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Joyce Clark Unfiltered

For "the rest of the story"

On Monday, November 14, 2016, Anthony LeBlanc, representing the NHL Arizona Coyotes, announced the possibility of a Coyotes move to a new arena in the East Valley. Note that I, as others, used the word “possibility.”

Here are the links to major stories about the announcement:

As one read media reports or watched TV reports about the announcement the impression given was that it was a done deal and we could expect construction of a new arena immediately. A very few of the media did admit that the Coyotes face tremendous obstacles. Everyone should take a deep breath and sit back and wait until next June to learn the results of on-going negotiations. 

What was really said at the announcement? Simply this…Catellus Development Corporation, master developer of the ASU Athletic Facilities District, and the Arizona Coyotes are in negotiation. In 2010 ASU was successful in getting the Arizona legislature to approve an athletic district, a special revenue district for lands owned by state-supported universities, which could be used as a funding source for some of its athletic capital projects such as the $268 million dollar renovation of Sun Devil Stadium. Shortly thereafter, in 2014, ASU announced Catellus as its master developer of the Karsten land.

The Catellus Development Corporation is described by Bloomberg as, “Catellus Development Corporation, a real estate investment trust (REIT), engages in the ownership and development of primarily industrial properties in the United States. The company operates in Core segment, and Urban, Residential, and Other segment (URO). Core segment manages and leases its rental portfolio, as well as acquires and develops suburban commercial business parks for its own rental portfolio and for selling land and/or buildings to users and other parties. URO segment manages residential projects and urban development activities, as well as the desert land sales. As of July 28, 2005, the company’s rental portfolio totaled 41.1 million square feet. It operates principally in California, Illinois, Texas, Colorado, Georgia, and New Jersey. The company has elected to be treated as a REIT and would not be subject to federal income tax, if it distributes at least 90% of its taxable income to its shareholders. Catellus Development is headquartered in San Francisco, California.”

What I found to be most interesting about Catellus is that was a spin off of a major railroad company. This is from http://www.muelleraustin.com/about/catellus/ : “Catellus was founded in 1984, following a proposed merger of two railroad giants. When Santa Fe Industries (which owned the Atchison, Topeka and Santa Fe Railway) proposed a merger with the Southern Pacific Company (which owned the Southern Pacific Railroad), the new company created a wholly owned subsidiary named the Santa Fe Pacific Realty Corporation. The subsidiary was charged with managing the company’s non-railroad landholdings and turning unproductive parcels across the country into revenue generating assets. In 1990, after the merger of the railroads was denied, Santa Fe Pacific Realty Corporation spun off as a publicly traded company named Catellus Development Corporation (NYSE:CDX).”

Everyone by now is aware of the proposed site location and the proposal of a 16,000 seat, $400 million dollar Coyotes arena. What the announcement signals is Catellus has granted the Coyotes until June 30, 2017 to review the land and get the political, developmental, architectural and financial plans required to build it.

Take special note of two words…political and financial plans. Where were the political figures as this announcement was made? Governor Ducey, Phoenix Mayor Stanton, Tempe Mayor Mitchell, ASU President Crow or anyone representing the state legislature were all AWOL.  In fact, it was reported, “Phoenix Mayor Greg Stanton who has pushed for a new hockey-basketball arena downtown, threw cold water on the Coyotes’ plan.”  He said, “A deal is far from complete, and appears to require new levels of support from both state of Arizona and City of Tempe taxpayers. My thinking hasn’t changed: Building a third professional arena in this market doesn’t make sense, especially when it would likely require new public dollars as a part of the deal.” The Governor’s office declined to comment. Mayor Mitchell of Tempe didn’t even know about it until the public announcement was made. Even Deputy Commissioner Daley’s comment was lukewarm, “I’m very pleased with where they are. I think this is an incredible opportunity for an exciting new future in the Valley.” Coyotes coach Dave Tippett reflected what many others are feeling these days when there is an Anthony LeBlanc announcement, “It’s good news. It’s early. A lot of us have been through a lot of this before. Hopefully, everything turns out as wonderful as it sounds.”

