Tag / Phoenix

by Frank Maduri

The Strategy Behind Building Sports Arenas

The conclusion that I have come to over the past four and a half years of writing pieces centered on the topic of sports arenas, is that a strategy exists in getting these deals done that is far more intricate than many would believe. These strategies involve the team ownership, the league office, as well as political and business leaders.

These strategies could involve a real estate developer if they are not already involved as part of the ownership group, and they can involve civic groups or environmental groups depending on the project.

These arena development agreements for sports can be complex and involve tax payer dollars, or they can be privately financed which inherently leads to other issues in that circumstance.

The strategy behind the building of a sports arena was on full display over the past two days with the situation in Seattle. The lack of an updated venue that met current NBA or NHL standards was the main reason why the Sonics moved out of the city about nine years ago. The city had been working with a developer for a proposed new sports arena in the SoDo neighborhood, which was proving to have too many cumbersome hurdles.

The city shifted their priority to the old Key Arena at Seattle Center and fielded development proposals to renovate, expand, or rebuild a new arena on that site. The Oak View Group had the winning proposal, and on Tuesday, the city government announced the agreement of a newly renovated and expanded world class arena on the Seattle Center site built entirely with private funds.

The residents who pined for the return of the Sonics, and the sports fans that dreamed of an NHL expansion hockey team in the Emerald City, rejoiced because they had finally a light at the end of the tunnel with this news. The last, and most important, major hurdle for the city to gain at least one, if not two, new major league teams was seemingly cleared.

The old adage: “you never know what tomorrow will bring” is certainly true in Seattle; where residents woke up the next morning to learn that the Mayor of Seattle announced his resignation amid an alleged sexual misconduct scandal, and that the arena plans for Seattle Center were put on hold indefinitely.

In addition, in a related story, Wednesday brought the news that the Calgary Flames and their new arena negotiations with municipal officials were broken off with no resolution. This situation has been brewing for several months with proposals and counter-proposals being made by both sides, with no substantive progress being made toward a functional plan.

The surprising element of this situation is that the incumbent mayor, Mayor Neshi, was publicly acting as if the new sports and entertainment arena was part of his vision for the future of the city. The Flames management held a Wednesday press conference to refute that vision by stating that Mayor Neshi has not advocated at all for a new arena, and was insinuating to the public another stance in order to win the votes of hockey fans.

The NHL league office sent a strongly worded message to the Mayor, and the components of these arena deals are riled up north of the border. This news that the Flames had put $200 million on the table toward the development of the new facility and then even changed the site from one end of the city to the other, immediately bowed to speculation that the team would relocate to either Seattle or Quebec City.

The Flames management stated that they will continue to play in the second oldest arena in the NHL, while the other teams enjoy the advantages from better revenue streams achieved by playing in a new facility. However, they also insinuated that they will keep the relocation option on the table. The Mayor does not have to change his stance because polling shows that the people in Calgary do not want to use public money on a new arena.

The relocation to Quebec City is always going to be a hot topic, as they took an entirely different approach and pulled out all the stops to build a new arena a few years ago with no guarantee of an NHL team coming there either through expansion or relocation. The NHL passed them over for expansion in this last cycle, choosing Las Vegas to expand the league into, citing the weak Canadian dollar at that point in time.

A group of NHL players were surveyed recently and the majority of them selected Quebec as the place they would like the league to expand to in the future. This was ahead of Seattle and Houston on the list of choices. Quebec will always be a popular spot because of their history in the league with the Nordiques, and the nostalgia that hockey fans have for that team and for the rivalry with Montreal to be reinstituted.

Quebec took the step of making the most difficult hurdle in gaining a new franchise, the arena, the easiest step by building it. The residents, business leaders, and politicians were all on board with getting an NHL team, now they will wait to see if that maneuver will provide the desired end result.

The New York Islanders are involved in a new arena quest as well. The main issue is that when the team moved from Nassau Coliseum to Brooklyn, they underestimated the significance of the Barclays Center being built for basketball and the impact that would have on the hockey fan experience.

The sight lines for hockey at Barclays are terrible, the scoreboard is off center in the orientation to the rink, and the ice conditions are awful because the arena does not have the right pipes to adequately keep the water temperature low enough. It is a total debacle and the team is looking at two potential sites in Queens: one near Aqueduct Racetrack, and the other next to Citi Field where the New York Mets play baseball.

The league office has completely shut down any potential for the Islanders to return to Nassau Coliseum (which was renovated completely and is now a smaller seating capacity) and pursuing the Queens options. Many people in recent polling believe that the Islanders arena, another new arena in the NY metro area is unnecessary, so it will be interesting to see how this situation works itself out.

The New York metro area is one of key significance for the NHL and with the Rangers and the New Jersey Devils, the league has three franchises in the region and has a vested interest in making sure that all of them are given the best possible opportunity to remain profitable.

