I have been reading reports all over the internet sports news sites this week regarding the future of the Phoenix Coyotes franchise. In order to fill in any gaps for readers who are not familiar with the saga of the hockey team in Phoenix let me summarize:
- The NHL took over ownership of the Coyotes in 2009 when the ownership group of the team basically went bankrupt. The league took over the franchise which essentially was on the verge of collapsing into insolvency.
- The NHL has poured millions of dollars into keeping the team in the desert and is still in financial ownership of the team today
- The NHL has tried with obviously no success to sell the team to a number of investors, most of them from outside Phoenix who stipulated that they would keep the team in Phoenix as a contingency of the sale.
- Those deals have all fallen through because the franchise is in such bad financial shape that in order for the operation of the Coyotes from a business perspective to have a chance at “breaking even” the potential future owners need a favorable lease on the arena in Glendale, AZ known as the Jobing.com Arena.
- The Arena deal essentially consists of the City of Glendale (which owns the arena and used tax money to construct it) to make payments to the future owners of the Coyotes for “arena operational costs”. So the owners of the Coyotes would run all the day to day operations of the arena and manage the upkeep on the arena using payments from the City of Glendale.
- The NHL had an offer back a couple of years ago from an investment group to buy the team and relocate it to Hamilton, Ontario, Canada. The NHL offices blocked the move because they wanted to keep the team in Phoenix.
- The NHL has now made it clear that it no longer can afford to dump money into the Coyotes and that they must sell the team as soon as possible. The NHL Commissioner Gary Bettman has stated that if a deal cannot be reached they would even consider the highly unusual step of suspending the operations of the team and putting the Coyotes “on hiatus” for the upcoming NHL season.
- The current group interested in buying the team has a deal to keep the team in Phoenix for 4 years, if at the end of that time period the team is still losing money, then the group is allowed to relocate the team or to sell the team to a group which will relocate the team to another city.
- This current potential ownership group has asked the City of Glendale for $15 million per year to operate the Glendale Arena. The City Council has until next Friday, June 28th to decide whether those terms are agreeable.
The Current Issue in Glendale
The current issue in Glendale, according to media reports, is that the city is broke. Now, they have to decide whether they can afford to pay the new ownership of the Coyotes the money to operate the arena.
In the event that they decide that they cannot afford to pay the Coyotes group then they risk losing the main tenant of the arena: the hockey team. The arena was built in Glendale right across the street from where the Arizona Cardinals NFL team plays football.
The arena in downtown Phoenix, the US Airways Center, which is home to the NBA’s Phoenix Suns, had an odd configuration for ice hockey, and the fans disliked it because the sight lines were terrible.
The arena in Glendale was built specifically for hockey and for the Coyotes to call their home. However, the distance from the downtown center of Phoenix to Glendale made for a brutal trip with traffic patterns in the now bustling and ever expanding Phoenix metro area. So it took fans over an hour in traffic to go a short distance and that turned many people off from going to the games in Glendale.
The Coyotes have one of the worst attendance figures in the league. That unfortunate statistic puts greater emphasis on the arena deal than in other sports franchise purchases because the compensation from the city (in this case from Glendale) is needed to offset the loss in attendance revenues.
The Coyotes are a good solid playoff caliber team which went deep into the playoffs in 2012 and they still did not sell out the arena in Glendale for those playoff games. The rest of the NHL teams’ average very high in person attendance figures with arenas averaging about 90% of capacity for the season.
It has been widely reported that the City of Glendale has some reservations about the potential new ownership group. In particular, the fact that they put down a very low percentage of the actual purchase price to buy the team from the NHL, and are borrowing the rest of the money involved in the transaction. The City Council may think the $15 million per year is too steep a price, and they may risk losing the Coyotes and move forward with a different arena management company to hold other events at the arena.
The Backup Plan – Seattle
Earlier this week, according to CBS Sports.com who broke the story, the NHL league offices leaked the backup plan in case the Glendale City Council does not agree to the terms of the arena management deal and lease.
This same report states that the NHL has been in constant back channel communications with an ownership group that is prepared to pay $220 million for the Coyotes to relocate them to Seattle in time for the upcoming 2013-14 season (www.cbssports.com). The Mayor of Seattle also confirmed having a conversation with the NHL Commissioner about this relocation of the Coyotes.
Seattle is an intriguing market for hockey. In fact this story gained traction when the Vancouver Canucks inquired about relocating their minor league affiliate to Seattle. The Canucks officials were told that the Key Arena in Seattle was already reserved and was not available for the duration of the hockey season.
That response prompted media inquiries into what the Key Arena was going to be used for during that time. The Key Arena, as most sports fans know, is a very small venue by today’s professional sports standards. The lack of the city to commit to a new arena was the chief reason that the Supersonics NBA team moved from Seattle to Oklahoma City in 2008.
The issue with Key Arena for ice hockey is that the configuration is going to be very odd, and will force some sections of the lower level to be closed off to spectators. The arena in that layout will seat only 10,000 fans, which will be the smallest building in the league.
The league sources who leaked the story to CBS Sports.com state that the discussions between Seattle and the NHL office are for the team to be relocated immediately if the Glendale council votes down the arena management deal. The team would play in Key Arena for 3 seasons before moving into a new arena.
Now, other people on the sports blogs in Seattle, which I read recently, feel that the NHL is using Seattle and leaked the story to apply pressure to Glendale to approve the deal for the Coyotes to stay in Phoenix because the NHL has spent millions of dollars trying to keep the team in the desert. That could be true, but I think the NHL realizes it is not tenable to continue to own and fund a team which inherently loses money and is ready to “cut bait” on Phoenix.
The new arena is of course the project that the other investment group in Seattle has spearheaded to get an NBA team back in the city to be the second version of the Supersonics. They almost had a deal to purchase the Sacramento Kings but the deal fell apart and the team remained in Northern California. The NBA has said it would consider expansion to Seattle once the new TV contracts are negotiated and they have a better idea of the revenue structure moving forward.
Seattle and the NHL a good potential fit
I think that the move to Seattle would be a good fit for the NHL, it is a big media market they are not yet in, and the people there love sports. The weather there favors indoor activities, so that is a good fit. The team also would have an immediate regional rival with the Vancouver Canucks, which would be great for the NHL.
In the case of the Phoenix Coyotes, if the City of Glendale approves the arena deal and the sale moves forward and they remain in the desert, I think the NHL should consider Seattle as an expansion destination in the near future. The NHL is in need of markets in the West, as I have written about in the past with realignment next year and the unequal balance of the two conferences.
In the end, the only component of this messy situation that has any clarity is that the NHL is going to sell the Coyotes franchise to someone in the next two weeks. It will either remain in Phoenix or be relocating to Seattle, either way it will be resolved, and hockey fans will have to stay tuned to see how this unbelievable saga finally concludes.