It has been 17 years and 256 days since the city’s pledge to build the West Branch Library.
I spent some time reading the audit of the Coyotes released by the city on September 9, 2015. Here is the link: https://www.glendaleaz.com/auditor/documents/ArenaContractComplianceReview2015.pdf . The overall sense of the audit expresses the city’s deep frustration with IceArizona’s failure to provide all of the information required by the Professional Management Services and Arena Lease Agreement (PMSA).
Here are a few of the limitations utilized by IceArizona in responding to audit requests:
- “City staff requested that the Arena Manager provide the City’s auditors and Consultant with a copy of the Team Owner’s financial statements. The Arena Manager denied this request.”
- “The City’s auditors also requested an independent confirmation of the Team Owner’s 2013/2014 annual operating loss. The Arena Manager’s independent external auditors denied this request.”
- “On March 13, 2015, the Team Owner issued a notice to the City of the Team Owner’s claimed operating loss for the ‘First Certification Period,’ as defined in the PMSA. The Team Owner provided no additional backup documentation, including Team Owner financial statements, for the city to verify the claimed operating loss.”
Much of the final audit findings are no longer applicable or relevant since the city council cancelled the original contract and negotiated an amended contract good for two years. The audit dealt with all of the revenue streams some of which are no longer applicable under the new temporary contract. However, there were quite a few potential non-compliance issues identified:
- “Early Termination: The Team Owner’s June 30, 2014 financial statements were not provided to the City, prohibiting the City from verifying the Team Owner’s claimed operating loss. Additionally, the City’s estimate of the Team Owner’s 2013/2014 operating loss is greater than the Team Owner’s March 13, 2015 claimed operating loss based upon the information provided to the City and the Consultant by the Arena Manager. It appeared that the loss as reported to the City was not based upon the Team Owner’s financial results but was based upon the Partnership’s earnings before interest, taxes, depreciation and amortization from the consolidated audited financial statements.” The city had to subtract out the Arena Manager’s audited financial statements from the Partnership’s financial statements since they were not reported separately but all lumped together. The city calculated the Team Owner’s loss to be greater than what they reported to the city.
- “Naming Rights: The City was not paid their full share of naming rights under the 2006 Jobing.com Naming Rights Agreement, resulting in a potential underpayment.” Under the agreement the city was to receive 20% or $1.2 M a year ($60,000 a month). Instead the city received $55,540 for the year. Unilaterally IceArizona said if Jobing.com pays us less, the city gets less. They also independently revised the definition of what components made up the naming rights and told the city that it was not entitled to some of those revenue components.
- “Qualified Tickets: The number of paid admissions reported by the Team Owner to the NHL was higher than the number of paid admissions reported to the City, resulting in potential surcharge and supplemental surcharge fees still due to the City estimated at $39,640.” The number of paid admissions reported to the city was 533,856; the number reported to the NHL was 542,665 ( a difference of 8,809). The number of complimentary tickets reported to the city was 43,762; the number reported to the NHL was 34,953. The city should have received an additional $39,640.50 for the unreported 8,809 tickets.
- “Supplemental Surcharge Fees: The Arena Manager did not establish a Supplemental Surcharge Escrow Account in 2014/2014 and deposit funds into the account as required by the PMSA. The Arena Manager wired the entire amount of supplemental surcharge fees that were collected throughout the year to the City on July 9, 2014.” Again, because of the discrepancy in reported ticket sales the city did not receive all supplemental revenue to which it was entitled.
- “Annual Financial Reports: The City did not receive the Arena Manager’s audited financial statements, which were due September 30, 2014, until February 25, 2015. The Team Owner’s annual financial statements were not reported to the city. The Arena Manager’s independent external auditors were unable to confirm the Arena Manager’s and Team Owner’s 2013/2014 revenues and expenses to the City.
- “Sales Tax: The Arena Manager and the City have not clarified responsibilities regarding the collection and remittance of sales tax, potentially resulting in unremitted sales taxes on certain Arena revenues.”
- “Annual Budget: The Arena Manager submitted the 2013/2014 annual budget to the City late on March 25, 2014. The budget was due within 30 days of the closing date of the PMSA.
What does all of this government-speak mean in plain English? The city was frustrated because IceArizona was very late in submitting their audit and IceArizona played games with the report they submitted. The city was put in the position of finding the hidden pea under three cups. The city was conned. IceArizona’s game playing shouldn’t come as any surprise. After all, look at with whom they surrounded themselves…Craig Tindall, Julie Frisoni and Gary Sherwood…who appear to be three little peas in an ethically challenged peapod.
The city didn’t care about the profit and loss statements of the IceArizona partnership. It wanted and didn’t get, two, separately and independently verified audits of IceArizona as the arena manager and IceArizona as the team owner. The city suspects that the annual loss was greater than IceArizona reported but without those two audits the city can surmise but not verify their suspicion. The city was underpaid on ticket sales and the related surcharges that flowed from the ticket sales. The city was underpaid on naming rights because IceArizona unilaterally changed the rules of the game. Finally, the city may also have been underpaid on sales tax revenues generated within the arena.
After having seen the results of the audit is it any wonder that a majority of council cancelled the original agreement? It also lends credence to council’s decision to move forward with putting the arena management contract out for bids. IceArizona has demonstrated an unwillingness to share crucial information, financial or otherwise. They have flexed their muscles as the “big boys” and have shown considerable distain for the city and the taxpayers whose dollars keep them alive.
IceArizona, just like any other entity, is free to submit a bid but based upon their past performance. They will have to clean up their act considerably to be considered seriously.
© Joyce Clark, 2015
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