The scenario with the Islanders searching for a new home is similar, yet different, to the Arizona Coyotes and their ongoing struggle to find a new arena closer to the population center of the Phoenix market. The Coyotes have had issues for years on the business side, and the dispute with the Glendale municipal government involving the arena lease terms are just the tip of the iceberg.

The ownership group of the team appeared to have a deal in place with Arizona State University for a new arena being built in Tempe, but that deal fell through in February 2017. The focus now is on a few other sites in the East Valley and this boondoggle for a new arena will continue for the foreseeable future, as will the inevitable relocation rumors.

However, relocation seems unlikely as the NHL is unbalanced and needs more teams in the West, they would not move the Coyotes to Quebec, and the situation in Seattle is murky at best. The league remains bullish on keeping a team in the Phoenix area because they are enamored with the media market size.

The Phoenix Suns are also seeking a new arena to replace their current aging home court, and the NBA league office is, of course, willing to back the team up on getting the public funds squeezed out of the government to get that accomplished.

The state and municipal level governments in Arizona are looking at a scenario where the Coyotes, Suns, and the MLB team, the Arizona Diamondbacks; are all seeking taxpayer funding for public/private arrangements to build new sports venues. The resulting idea within the state assembly there is to build a sports arena in downtown Phoenix that would be shared by both the Suns and the Coyotes in order to save the outlay of total public funds.

However, the reports out of Phoenix are that the Suns ownership is not on board with sharing a facility and want their own facility in the downtown area. The Coyotes are in a different situation, they have stayed publicly mum on the shared arena concept, largely because they would probably play anywhere other than in their current arena in Glendale. It is a situation that is complex, has a ton of moving parts with proposed arena sites on Native American tribal lands, and a host of other issues that merit watching in the weeks ahead.

The Carolina Hurricanes are the final situation with arena management and potential relocation that will be explored in this analysis. The team is about to be sold from Peter Karamanos to Chuck Greenberg but the sale is not completely finalized yet.

The arena lease is key to the sale because the team has been the source of relocation rumors for the past four or five years. Carolina does not have the corporate sponsorship opportunities of other, larger markets. The Hurricanes have not had much on-ice success in recent years which has put a subsequent drag on attendance levels.

The current arena lease between the group that controls the arena and the Hurricanes is seen as one of the most favorable lease agreements from the perspective of the team as far as being a tenant in a building. The PNC Arena is in need of some renovations and improvements which many believe will be done once Mr. Greenberg affirms that the team is staying in North Carolina.

The consensus from some within the NHL circles is that the team could relocate to Quebec, but in many ways that may not make sense from a business perspective. The ownership, in this case Greenberg, would have to pay a steep relocation fee to go to Quebec. In this case, the ownership could use that money as their portion of a public/private agreement to construct a new arena in North Carolina.

The case for a sports arena is dependent upon so many variables and involves many shifting priorities and calculated interest groups from politicians, to team owners, to the league office, and local business leaders. The case studies, individually must be taken on balance, I understand all sides of the situation.

The owners feel that the municipal governments stand to make a lot of money on the ratable tax revenue from the arena, the public feels that they should not have tax money go toward the construction of a facility of this type, and the cities that do not have a new sports / entertainment venue miss out on the latest acts or could lose a team over it. All of these variables are valid, and all of the scenarios I laid out will continue to develop from Seattle to Phoenix and beyond in the months ahead.

by Frank Maduri

The Desert Drama: The Battle Between The Arizona Coyotes and Glendale

The Arizona Coyotes hockey franchise and the City of Glendale agreed recently to a new 2 year arena maintenance deal following another round of acrimony in what has been a saga surrounding the team and the city for years. The City of Glendale voted recently to terminate the team’s lease on the Gila River Arena in order to renegotiate the terms of the agreement with the team.

 

I have covered this debacle for a few years now, and if you strip away all of the other minutia to the situation it comes down to money, like any other negotiation. Under the terms of the new agreement, the amount that Glendale will pay to the Coyotes is trimmed from $15 million per year to $6.5 million annually. The team gains $6 million in revenue from parking, ticket sales, and naming rights that originally had gone to Glendale in the prior deal. The team is staying put for now, but the length of the new lease is shorter and raises speculation about the future of the team. Both sides are saying they are committed to making hockey work in Glendale.

 

However, it does raise the distinct possibility that the franchise could be relocated to another city in the near future. The new agreement provides the Coyotes ownership with an out-clause in June 2017, which is a full year earlier than the mechanism that would have triggered that clause in the original lease.

 

The NHL recently opened the process for expansion and groups from Las Vegas and Quebec City submitted formal bids. The now infamous exclusion of the expected Seattle bid from the process made headlines. The NHL has strong interest in the Seattle market and it would help balance the league which has two less franchises in the Western Conference. The main issue though is a lack of an arena suitable to host an NHL team for 41 games a season.

