which is expected to come due in May.

To fulfill that pledge, the city put $20 million in escrow and still needs to come up with $5 million.

The hefty payouts have nearly drained the city's reserves, leading to a recent drop in the city's bond rating.

And the city is looking at a deficit next fiscal year that one councilwoman has estimated could reach $30 million. A possible sales-tax hike, furloughs and program cuts are on the table to close the spending gap....

During Tuesday's budget talks, [Glendale Mayor] Scruggs asked council members to join her in signing a letter to NHL Commissioner Gary Bettman to "release us from that $20 million in escrow and let us pay over time."

None of the councilmembers responded to her request. Councilman Manny Martinez later told The Republic he would "have to think about it in light of what is going on."

Scruggs said if the city can get back the $20 million from escrow and pay the NHL an initial $5 million, "our problems and everything our employees are fearful of would pretty much go away."

Translation:  Dear NHL, we are idiots and committed a bunch of money to a stupid purpose that we can't really afford.  Would you pretty please let us out of our commitment?  Hilarious and pathetic.  The chickens are coming home to roost by the millions.

Even funnier, the Glendale mayor is trying to blame the NHL for bad faith

The mayor said she and four others councilmembers pledged the second payout last May because city staff and NHL Deputy Commissioner Bill Daly said a deal with a team owner was nearly complete and that "we should never have to pay that $25 million."

Scruggs said the city was told the money was just a place holder so that the NHL wouldn't move the team out of Glendale.

"Given the stress that our budget is under, there should be a payment plan developed," Scruggs said. "They have no right to that money. They held us hostage for a year."

She said the NHL never intended to do business with Chicago businessman Matt Hulsizer, who wanted to buy the team but walked away from the negotiation table in frustration just weeks after the council pledged the second payment to the NHL....

Scruggs said the NHL last spring "misled us and they can't do this to our city."

In fact, the NHL was totally serious about the Hulsizer deal.  That deal fell through not because the NHL screwed up, but because Glendale did.  The deal fell through because Glendale had committed to a subsidy of the deal which may not have been Constitutional, and even if it had proved legal, became impossible when Glendale's bond ratings started tanking and they realized they could not move the paper.  Glendale officials have been amateurish and dishonest through this entire process.

By the way, several years ago, Jim Balsillie offered a deal worth over $200 million for the team, PLUS he offered to pay off something like $150 million of Glendale's stadium debt.  Glendale opposed the deal, because they would have been left with an empty stadium and tens of millions in debt (given the crash in RIM's fortunes, the offer is unlikely to be renewed).

Glendale is likely going to wish they had taken the first offer.  There is a very good chance that Glendale will lose the team without any sort of payment on their debt and after paying $25 million a year to the NHL.  Glendale will end up with hundreds of millions in debt, an empty stadium, a junk-level bond rating and a busted budget.

There is a saying in the investment world - your first loss is your best loss.  Glendale is about to learn this very expensive lesson.

  • me

    To a degree, this is an argument for moving into a small city in a state with a small population - it's easier to see how likely you are to screw yourself by giving up part of your sovereignity to idiots.

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

    Well, here in Los Angeles we are wasting money on another potential LA NFL football team, and we are indeed competing with the "butt end of town" for that "privilege."

    The city should absolutely make things easy for business, any business, with the lightest regs and taxes possible (there are issues in urban areas with pollution, and the right to pollute someone else's land, water and air is not in the Constitution).

    You want build a stadium in L.A.? Do it! I don;t want to, so don't ask me to be an investor--an investor without equity, btw.

  • marco73

    Scruggs said if the city can get back the $20 million from escrow and pay the NHL an initial $5 million, “our problems and everything our employees are fearful of would pretty much go away.”

    He's kidding himself. That just gets you through the next couple months of payroll. You still are a mayor of a small town with a money-losing hockey team in a money-losing facility.

    There are going to be some major financial corrections in major league sports in the next few years. The mayor should google "contraction."

  • Reformed Republican

    Glendale is about to learn this very expensive lesson.

    Doubtful. Politicians do not usually learn anything from these experiences, or at least they do not care since they are not spending their own money.

  • Smock Puppet, 10th Dan Snark Master

    One Commissioner Fusses, and another Commissioner Fusses.

    That's because they're complete Deux Fusses.

  • Dave Boz

    Reformed is right: there is no shortage of examples for anyone who wants to look. Washington DC, Miami, Cincinnati, Indianapolis, Glendale, and plenty of others: all financial disasters for taxpayers, and huge moneymakers for the sports teams. When politicians look at these examples, all they can say is, "Oh boy! When do I get my arena??!?"

  • https://twitter.com/#!/Royal_Arse Royal Arse

    Research going back to the mid-85 and onward is virtually unanimous: 90% of the economic benefit to sports teams/stadia accrues to the owners and players. A small segment of the local retail sector may benefit, but other entertainment spending is crowded out by sports.

    Any public funds for sports stadia/teams are essentially theft from the treasury by the elected officials.

  • Sam L.

    Look on the bright side! They didn't build light rail to bring in the fans.

  • MJ

    Look on the bright side! They didn’t build light rail to bring in the fans.

    Don't give them any ideas.