The Coyotes expect the state legislature to create a special taxing district that would require taxpayers to pay $200 million of the $400 million needed. They floated the idea last legislative year and were told to come back in 2017 for possible consideration. General sentiment is that the Republican-controlled legislature will view the Coyotes’ latest request for public subsidy with a decided lack of enthusiasm.

One has only to look at the snapshot poll run recently by TV Channel 10’s Sean McLaughlin. At last check 31% of the poll respondents supported using tax dollars for construction of another sports facility. 45% of the respondents did not support use of public money and 24% wanted the Coyotes to remain in Glendale. If this poll is an accurate gauge of public support, it isn’t there with 69% opposed to using taxpayer dollars. It appears the public/political will to use $200 million dollars of taxpayer money for another sport facility is no where to be found.

As for the financial aspect, the Coyotes said they would pony up $200 million dollars. Let’s revisit some history. When IceArizona purchased the team, relatively speaking, very little of investor money was used. Instead two loans were granted for the team’s purchase… one from the National Hockey League and one from Fortress investment. The actual cash investment by the IceArizona investment group was less than a third of the purchase price. The investment group came out of the gate heavily in debt. It is no secret that the Coyotes lose millions every year. That’s why the City of Glendale’s annual taxpayer subsidy was so important to them. It made the annual bleeding a little less.

If the Coyotes really want to control their own destiny, why not just buy Glendale’s arena? It certainly would be cheaper than building a brand new $400 million dollar facility and it would give them the advantage of having complete control of the building and all of the revenues it generates.

I have heard but not enough for ironclad confirmation, that AEG, new manager of the Glendale arena, offered the Coyotes a smokin’ deal. Reportedly LeBlanc’s response was to reject the offer and walk out of the meeting.

Where are the Coyotes going to find $200 million dollars for their portion of the deal? There are only so many Andrew Barroways around. Mr. Barroway currently owns 54% of the team and according to Forbes: http://www.forbes.com/teams/arizona-coyotes/ , the team is valued at $220 million as of November, 2015. Here are additional facts provided by Forbes:

  • Price Paid: $170 M
  • Year Purchased: 2013
  • Revenue2: $92 M
  • Operating Income3: $-4.5 M
  • Debt/Value4: 63%
  • Player Expenses5: $60 M
  • Gate Receipts6: $20 M
  • Wins-to-player cost ratio7: 62
  • Revenue per Fan8: $11
  • Metro Area Population: 4.5 M

It should be disconcerting to Catellus, ASU and Tempe to hear that the Coyotes hope the project “pays for itself” or as Barroway says the Coyotes finally might break even with a new Tempe arena. Glendale should be an object lesson for them. Even with all of the revenue sharing schemes in its deal with the Coyotes, the Coyotes’ projections never became reality and those revenues never compensated Glendale for its annual subsidy.

LeBlanc brought much of the continual speculation and fan pressure upon himself. He repeatedly assured everyone that an announcement about a new site was forth coming. Before the draft…after the draft…beginning of the summer…end of the summer. What he provided publicly with this announcement is merely a fig leaf designed to cover his…

I believe the Coyotes best option remains the Glendale arena. I, personally, would like to see them stay.Glendale’s City Manager Kevin Phelps said it best, “the city will keep operating as if their arena will house the Coyotes long-term, noting that new arenas are very expensive to construct. I don’t think the last chapter of this book has been written — and until it is written, we’re going to keep doing our part to see how we can add value to the Coyotes.”

© Joyce Clark, 2016        

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This site contains copyrighted material the use of which is in accordance with Title 17 U.S. C., Section 107. The ‘fair use’ of any such copyrighted material as provided for in Section 107 of the US Copyright Law and who have expressed a prior interest in receiving the included information for research and educational purposes. For more information material on this site is distributed without profit to those who have not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democratic, scientific and social justice issues, etc. We believe this constitutes a ‘fair use’ of any such material. For more information go to http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use,’ you must obtain permission from the copyright owner.

It has been 18 years and 23 days since the city’s pledge to build the West Branch Library.

