"Trust me," the rich man said as he begged the poor people for money.
Anthony LeBlanc knew it looked bad. He was one of the investors trying to buy the Phoenix Coyotes, and he was standing before the city council of Glendale, Ariz., a suburb in financial hell, asking the taxpayers to commit $225 million over 15 years – while asking for an out after five years for his group and only his group.
"Our only interest is in this marketplace," he said.
In the end Tuesday night, the city council approved the lease for Jobing.com Arena by a 4-3 vote. Glendale agreed to pay the owners $15 million a year to manage the arena, though the city has budgeted $6 million for that expense. The owners will try to make up the difference with ticket surcharges, parking fees and other revenues, though they can't guarantee it.
Unless there is yet another snag – a challenge by a watchdog group, a referendum, a new twist – the team will remain in Glendale and rebrand itself as the Arizona Coyotes. It will not move to Seattle or Quebec City.
But did the team stay, or did it receive a stay of execution?
Even though the NHL will sell the franchise to Renaissance Sports & Entertainment, a.k.a. IceArizona, the Coyotes face the same challenges they did when they fell into bankruptcy in 2009, starting with the location of the arena in Glendale, west of downtown Phoenix, across town from all the cash in Scottsdale.
[Related: Glendale city council votes in favor of arena deal]
After four years in limbo – failed bids, dirty politics, empty seats despite success on the ice – here come another five years in limbo. Why should anyone trust that the Coyotes will survive, let alone thrive, under this agreement?
Will enough fans buy in when the owners can opt out?
Time after time, NHL commissioner Gary Bettman has blamed the Coyotes' problems on one basic thing: ownership stability. In November 2010, when asked about an attendance of 6,706 at a game in Glendale, he bristled.
"This is a franchise that still doesn't have an owner, OK?" Bettman said. "And until we iron it out and lock it down, there will be uncertainty. And until the uncertainty is resolved, for anybody to judge the interest level of that market in the face of everything that's happened and all the uncertainty, is a little unfair."
Last month, in his news conference at the Stanley Cup Final, Bettman repeated the same line. He said league officials "actually believe" that if the Coyotes had an owner who said, "I'm committed to being here," the franchise "actually could be successful from a business standpoint." He said uncertainty had affected the media, the fans and the companies that spend big bucks on suites and sponsorships.
"If there was certainty surrounding this franchise," he said, "its fortunes would improve dramatically and immediately just by virtue of putting in a real owner."
Well, there is still uncertainty surrounding this franchise.
The debate about entering this agreement came down to getting out of it. If the Coyotes' losses reach $50 million, they can opt out of the arena lease after five years. The franchise would be free to relocate. The city pushed for a similar out clause late last week – a non-starter because it would have kept the lenders from approving the owners' financing.
The city had to remove that clause for the deal to go through. It did so because the owners sweetened the pot at the last minute. They announced a partnership with Global Spectrum, an industry leader in facility management – owned by Comcast-Spectacor, which also owns the Philadelphia Flyers – promising more non-hockey events at the arena and thus more revenue. They also made a key concession: If they exercise their out clause, they will cover the city's losses over $30 million over five years. In other words, if the Coyotes bolt, the city won't spend more than it budgeted in that period.
At least playing hardball got the city something. But here is the problem: If the Coyotes stay and the city spends more than it budgeted, the city must swallow the loss at a time when its finances are strained. If the Coyotes bolt, the city will be within its budget and five years closer to paying off its arena debt. The hotels, restaurants and shops in the surrounding Westgate development will have had five years of Coyotes games. But the city will still have debt payments, an arena without an anchor tenant and a surrounding development that will be threatened.
[Also: Flyers sign Vincent Lecavalier to 5-year deal]
No one knows if this will draw enough customers to the arena, not to mention the hotels, restaurants and shops, generating enough money for the team and the city. No one seems to have much confidence among investors and bankers, the experts in opportunities and risk-taking. Every prospective owner has tried to get a sweetheart lease deal from the city, and LeBlanc insisted he couldn't get better financing terms. He described going to investment banks in New York and Toronto with a tin cup. Lenders were not lining up to bet on a troubled franchise.