  • Dan from Gilbert

    I just about spewed my drink, reading the ass end comment about Glendale. So every true. I've always scratched my head that they have all this sports stuff and it's one of the rougher parts of town. Why would anyone want their sports team to be there? All these troubles are also not going to be good for retaining residents and keeping property values up. It's pretty easy to throw your hands up and move to another city in the metro area, so you can distance yourself from the insanity. Not good for those left behind. It'll be the Detroit of the metro area in another 10 years, give or take, if they keep this fiscal malfeasance up.

  • Mark

    "A small segment of the local retail sector may benefit,"

    The outlandish claims of how much employment sports teams brings to the economy is pathetically laughable. The problem with the calculations is that sports teams only play a handful of dates in each city. Think of an NFL team. They only play 10 home games per year. So, even if 5,000 people are employed on those 10 dates, that is only 200 FTE worth of employment outside of the team (and 5,000 employees is a MAJOR overestimate). For that, these teams are garnering hundreds of millions of dollars worth of subsidies from government. Sad, sad, sad.

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

    Actually they are doing the first tenant of government, to spend money has inefficiently as possible.

  • bob sykes

    The Columbus Bluejackets are also bankrupt. The Nationwide Arena, where they play, was originally built with private money after voters refused to pay for it. A couple of years ago, management of the Arena was ceded to Ohio State University (which, as predicted, has its own money-losing arena). And recently the Franklin County Convention Facilities Authority bought the Arena in a very murky deal involving all sorts of contributions from various sources, including a lot of state, county and city monies.

    Ignoring the Arena, the team itself loses money although it draws reasonably well. Columbus has a large community of "immigrants" from serious hockey venues like the northeast, upper midwest and Canada, and they buy season tickets, but not enough to cover costs.

    However, the team owners are incredibly stupid, cannot hire good coaches and draft stupidly, so the Bluejackets are perennial bottom dwellers.

    As an aside, the locals are so provincial that they do not know that a "bluejacket" is a sailor, and the team mascot is a blue/black wasp.

  • Ted Rado

    It has been evident for many decades that anything that can be done by competitive private enterprise is MUCH better done that way than by government. Government does not have competition and a profit motive to keep them on the straight and narrow. If a mistake is made, the public pays for it, not the President, Governor, or Mayor.

    Businessmen are not blameless either. They egg on government officials to push projects that will bring business to the comunity. The local chamber of commerce has a strong influence. Those benefiting from the Glendale hockey team no doubt think it is a good idea. If so, they should have funded the team rather than the city government.

  • http://islandturtle.blogspot.com Corky Boyd

    You didn't mention it, but could these councilmen be Democrats? They seem to rely on taxpayers' money to build monuments to themselves. That being said, all is not lost if the team leaves. That empty stadium? If they work fast they might be able to peddle it to the federal government as a National Guard armory or maybe a giant ice making facility for the less fortunate who don't have air conditioning.

    Obama is only going to be around for a short time (hopefully). The line for funds for failing Democrat run cities is going to get longer as time goes on.

  • marco73

    Doesn't matter what political stripe.

    Here in the Tampa Bay area, the baseball Rays play in Tropicana field (a domed stadium) in St Pete. The team has been very competitive in recent years, but still attendance is not up to major league standards.

    So of course various politicos in Tampa want to build a stadium for the Rays, despite the fact that taxpayers are still burdened with paying for a new football stadium and a new hockey arena.

    And we're still paying for something even stupider than light rail, a freakin money losing trolley!

    Building a baseball stadium will "bring jobs", revitalize a downtrodden area, blah blah blah. The politicos (both Coke and Pepsi) are afraid that the Rays will leave for greener pastures elsewhere.

    A new stadium would of course have to be the biggest and best, even bigger and more expensive than $2.4 billion stadium that the Florida Marlins strong-armed out of Miami:
    http://bizofbaseball.com/index.php?option=com_content&view=article&id=3391:with-interest-final-cost-of-marlins-stadium-expected-to-be-24-billion&catid=41:facility-news&Itemid=56

    Whenever I see any of the local politicos on TV with any sports logo behind them, I instinctivly hide my wallet.

  • Hunt Johnsen

    But Glendale does have one hell of a Cabela's! About four acres of shooty, sporty goodness, and good eats upstairs.

  • ErisGuy

    "Travis County considers terms for Apple to receive up to $7.4 million in incentives"

    That's a lotta Glendales.

  • http://lukenlimos.com howard luken

    I suggest everyone read the protocols of the learned elders of zion. Henry ford published them in the 1920's and was shocked how accurate they were a mere 30 years or so in to the plan. Now a century later we are into the predicted third world war and the zionist banking government is almost in place. It doesn't matter who wrote them or whether they are real or not. They are absolutely accurate. No other so called prophets could have been so accurate. Dumbed down soccer moms running cities. IQ levels tanking. 30,000,000,000,000 dollars and counting given to the rothschild bankers by your congress since 2008 and most americans don't even realize it. Welcome to the brave new world slave. Watch as millions start dying soon from disease that cannot be cured. The IRS now wants to restrict your travel if you dont pay up. They will begin rendition of americans quite soon. Have fun kids.
    (You should have hired me to work one of your campsites. California land management has offered me a position.)