Over the holidays there wasn’t much news about the Coyotes. Now that we are in a new year on January 7, Paul Giblin had a story in the Arizona Republic citing the results of a recent poll on the subject of a Coyotes relocation. Here is the link: http://www.azcentral.com/story/news/local/glendale/2016/01/07/poll-arizona-coyotes-should-stay-gila-river-arena-glendale/78314406/ . He reported, “Approximately 54 percent of frequent voters in Maricopa County surveyed believe the Coyotes should remain at Gila River Arena in Glendale, according to the poll that was conducted Dec. 29 for Phoenix-based public-relations firms MBQF Consulting and Marson Media.”

The problem for any other governmental agency attempting to locate the Coyotes will be to garner enough public support to pay for yet another very expensive sports facility. Thirteen years ago, in 2002, the cost to build the Gila River Arena was about $180 million dollars. The cost today to build the same type of facility has exploded. It is expected that the cost would be in the $400 million dollar range. The sixty four dollar question is can enough public support be generated in some other Valley community to use precious and scarce taxpayer dollars?

Public support would probably be found if the economy was booming and world affairs were stable. That is not the case. The economy staggers along as the middle class continues its death spiral. The general public fears more ISIS inspired events on our soil as the Middle East explodes into further turmoil while China’s stock market takes a dive and North Korea’s bomb tests reminds us that we, as a nation, are vulnerable. This is not an environment that is conducive for public sentiment to use taxpayer dollars on yet another sports facility.

Anthony LeBlanc, one of the Coyotes’ owners and apparent Public Information Officer, has had to walk back some of his previous assertions about the Coyotes.  He has hired a sports consultancy firm to assist him in his quest for a new location. It seems likely that a location in any other Valley municipality will be very difficult, if not impossible, to achieve. His only hope may be can he cut a deal for another new facility funded and built by the Gila River Pima Maricopa Indian Community? His refusal to bid for management of the Gila River Arena may come back to haunt him.

Which leads to another bit of recent news. The City of Glendale received 3 bids to manage its Gila River Arena submitted by AEG Facilities, Spectra by Comcast Spectacor and SMG. All three are “big guns” in the sports management business. All have the experience and knowledge required to successfully manage Glendale’s arena. Currently the bids are TOP SECRET. In the next few weeks Glendale’s senior management staff and city council will each receive separate briefings regarding the specifics of each proposed bid. This management deal is more complicated because the Coyotes will play in the arena for another season and it is expected the chosen management company contract would begin this July 1, 2016. That means that the preferred management company and the Coyotes would have to negotiate revenue streams for one year of Coyotes occupancy. There is always the remote possibility that a deal could be crafted comfortable enough for the Coyotes to create an incentive for them to stay at the Gila River Arena beyond their final year.

The city council may be ready to vote on an arena manager as early as February 9, 2016. If a vote is not taken around that date expect that one of the bids is in further negotiation before final acceptance. The public, as is the case with mushrooms, will be left in the dark and fed horse manure. There is no opportunity for public input in this process. While everyone understands the theory of representative government they also understand the theory of transparency. It seems that once again “father knows best” trumps the public’s right to know.

© Joyce Clark, 2016

FAIR USE NOTICE

This site contains copyrighted material the use of which is in accordance with Title 17 U.S. C., Section 107. The ‘fair use’ of any such copyrighted material as provided for in Section 107 of the US Copyright Law and who have expressed a prior interest in receiving the included information for research and educational purposes. For more information material on this site is distributed without profit to those who have not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democratic, scientific and social justice issues, etc. We believe this constitutes a go to http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use,’ you must obtain permission from the copyright owner.

