SBJ/September 30 - October 6, 2002/Special Report
Arena will lift Phoenix out of revenue desert
Published September 30, 2002
The Phoenix Coyotes new owners have overcome numerous obstacles and will move into a new arena in Glendale in December 2003.
Phoenix Coyotes owner Steve Ellman has avoided a few metaphorical hip checks since he began pursuing a plan to build a giant mall near a new hockey arena in Arizona.
First, former Coyotes owner Richard Burke failed to find a suitable local buyer for the team, forcing Ellman to step in and buy the franchise himself simply to save the real estate development.
Then the sale was held up for months when Ellman had trouble coming up with enough money. The city of Scottsdale, where the landmark project was to be situated, subsequently backed out and took millions in subsidies with it.
Everything is back on track, but the Coyotes still face numerous challenges, including league-low revenue and a current home that was built for basketball.
Ellman and local businessman Jerry Moyes have put $177 million into the club since 2000, including losses of $20 million to $25 million last season. By the time the arena opens in December 2003, their total investment should top $225 million.
But Ellman said the franchise is on course to have its financial house in order once the team moves into a new arena in suburban Glendale, Ariz.
"I think there's clearly a misconception out there," he said. "We just went out and paid $24 million for [Tony] Amonte," referring to the three-year free-agent contract signed by the former Chicago Blackhawks star. "We wouldn't have done that if we were going out of business tomorrow"
If the team is now on solid financial footing, it has Moyes to thank. The owner of a local trucking company put up $20 million to help Ellman close on the sale of the team, and has covered the club's recent operating losses.
Perhaps most important, Moyes paid off the team's $60 million debt to lenders Sumitomo and Société Générale in February. The club now owes Moyes the money, but will not have to begin paying principal or interest until a later date. When Ellman purchased the team, about half its $14 million annual loss came from debt service, a source close to the team said.
What has Ellman believing in the team's future is the same thing that motivated him to get involved in the first place — real estate. His corporation, Ellman Cos., has the right to develop more than 6 million square feet in Glendale and will create a retail, office and residential complex that outside consultants said will attract 12 million visitors per year.
The Coyotes new arena was to be built in Scottsdale, but the city backed out.
The centerpiece of the $850 million project, and of the Coyotes' future, is the arena. Ellman said he expects to realize $100 million from naming rights, offsetting nearly half the total investment in the franchise.
The Coyotes will keep all revenue from the arena and will pay $500,000 per year in rent for the next 20 years, and $1 million per year for 10 years after that. The team now plays in America West Arena, which was built for basketball and has 4,000 seats with an obstructed view for hockey.
Team President Jim Lites, who joined the Coyotes this year after leaving the same position with the Dallas Stars, said he's shooting to increase team revenue by $30 million a year at the new arena. Forbes magazine pegged the Coyotes' 2000-01 revenue at $39 million, the lowest in the NHL.
"We need to increase our advertising at the building by about $10 million [including naming-rights revenue]," he said. "We've got to find $8 million to $10 million worth of [new] ticket [sales], and $10 million from other things," which includes suite sales, restaurants and concessions. "It's daunting," Lites said, "but it can be done."
Currently, the Coyotes have only about 6,000 season-ticket holders, barely half the league average. But ticket sales are up 20 percent and sponsorship revenue is up another 25 percent this year, Ellman said.
The Coyotes kept payroll at $31.2 million last season, ranking 19th out of 30 teams, according to The Hockey News.
Where the club does spend lavishly is on front-office talent. Wayne Gretzky heads the hockey department and is a part-owner of the team. His former agent, Mike Barnett, is the general manager and reportedly earns $1 million per year, among the highest salaries for the position. Cliff Fletcher, an accomplished former NHL general manager himself, is an assistant GM.
"Wayne does earn a salary of several million, Jimmy Lites earns a big salary [and] Mike Barnett earns a big salary," Ellman said. "But I don't think anyone would debate those guys know how to win. Now if I give them a world-class regional development, it becomes a win-win for the city, the team and our development company."