The three groups potentially interested in bringing hockey to Seattle have different plans for getting an arena built in that marketplace. Since none of the proposals were progressed far enough it is the reason given for their absence from the expansion process this past week.

 

I could see a scenario where the Coyotes are potentially relocated in a couple of years to the Seattle market once they have the financing and approval as well as begin construction on a new arena.

 

Valley of the Sun

 

In recent weeks, another potential option has emerged which could resolve this issue between the current ownership group of the team and the City of Glendale while allowing the team to remain in Arizona.

 

That resolution revolves around a proposal which was introduced recently in the state legislature regarding the construction of a new arena in downtown Phoenix. The proposal originally was targeting the use of the arena as an upgraded facility for the NBA’s Phoenix Suns, but now some politicians have floated the idea of including the Coyotes as a co-anchor tenant for the new arena.

 

In the event that this proposal is acceptable to all sides involved and the respective league officials involved this could be a win-win situation for the Valley of the Sun. The State of Arizona would keep both their NBA and NHL franchises, the teams would get a new building to call home, the fans would keep their teams, and the leagues -in particular the NHL- would not lose a top TV market.

 

Phoenix also could solve the attendance problems which have plagued the Coyotes because any area resident will tell you that rush hour traffic issues getting to Glendale coupled with the fact that the area around the arena in Glendale never properly developed, are two main reasons behind the difficulties with drawing fans to NHL games in that market.

 

The downtown arena in Phoenix would solve the issue because it would be far more accessible to fans travelling in from the suburbs or coming from work, especially for weeknight games. The NHL would probably support this move because they have been dogged in their determination to keep the Coyotes in the Phoenix market for years.

 

Alternate Plans

 

The situation surrounding the Coyotes future in Arizona gets far more uncertain if the public funding for a new downtown arena in Phoenix fails to gain passage in the state legislature. The current arena in Phoenix which houses the Suns is not a viable option for hockey because it requires an odd configuration to fit the ice sheet which causes many seats to have obstructed views, it is the reason why the Coyotes moved out to Glendale in the first place.

 

The alternative plan some have suggested of relocating the Coyotes to Las Vegas in two years certainly makes some degree of sense especially given the geography of the move. The team could stay in the same division and play within driving distance of their former home territory which could translate into a crossover fan base.

 

Conversely, the NHL would not be too keen on this idea because they would stand to gain a lot less revenue from this maneuver. The difference between a current team relocating and the addition of an expansion team is that the NHL can charge a new expansion team with an entrance fee. The entrance fee if the NHL expands into Las Vegas with a new franchise is said to be around $500 million which would then be split between the league and the owners.

 

A relocation of the Coyotes to Las Vegas would translate into a forfeiture of the entrance fee, and therefore, would probably not receive league approval. The same could be said for a relocation to Quebec City, which the NHL plans to ask for a potentially larger expansion fee based on the popularity of the sport in Canada.

 

I know someone who recently mentioned to me that the relocation of the Coyotes could be to a second team in the Toronto market. The issue with that move though is the outlandish fee that the NHL will make that team pay to the Maple Leafs to be able to share the market with them. That has been cost prohibitive to other efforts to add a second team to hockey’s largest market in the past. That scenario could work if they were to share the arena because the owners would save on that cost, but I think the NHL would prefer to have a team expand into that market for the same reasons I outlined earlier: the expansion fee would be much larger than a relocation of an existing team.

 

Therefore, if the Phoenix plan falters, the remaining move on the board, at least at this point is for the Coyotes to move their operation to the Seattle market. I think it will take two to three years for the Coyotes to make a determination on whether a move to downtown Phoenix is enough to save hockey in the desert. In that same vein, it will take Seattle two or three years to get their arena situation squared away.

 

The more information that comes out about the Seattle groups and the arena plans they have, it seems more improbable that it will get done unless something changes along the way. The Tukwila proposal would cost $500 million total financed privately by the business community and the potential ownership group. The Coleman group bid is connected to the downtown arena proposed to be built for an NBA team that may not ever happen (see my article on the new Bucks arena which was the best chance for Seattle to get a relocated NBA team and now is vanquished) because any change to make the arena project for a hockey team would require a change in the MOU between the city and the investors who own the land which is not happening.

 

The third ownership group has a plan for an arena in Bellevue but the issue is quite simple, they do not own the land to build it. The land in that suburb is not readily available and is not cheap. It could take four or five years to get the project done. The NHL is said through sources to prefer the downtown arena option over the suburban plans, but they all have issues on one level or another.

 

In the end analysis, as I wrote in the beginning this is all about money. The future of the Coyotes franchise will be wherever they can maximize revenues, if that is in Arizona they will stay. The more likely scenario is that in a few years this team and hockey in the American desert will be gone, and I feel terribly for their fans, it will be reduced to nothing but memories.