Some of those on council believe that all of Jobing.com’s problems regarding increasing its revenue can be solved by finding a management company that will book a ton of non-hockey events, especially major concerts.  I thought it would be interesting to take an Internet walk through the entertainment promotion industry. I don’t pretend to be an expert on this issue and I am sure somebody will correct me on something!

prop 202The gorilla in the room is LiveNation. In 2005 (last year for which I could find numbers) earned $1.3 billion dollars world-wide. It has relationships (contracts) with 135 venue sites world-wide and 92 of those are in the United States. It has relationships with Desert Sky Pavilion, Talking Stick, Comerica and Celebrity Theater (as of 2005) in the Phoenix Metropolitan area. It, like other promoters, also has a roster of national, well known artists that perform exclusively at LiveNation venues.

enter 1 The second largest is Anschutz Entertainment Live (AEG). In 2005 it earned $417 million dollars—only 20% to 30% of LiveNation’s income.  In September, 2012 AEG announced it was selling off its Entertainment Live subsidiary only to reverse that action in March, 2013. AEG is the company that currently manages Glendale’s Jobing.com Arena. The third largest company is the House of Blues Entertainment. In 2005 it earned $245 million dollars—about 10% of LiveNation’s income. But wait…the following year, 2006, LiveNation acquired the House of Blues and picked up Casino Arizona as another contract in the Phoenix area. There are many small firms (less than a handful in the Phoenix area) whose annual income is less than $20 million dollars a year.

Let’s look at the two most comparable venue sites to Jobing.com Arena. One is US Airways, home to the Phoenix Suns. It is run and events are booked by Phoenix Arena Development (one of the two bidders to be considered by Glendale). It is also the home of the Arizona Rattlers and Phoenix Mercury. In essence, it has 3 anchor tenants. Between June and December, 2013 there are 10 major concerts booked. The other comparable site is Chase Field, home to the Arizona Diamondbacks, its only major anchor tenant. SMG World manages this venue (and is also a finalist in Glendale’s bidding process) and uses Select Artists Associates of Scottsdale as its event promoter. It has 3 major concerts booked between June and December, 2013. It will be very interesting to see what each of these companies want in terms of an annual management contract. Will there be penalties in the contracts if a named minimum number of events is not achieved? Will there be an incentive if the company exceeds a mutually agreed upon goal?

As you can see, the Phoenix Metro area is a highly competitive market. There many venues from which to choose and LiveNation have contracts with many of them. You can be sure LiveNation, with a virtual monopoly in this country, dictates the terms and fees for the major events it books.

enter 3Just to give you an idea of how competitive our market is, here are just some of the sites that can and do host major concerts: ASU Gammage, Desert Sky Pavilion, Celebrity Theater, Chandler Center for the Arts, Chase Field, Comerica Theatre, Fort McDowell Casino, Herberger Theatre, Grand Canyon University Arena, Jobing.com Arena, Mesa Arts Center, Scottsdale Center for the Performing Arts, Orpheum Theatre, Talking Stick Resort, Tempe Center for the Arts, US Airways Center and University of Phoenix Stadium. This list is by no means complete and does not include dozens of smaller venues. This market is not an easy one. Steve Ellman, when he controlled Jobing.com Arena was highly successful in booking major concerts. When Jerry Moyes and the NHL took control of the arena that was not their focus and so we saw fewer and fewer major events at Jobing. This year the number of major events booked was so few that it is embarrassing.

What can a venue manager do in this highly competitive market of at least 17 major venue sites if there is no relationship with LiveNation or AEG? They host smaller, less lucrative events such as rodeos, religious groups and family events. That works well if your venue is small but large ones like Jobing.com Arena need large events to offset the costs associated with hosting. Note than even the UofP Stadium hosts RV and car sales nearly every weekend in addition to gun shows in an attempt to shore up its bottom line. I suppose a venue manager could undercut the big boys and offer the venue for rock bottom rental fees and hope to cover all or part of the loss with concession and parking revenue but that is risky on so many levels.

Hiring a non hockey arena manager has never been in the best interests of the arena or Glendale. A permanent team owner hired to manage the arena guarantees 41 nights of hockey with “butts in seats.” It will be in the owner’s best interest to mount a strong marketing campaign for the Coyotes and put even more butts in seats as well as to work to acquire as many non-hockey events as possible to increase the bottom line of profitability. This is not a difficult concept to understand and yet there are those on Glendale’s city council who refuse to acknowledge this concept—out of sheer stubbornness or because of another agenda?

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