arenaFor months on end during the campaign of 2012, Glendale citizens were told by candidates for elected office, the Goldwater Institute, the opposition to any deal in the form of Ken Jones,, and the media that Glendale would not be paying any Coyotes team buyer/owner a management fee but rather it would be a subsidy to prop up team losses. After all, if all of these entities said that, it must be true.

Oh really?
Having dealt with the ongoing Coyotes saga since Jerry Moyes declared bankruptcy in 2009 (after all, he asked the City for a management fee that would really cover team losses, didn’t he?) I have collected all kinds of information on arena management fees. In fact what I have to share with you may be considered downright boring. So, if you have trouble sleeping at night this could be your cure.
Let’s begin our Arena Operations and Maintenance Course 101 with the management deal between the City of Glendale and Greg Jamison. Not the latest deal renegotiated between the City and Jamison that would have dropped the management fee to $6M for this year but the original deal before finances in the City were discovered to be bad…very, very bad.

Year by year it went like this:                                         COG Ls Mgmt Agree 2012
Year 1……….……………….$17 million
Years 2 thru 4…………….…$20 million
Years 5 thru 7……………….$18 million
Years 8 thru 11………………$16 million
Years 12 thru 14…………….$15 million
Years 15 thru 19………….…$10 million
For an average of $15 million a year.

All of this nifty information can be found in a 90 page document entitled Arena Lease and Management Agreement by and among City of Glendale, an Arizona municipal corporation (the “City”) and Arizona Hockey Arena Manager, LLC, a Delaware limited liability company (the “Arena Manager”)and Arizona Hockey Partners, LLC, a Delaware limited liability company (the “Team Owner”) Dated as of _____________, 2012. The title is almost as long as the document and one of several documents related to the City Council originally approved lease management agreement in June of 2012.

Would the City have received ANY revenue in return? Yes. The team would pay a base rent of:
Years 1 thru 5 –     $500,000 per year
Years 6 thru 12 –   $650,000 per year
Years 13 thru 19 – $800,000 per year
(pp. 49-50, Sec 10.1.1. – 10.1.6.)
If you think that’s not very much, read on. Later we will take a look at the University of Phoenix Stadium, the arena’s southern neighbor.

The City would also have received a City surcharge per ticket of:
Years 1 thru 5 of $2.75 per ticket
Years 6 thru 19 of $3.00 per ticket
(p. 48, Sec 9.1.2.a a and b)
At an average attendance of 10,000 per night for 40 nights at $2.75 per ticket, that’s an additional $1.1M per year and at $3.00 per ticket it’s $1.2M per year. Perhaps you consider this to be chump change.

Then there are the intangibles that are more difficult to estimate. In a recent news article of Nov. 13, 2012 entitled Glendale businesses cope with games lost to NHL lockout by Sarah Pringle of the Cronkite News, Aaron Hernandez, Manager of McFadden’s, stated that his restaurant was losing between $18,000 to $25,000 in revenue per hockey game missed. At a city restaurant tax rate of 3.2% the City loses approximately $23,040 of sales tax revenue for 40 nights of hockey. And that’s just ONE restaurant. Multiply that figure at the Yard House, Kabuki, Margaritaville and the dozen or so other restaurants located at Westgate. Now add another figure from the same news report. The City loses approximately $60,000 per game from the arena alone in sales tax revenue. For 40 games the City would have realized another $2.4M. I cannot even begin to estimate the number of room nights lost and their sales tax impact. The numbers are beginning to grow. Oh, I almost forgot. The City would also have received 15% of the sale of arena naming rights.

After renegotiation with Mr. Jamison, the lease management agreement became even better for the City. It included penalties for games not played in the arena, set a minimum number of events and added an incentive for events achieved over the minimum number. However, my reasoning for looking at the original agreement is that I have a feeling that we may see something very similar if there is an Anthony LeBlanc/Matthew Hulsizer deal.

So, to answer Councilwoman Alvarez’ persistent question, “Does the arena make any money?” The answer, dear woman, is “yes.” What she failed to ask is, “Is the arena profitable for the City?” The answer is clearly “no.”

UofP stadiumHowever, if that is her only measure of success then the University of Phoenix Stadium is in trouble. The UofP Stadium is a Maricopa County facility, voter approved. The County created the Arizona Sports and Tourism Authority commonly known as AZSTA to run the stadium. Each year the State’s Auditor General is charged with auditing AZSTA’s finances. The latest report available is online in the 2010 Audit.

AZSTA receives its operating revenue from normal operations of the facility, including rental payments, concessions commissions, and facility use fees for all events held at the facility, except Cardinals games. It also receives the majority of its revenues from a Maricopa County hotel bed tax AZSTA Cover Sheetand car rental surcharge, state income taxes paid by the Cardinals’ corporate organization, its employees, and their spouses, and sales taxes generated from events held at the facility (pg 4). So it is different from Glendale’s arena as the bulk of it revenues come from a hotel bed tax and car rentals, both of which are fueled by tourism. The majority of Glendale’s arena revenue is generated from sales taxes both inside and outside the arena. Responsibility for payment of operating and maintenance expenses are also different from each other. Glendale’s arena manager would be responsible for payment of operating and maintenance expenses and come from the management fee. If the fee was not adequate the arena manager would be responsible for making up any shortfall. In the case of the UofP Stadium AZSTA pays a management fee to the current manager, Global Spectrum, and AZSTA additionally pays all stadium operating and maintenance costs.

What is the management fee paid to Global Spectrum by AZSTA? An average of $300,000 a year (p. 52 of State Audit Report, 2010). Well, that seems a lot more reasonable than the $17MAZSTA Mgr fee Glendale would pay to an arena manager. Remember, the $17M covers all operating and maintenance costs for the arena. The Global Spectrum fee does not.

Then we must ask what the O&M costs are and who pays them? AZSTA pays them and according to the State Audit Report, Appendix, pg. 12, Table 3 the expenses are considerable and the stadium does not generate enough revenue to cover its expenses.

AZSTA Rev ExpIn 2008 stadium revenues were $13.1M and stadium expenses were $22.7M for a loss of $9.6M.

In 2009 stadium revenues were $10.3M and stadium expenses were $19.9M for a loss of $9.6M

.In 2010 stadium revenues were $23.2M and stadium expenses were $28.2M for a loss of $5M.

As noted previously the Coyotes base rent begins at $500,000 a year. The Cardinals, on the other hand, paid $265,300 in rent for 2010. Their rental payment escalates at the rate of 2% per year. Another interesting bit of information is that in 2007, the year the stadium opened, there were 179 events with a total attendance of 499,699. By 2010 the number of events had dropped to 101 and attendance for the year had also dropped to 325,185 (p. 35 Table 7).

So, there you have it. If it were up to Councilwoman Alvarez and her ilk, the stadium should not host the Cardinals and a new stadium manager, who “would make money”, would be hired.

In Part II I will look at the City of Seattle and their 2012 Memorandum of Understanding for an arena as well as other venues nationally- what they pay and what they don’t pay.