Watch Your Six – Part SIX

November 18, 2012

Ladies and gentlemen, today we will celebrate the sixth installment of “Watch Your Six” with some talk about the numbers that will be tossed around at meetings coming up in the next several days. Our extremely popular series is ironically named. The most obvious reason to “Watch Your Six” is that there are dark and nefarious characters doing their level best to sabotage EVERYTHING related to the Coyotes and the city owned arena all the while ignoring the REAL white elephant in the Glendale room, Camelback Ranch. That’s not likely to change. The OTHER meaning of “Six” is that a six million dollar number continually resurfaces in all the discussions about the current arena lease deal with Hockey Partners.

I imagine everybody that listens to the happenings in Glendale in the upcoming week will hear the number six so much that they’ll think they mistakenly tuned into Sesame Street.

If you’d like to actually read facts and figures in the current agreement instead of accepting misinformation, click here for the actual document. This is the draft agreement to be discussed on Tuesday, November 20 in a workshop and then, most likely, afterwards in executive session.

Where’s Lee Majors?

Six million dollars has become the de facto base arena management fee for Jobing.com arena and, to make their arguments, the opposition uses that to begin their math to make the point about how badly Hockey Partners is thieving from Glendale. Yet, the $6M number has been characterized multiple times in open meetings by the source of the number, Horatio Skeete, as an estimate. This statement invariably prompts a response from mayor Scruggs about how proposals should be sought for the arena management. Yet, she has been “in charge” of Glendale for nearly twenty years and has never managed to be able to insist an RFP be published? Was it the time she wasted pursuing and cheerleading the doomed Hulsizer deal that could have been spent soliciting proposals? No, it wasn’t.

The arena management contract has been “open for proposals” since the day Jerry Moyes bankrupted the team. What is never mentioned in the clamor for getting proposals is that the citizens of Glendale, of their own volition, voted to build a hockey arena populated with an NHL hockey team. Any request for proposals that could satisfy those voters MUST include the Coyotes, and the correct group has made their proposal. They have also renegotiated in good faith with the City of Glendale and yet, at this late date, some in the city want to move the goalposts AGAIN and blame it on their own mismanagement of voter supplied funds.

Real Numbers

Lately we discovered that the sales tax revenue from the arena plus $1M from Northern Crossings Shopping center has covered the annual construction bond debt payment. If the arena loses it’s anchor tenant, the Coyotes, the sales tax revenue (if there is any) will plummet, leaving no way to cover the bond debt. Leaving some miraculous refinancing deal out of the equation, the bond debt would have to be picked up by the city. How much per year? You guessed it, could be $6M.

By the way, the possibility of refinancing bond debt successfully in the event the city reneges on a deal they negotiated over a period of nearly TWO YEARS is much less likely than if they follow through. Those of us remembering the letter written by Goldwater Institute to bond underwriters specifically to sink the Hulsizer deal should realize that the effect of a deal failing in such spectacularly public fashion will be the same.

It costs approximately $500k per month to keep the arena open. Doing simple math, that totals $6M per year to keep the doors open. Non-hockey events managed to pay for themselves (personnel, etc. costs incurred for the event), but they do NOT contribute to the upkeep of the arena. So, the $6M estimated fee from Skeete may be realistic if the only goal is to keep the doors open at the city owned arena. You will hear city people say that this is just fine with them and they may even state that the only obligation to the city is to keep it open. Not sound business logic, but why start now?

Yet, the $6M for keeping the arena open would have to be supplemented by another $5M-6M to service the construction bond debt repayment. Listen carefully to see if you hear Coyotes opponents admit to the REAL $11M-12M the city will have to spend just to keep the doors open with no hope of getting revenue from their expenditure. You will NOT. If you’re lucky, you may hear CM Clark or Vice Mayor Frate offer the real numbers on Tuesday.

Another source of lost revenue would be ticket surcharges to be paid directly to the city. The initial amount per ticket is contracted at $2.75 rising to $3 after five years. In the unlikely event the Coyotes continued their last in the NHL attendance record, it still means 660,000 people or so visiting (and spending money in) Westgate just for hockey games. Ignoring the additional 30 events per year Hockey Partners is obliged to provide, that is $1.815M directly into the Glendale general fund. Back that out of the annual lease agreement and it becomes $9.185M for the first year, LESS than having the arena sitting there idle without even taking into account the economic benefit of 660,000 visitors to the surrounding retail establishments.

All of these numbers, by the way, could have been discovered and published by anyone that cared to do a modicum of digging to find out the story. It seems to me that asking the people you have been accusing of keeping you in the dark is a ridiculous method of finding the truth. That includes reporters, mayors and council members. Nobody did the math, any thinking person with a critical eye should ask why. In some cases the answer is certainly laziness, in others it’s ignorance and, I personally suspect, in others it is on purpose to maintain a degree of deniability in a fiasco of a deal.

Sliding Scale Is Bothersome

Another number that will be raised relates to the sliding scale of arena lease management payments due Hockey Partners. The scale runs from $11M the first (current) fiscal year ending June 30, 2013. Over twenty years, it slides up to a maximum $18M and then back down to $13M per year for the balance of the agreement. As late as last week, AFTER the agreement draft was published, at least one council member was quoting the maximum payment as $20M per year. Hard to believe that I read the agreement before a person (or persons) responsible for analyzing it and voting on it for their constituents, but it’s the truth.

Interestingly enough, if the $11M is pro-rated from the date of closing to the end of the fiscal year, the amount due Hockey Partners could very well be, you guessed it, $6M! Numerologists just fell backwards off their stools.

It will be raised that it is difficult to budget with such a sliding scale versus a fixed number per year. I concede that it could be more difficult, but certainly not impossible. It’s important to note that Hockey Partners tried to accommodate the current fiscal crisis Glendale finds itself confronted with by reducing the money at the beginning of the contract. I would also once again make the argument that Hockey Partners has committed to the City of Glendale for AT LEAST the next twenty years under the agreement. Doesn’t it become easier to budget when one knows what to expect in both expenditures and income? Isn’t it better to have that comfort for a long term versus a shorter term? Of course.

I submit that the sliding scale objection is spurious, and will be used to try and extract even more concessions from Hockey Partners on their annual fee.

Wrap Up Time

I could continue making a legitimate monetary case for the Glendale/Hockey Partners lease agreement given the current economic condition of Glendale for many more hours but won’t. There are other people better suited to doing so than I am.

One more $6M in closing.

Skeete said in an open meeting that the Risk Management Trust Fund was at acceptable levels but that the Worker’s Comp fund needed to be enriched to the tune of $2M to $3M. As always in my blogging with estimated numbers, we will use the number that is LEAST favorable to the Coyotes for the sake of argument instead of using an estimated number that is MOST favorable to make my argument. So, in this case, let’s assume that the City of Glendale needs to find an additional $3M to satisfy their “newly discovered” expense that needs to be paid. Even if we add that on, using some sort of convoluted logic, to the Coyotes plate, we STILL only get back to nearly the same number as we would arrive at with an empty building.

However, other people can do math, too. So, that $2M-$3M number will be escalated to a number that becomes beneficial to the opponents of the arena lease agreement. I predict that this $2-3M number will somehow be escalated to $6M in the collective psyche similar to how the estimated $6M arena management fee became tribally acknowledged. It will happen before the executive session on Tuesday.