Surprise: Near Bankrupt City Finds that Throwing Good Money After Bad is Not a Good Investment

I have written here any number of times about the crazy ongoing subsidies by Glendale, Arizona (a 250,000 resident suburb of Phoenix) to an NHL franchise.  The city last year was teetering at the edge of bankruptcy from past hockey subsidies, but decided to double down committing to yet more annual payments to the new ownership of the team.

Surprisingly, throwing more money into an entreprise that has run through tens of millions of taxpayer money without any hint of a turnaround turns out to be a bad investment

Revenue from the Phoenix Coyotes is coming up short for Glendale, which approved a $225 million deal to keep the National Hockey League franchise in 2013.

City leaders expected to see at least $6.8 million in revenue annually from the team to help offset the $15 million the city pays each year for team owners to manage Jobing.com Arena. The revenue comes from ticket surcharges, parking fees and a split of naming rights for the arena.

Halfway through the fiscal year, the city has collected $1.9 million from those sources, and nearly $2.3 million when including sales-tax revenue from the arena.

Even including the rent payments on the publicly-funded stadium, Glendale is still losing money each year on the deal.

The source of the error in forecasting is actually pretty funny.  Glendale assumed that it could charge very high monopoly parking fees for the arena spaces ($10-$30 a game).  In some circumstances, such fees would have stuck.  But in this case, two other entities (a mall and another sports stadium) have adjoining lots, and once parking for hockey was no longer free, these other entities started competing parking operations which held down parking rates and volumes (I always find it hilarious when the government attempts to charge exorbitant monopoly prices and the free market undercuts them).

Had the parking rates stuck at the higher level, one can assume they still would have missed their forecast.  The Coyotes hockey team already has among the worst attendance numbers in the league, and hockey ticket buyers are particularly price sensitive, such that a $20 increase in the cost of attending a game likely would have driven attendance, and thus parking fees and city ticket surcharges and sales taxes, down.  Many private companies who are used to market dynamics still fail to forecast competitive and customer reaction to things like price increases well, and the government never does it well.

  • Fred_Z

    Hey slick, how you like dealing with us Canuckis now?

    Rubes.

  • Don

    San Antonio has a 4-time world champion basketball team, and they can't raise parking rates at the county-owned arena except during finals because people will just stay home in droves.

  • http://itsaboutliberty.com/index.php MNHawk

    For a low information population who's President is about to pivot to income inequality, they sure to like taxing the poorest to provide direct revenue streams to millionaires and billionaires, don't they?

  • Brennan

    Here's another angle, although the usually dismal performance of the 'Yotes speaks volumes. (OTOH, they're only 3 points out of playoff contention right now).

    It's becoming increasingly easy to stay home and enjoy the games. For less than $100 per year, one can purchase a VPN connection to an overseas location. For less than $200 per season one can purchase GameCenter Live from that overseas location, and be free of almost all blackout restrictions. Another method is to have a friend/relative with a SlingBox in an out-of-market area willing to share.

    Ice hockey is, IMHO, the best game to see live, and also the worst game to watch on TV. But if the connection speed is good, and you've got a wide-screen HDTV, it's not as bad as it used to be. Pretty good, in fact.

  • Elam Bend

    But NOW they're going to be the Arizona Coyotes instead of the Phoenix Coyotes, so attendance should shoot right up! ;)