Tradition dies hard for hockey people, this year is no exception. As vacation time approaches for people with kids, arena season is ramping up fast in Glendale.
The Glendale City Council will meet tonight (April 26, 2016) to approve a new arena management contract with AEG. The agreement will be unanimously approved despite hauntingly familiar terms and dollar amounts written into the agreement.
Five Year Out Clause
In the 2013 version of Glendale arena season, a major bone of contention in the proposed arena management agreement was an “out clause” that would allow the team to relocate after five years if it accrued fifty million dollars in losses.
Late in the negotiations, the city asked for the clause matching the provision that would allow the city to, at their discretion, terminate the agreement with the Coyotes. That insistence nearly cost the city the deal with the Coyotes but, in the end, it was eliminated from the final agreement.
Now, the new agreement with AEG will only be in effect for five years, renewable for another five with the same financial terms. That term completes the circle of irony for the current Glendale city council as far as objecting to the “out clause”.
But, being Glendale, they didn’t stop at ONE “out clause”.
Coyotes Leaving Out Clause
At the end of the agreement to be signed this evening (click for document) is another, bigger, “out clause” for AEG. In that clause, AEG says “If the Coyotes leave, we leave unless Glendale ponies up a LOT more cash.”
This zinger was completely ignored in the mainstream media, man.
Legally, if the Coyotes cease playing regular season games in the arena or if the Coyotes lease is amended or replaced by a lease with different economic terms, AEG may request a renegotiation of the arena management agreement and has the ability to terminate the agreement if they can’t reach a deal with Glendale.
It seems that, if the Coyotes stay in Glendale, there would certainly be a renegotiation of the lease anyway, right? So, does that mean AEG would immediately be able to return to Glendale with additional conditions?
Also included in those conditions for renegotiation and termination is the naming rights agreement for Gila River Arena.
Section 16.15 is probably at the end of the agreement because it’s ALL in AEG’s favor and isn’t something the City of Glendale would agree to unless it was a deal breaker and they would have ended up with NO arena manager in a couple months.
Guaranteed Revenue BETTER With Coyotes
In simple terms, based on our “not a lawyer” and cursory (not as cursory as the AZ Republic’s reading, though) reading of the agreement, the actual net revenue to Glendale is either BETTER with the current Coyotes deal or is certainly very close.
Glendale pays the Coyotes $6.5M to manage the arena, Glendale will pay AEG $5.6M for the same service. That is the ONLY number you will hear at the meeting tonight, and it will show a clear advantage of $900,000 more TO the city with AEG than with the Coyotes.
The Coyotes then pay Glendale $500,000 rent and $420,000 as a share of the naming rights revenue. Subtracting that offsets $920,000 of the $6.5M for a net cost TO Glendale of $5,580,000, or $20,000 LESS than the AEG deal.
Nobody arrived at this identical number by mistake. AEG knew the Coyotes numbers going in, so did Glendale, and they simply matched the outflow from the city to the manager so nobody could possibly object.
The 600 pound gorilla in the room for AEG is Live Nation and their events. AEG, under their AEG Live brand, is the second largest presenter of live entertainment and music in the world, a good thing.
Live Nation is the largest, claiming to be one of the world’s largest artist management companies.
When the deal is signed with Glendale, AEG will deposit $500,000 into a fund that will be used to bring “non-AEG Live events” to the arena. There is NO obligation to actually bring said events, nor is there any penalty for not providing any event but AEG Live events.
Whether Live Nation will choose to book shows in an arena managed by their closest competitor remains to be seen, business comes first.
Where the AEG deal could conceivably pay dividends for the city is when the EBITDA (earnings before interest, tax, depreciation and amortization) starts being split up.
The EBITDA would be split by AEG and Glendale equally for the first two million dollars with AEG getting their half of each million dollars first. After that, AEG would receive reimbursement for any prior year losses with NO CAP on that amount. Then, if there was remaining EBITDA, it would be split with 75% going to AEG, 25% to Glendale.
All ancillary revenue for parking and the like would go to AEG, although it would be included in the EBITDA. There is no mention of ticket surcharge fees.
The reality of the matter is that AEG realizes they will NOT be reaping profits unless they can strike a reasonable deal with the Coyotes and any shared revenue that might go back to the city is a pipe dream without the hockey team.
City Pays Repairs, Keeps Suite
Glendale is completely responsible for capital improvements and repairs to the arena.
The Glendale suite remains in the agreement, so the city receives tickets for every event at the arena.
Guaranteed Events Per Year
Unless we missed it, there is no mention of AEG providing any number of events per year or a penalty for lack of performance. Give the strong debate during the prior negotiations, it’s surprising that the people that were voted into office by criticizing prior agreements as being not beneficial to the city didn’t insist on some strong guarantees.
It may not be foolish to assume AEG wouldn’t pursue an agreement if they planned to fail. Yet, it seems shortsighted and ill-advised to alienate and essentially evict a tenant and manager that could guarantee 41 events and well over 500,000 people visiting Westgate to replace it with a manager guaranteeing nothing.
The timing of the release of the proposed agreement document so near to the voting meeting where the agreement will be voted upon clarifies that the current crop on the Glendale council has anything but transparency in mind.
Everybody understands the need to negotiate in private. Public discourse is best for many things, but coming to an agreement on a complex business deal isn’t one of them. That said, once a proposed deal is struck, it should be presented to the voters affected by that proposal in a timely fashion so they could review the proposal and formulate an educated opinion.
This process has been the exact opposite of transparent and the net result is a proposed deal that’s NOT better than the previous deal and it hinges on an the precarious premise that the Coyotes will stay in Glendale.
The meeting should be streaming at this link at 6pm tonight.
Yes, they voted to approve the deal unanimously with no public discussion or debate.