Who’s In Control Here?

Glendale mayor Jerry Weiers, speaking about the eventual disposition of the Glendale city owned Jobing.com arena at the February 5 City Council meeting:

“The real question here is do we want to let the NHL to stay in Glendale, or do we want to entertain other options,” he asked. “We don’t need to speculate or try to guess at generated revues, we just need to see the actual money.”

Some would say it’s nice for a city to have a mayor with the temerity to publicly declare his city is in control of the near future of one of their properties. Others would say that it’s more advantageous to have a mayor with a grasp of the facts.

The fact is that, in this case, the NHL can decide whether they wish to continue playing at Jobing,com and demanding $25M per year to cover operating losses for many years to come. Until 2021 in fact.

It Will Never Happen

Former mayor Elaine Scruggs has been recently lamenting the NHL blackmailed her city. Under her direction, on May 20, 2010 Glendale executed an agreement with “Coyotes Newco, LLC” that, among other things, agreed to pay the NHL for “actual cash losses” for operating and maintaining the arena. (CORRECTION: The losses laid out in the actual agreement include hockey team losses as well as arena management losses. Click here, see 2.3 beginning on page 5) Purportedly there was an imminent threat to move the team to Winnipeg unless Glendale was willing to pony up a $25M payment to tide over the NHL while a purchaser was found for the team.

At the time, former Glendale CFO Art Lynch (hired as a consultant for some reason) dismissed the transfer of $25M from the Glendale enterprise fund as a temporary measure to get the NHL off their backs, assuring that actually paying the money out would never happen:

“That is not the reality. Owners are currently being pursued aggressively.”

The NHL cashed the Glendale check on May 2, 2011.

Unless I am mistaken, the NHL has never provided proof of their $25M loss on the ARENA, which would be exclusive of operating losses for the Coyotes. If one was to work the semantics of the deal, a case could be made that the additional expenses ($1M per year I hear) to run the chiller to keep the NHL ice alive was a “Coyotes” expense, not an “arena” expense. Among other things, no doubt.

While not widely questioned or publicized, the NHL has apparently subcontracted the arena management duties to AEG Worldwide (currently for sale). AEG even lists Jobing.com on their web site facilities list. Is it weird or even ethical that the NHL would hire the owners of a competing NHL hockey team (the LA Kings) to have so much control over the Phoenix Coyotes? If the NHL had $25M in hand to cover their potential losses, would they potentially be not as aggressive in their pursuit of a financially workable deal with their subcontractors? Look at the list of shows that have made their way to Jobing.com arena instead of US Airways Center, then compare that list with the list of AEG shows (click here) where AEG would get an additional cut. I understand very little about the promotions business, but if my subcontractor was booking their own shows in my arena, I’d want to be compensated with discounting somewhere.

History Repeats Itself

The week after the NHL took the money that Mr. Lynch assured everybody they wouldn’t, there was another City Council meeting to decide whether the relationship between the NHL and Glendale would continue. Click here to read the minutes of that May 10, 2011 meeting. If irony is a hobby of yours, pay particular attention to the discourse of Elaine Scruggs on pages 28-30. Irony fans will note that she completely and repeatedly contradicts her statements once the Hulsizer deal is off the table and Greg Jamison enters the picture. Also in her comments:

Mayor Scruggs clarified there was not an automatic 10 year renewal clause on this agreement. She noted it was an option written in by staff for technical reasons which staff can explain.

There is no explanation from staff in the minutes, I don’t believe there was at the meeting. The “automatic” part is true, although I cannot also find the actual document with the renewal process for the NHL. It was said, however, that the renewal option was at the discretion of the NHL.

The Hulsizer deal was, at this point, in danger of disappearing because of the impending threat of a lawsuit from the Goldwater Institute. Bill Daly (NHL number two) expressed his opinion the deal approved by the city in December, 2010 was in danger (page 18) and the NHL needed monetary assurance from Glendale to continue running the team in the city.

Toward the end of that meeting, Resolution number 4480, New Series was passed by a 5-2 vote. The resolution gives the city manager (Beasley at the time) authorization to sign the actual agreement with the NHL.

Joyce Clark, speaking of the Hulsizer deal in an AP story May 11, 2011:

“I don’t think that deal will ever make it,” she said. “That’s my opinion.”

Clark voted against the Hulsizer agreement, which was approved by a 4-3 council vote, but she was in favor of Tuesday’s action because she said the city can’t afford to lose the Coyotes and the related impact on the adjacent Westgate entertainment district.

“You’ve got another year,” she told Daly. “That’s it.”

Prophetic, but it would only come true if one assumed the NHL would follow through with their promise to diligently pursue every option to sell the Coyotes and keep them in Glendale.

Holding The Cards

So, despite the protestations of Mr. Weiers, the City of Glendale is currently powerless to “want the NHL in Glendale”, Gary Bettman and crew hold the cards in that regard.

A “Request For Proposals” (RFP) should be published soon (if it hasn’t been already) to recruit potential new arena managers for Jobing.com arena. I haven’t seen it, although I have seen the earlier rendition of the RFP. It will NOT mention the liability of an external entity having control of at least 40 nights that could be potentially profitably booked by the people submitting their requests.

If my firm was going to bid on running the arena for Glendale, I’d hope that my legal beagles would have discovered the NHL’s apparent right of first refusal on a significant portion of premium dates before I started putting my bid together.

Jerry Weiers should take a look at the agreement the NHL saddled him with before he starts getting too aggressive with them. It’s entirely possible the NHL would just park the Coyotes in his arena for another year or so without caring if they made money or not as long as they kept the losses around $25M. They might make some public “attempts” at securing another buyer for the team, that would keep some fans hopeful enough to buy some tickets and keep at least some seats filled. Once the new arenas already under construction come online, there would be buyers ready to spend too much money for a further damaged team and move them to their new arena to start a new chapter.

And, unless Glendale somehow figures out how to change their agreement, the city would have to go along with it.

So, Jerry, maybe your energy would be better spent figuring out how to broker a deal with Hockey Partners or some other still mystery group instead of posturing with strong language?

Just a suggestion.