"Not to be flippant," LeBlanc told the council, "but we're not buying the New York Yankees."
That's the truth. But that doesn't inspire enthusiasm, either, does it?
Let's be clear about a few things:
The question is not whether there are hockey fans in Phoenix. There are. They packed city hall Tuesday night in their jerseys and used to pack the arena when the Coyotes played in downtown Phoenix. Attendance actually rose in Glendale after the lockout. The question is whether there are enough hockey fans who will go to games in Glendale in particular and spend enough money there. The Coyotes ranked second-to-last in average attendance in 2013 (13,923 per game), ahead of only the New York Islanders, who are headed to a new rink in Brooklyn.
The question is not whether Glendale should spend the taxpayers' dollars on professional sports, not anymore. Glendale city manager Dick Bowers told the council: "The city is not in the business of taking risks with public funds." But the city got into that business when it spent $180 million on Jobing.com Arena, and it is not a sunk cost. Bills still have to be paid. The question is how to pay them.
The choice is not between keeping the Coyotes and putting gas in fire trucks. It's not that simple. The team and the arena fit into a complex financial picture, and there have been other factors, most notably the recession. The choice is this: Will the city's bottom line be better with the direct revenue and indirect tax revenue the Coyotes will generate, or will it be better without the losses the Coyotes will cause? There are competing projections. There are only projections.
Glendale got into this mess the moment it decided to build the arena. It was taking a risk Tuesday night whether it kept the Coyotes or let them leave. The taxpayers have to hope, at minimum, this is the lesser of two evils. This should be a sobering example to all cities – especially small suburbs with limited expertise and resources – dreaming of going into business with the big leagues.
[More: After a year off, Tim Thomas exploring return to NHL]
"The council is responsible," said council member Norma Alvarez, an opponent of the deal, "and we have proof that it was money that was spent without thinking."
Would the NHL be better off elsewhere? Bettman said at the Cup final his phone was ringing as the situation in Glendale was coming to a head. If so, he was asked, why was Glendale still the best option for the Coyotes? He gave his usual answer.
"We try to avoid franchise relocation," he said. "We try to do everything possible. We don't think it's fair to fans, and we don't think it's fair, unless you have to move, to do it to communities that build you buildings. So we're not going to get involved in a bake-off where we're going to say we'd rather be here than there. We're going to try to preserve what's in place."
Bettman is right in saying the NHL should exhaust all options before relocation, and not just because of some moral obligation or the value of stability. The next city might be reluctant to cut a deal if the NHL cuts and runs. Another billionaire dreamer might try to grab a franchise and move it against the NHL's will, the way Jim Balsillie once tried to do with the Coyotes, if the NHL doesn't assert its will.
Atlanta was different. The NHL didn't own the team. The arena wasn't built for the Thrashers. It housed the NBA's Hawks, too. There were no desperate sweetheart deals to attract investors, even those scraping together the dough, and there was an immediate relocation option. When the Thrashers moved to Winnipeg in 2011, the True North group had an arena and infrastructure ready and waiting. The Jets were on standby.
There was no turnkey option this summer. Quebec City is close, with Le Colisee available and a new arena being built, but it’s not there yet and the NHL did not want to move a Western team to the East. Seattle has KeyArena, but plans for a new arena depended on an NBA team, and the NBA’s Sacramento Kings did not relocate. Markham, a suburb of Toronto, has plans for a new arena but a long way to go.
In five years, there will be an arena in Quebec City. There might be arenas in Seattle and suburban Toronto. The Coyotes could move. The NHL could expand. The Coyotes could move and the NHL could expand. The NHL's new alignment, to debut next season, has built-in flexibility to move teams and add teams.
We'll see. We'll see what happens in Glendale, whether enough fans will respond, whether these investors can make it work, whether the city will bathe in regret and red ink. We'll see what happens in other cities, too.
This story is not over. The saga continues.
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