SBJ/March 28-April 3, 2011/Opinion

Long past time for NHL, and Glendale, to free the Coyotes

Winston Churchill once defined success as “the ability to go from one failure to another with no loss of enthusiasm.” With those words in mind, the NHL needs to rethink its Sun Belt strategy in a few challenged Southern NHL markets, none more so than in Glendale, Ariz., a city that is not a viable NHL market for the Phoenix Coyotes at this point in time or for the foreseeable future. Time has come for the NHL to allow the Coyotes franchise to move to a market that makes sense for all stakeholders — the NHL, its owners, the players and the people of Glendale.

For at least two years too long, the NHL has fought to keep the Coyotes in Glendale. In 2009, when then-owner Jerry Moyes filed for bankruptcy protection for the Coyotes and attempted to sell the team to Research In Motion billionaire Jim Balsillie, the Coyotes had racked up tens of millions of dollars in losses over multiple seasons. The NHL opposed Moyes in a very public and hostile confrontation, citing its long-standing policy of support for its franchises in their existing markets and loyalty to the fans of the Coyotes.

After rejecting Balsillie, and with no other legitimate buyers, the NHL itself took ownership of the Coyotes. Since then, the NHL has failed to find a buyer that can make any economic sense out of continuing to operate the Coyotes in Glendale without significant government incentives or subsidies. That failure, in and of itself, is objective proof that the market doesn’t support an NHL team in the region at this time. And the market doesn’t lie.

The NHL’s last great hope to keep the team in Glendale is the deal on the table with Matthew Hulsizer, a deal that is contingent on a $100 million bond offering that has been approved by the Glendale City Council. The proceeds of the bond offering are to be used entirely to subsidize Hulsizer’s purchase price of approximately $170 million for the franchise. The legality of the bond offering has been questioned by the Goldwater Institute, a conservative watchdog group, on the basis that it violates Arizona law restricting government subsidies for private businesses. The group’s threat to challenge the bond offering has chilled the market for the sale of the bonds and has put the Hulsizer deal in peril.

Glendale and the NHL are both blaming the Goldwater Institute for holding up the deal. Hulsizer’s company, in an effort to assuage Goldwater, has recently agreed to guarantee repayment of a large portion of the principal amount of the bonds if certain team-related revenues are insufficient to do so. This hasn’t altered Goldwater’s position, and the guarantee is really beside the point.

The Goldwater Institute is protecting the ordinary taxpayers, the vast majority of whom must not support the idea of using their own money to subsidize NHL hockey in Glendale. If they did, they would have supported the Coyotes in much larger numbers over the years, both by purchasing tickets and watching on television. During the first half of the NHL season, an average of 9,000 homes watched Coyotes games on regional sports network FS Arizona (SportsBusiness Journal, Feb. 7-13 issue). Average home attendance through three quarters of the season was 11,512, compared with a leaguewide average of 16,954. This is for a good team that made the playoffs in 2010 and currently qualifies for this year’s playoffs. The citizens of Glendale and Greater Phoenix have already voted with their wallets and their eyeballs, and apparently don’t really care about NHL hockey.

If the market and the vast majority of the taxpayers don’t support the Coyotes, why should the city be using their money to subsidize a private individual’s purchase of a failing hockey team? The city says it already has a huge investment in the franchise through its subsidization of the building of the existing arena, and the loss of the team will be devastating to that investment. That isn’t a good enough reason to throw $100 million of good money after bad, something that seems even more obscene with the job losses and crumbling housing market in the Phoenix area since the start of the recession.

Down the road, if the economy picks up and the desire for NHL hockey manifests itself in some measurable way in Glendale, the city can likely buy an existing NHL franchise or an expansion franchise for not much more than the same $100 million.

NHL Commissioner Gary Bettman need only look to what his mentor David Stern has done in similar situations in the NBA for guidance on how to deal with these situations. Ten years ago, after only six seasons, the Vancouver Grizzlies were struggling financially, and Stern decisively allowed the team to move to Memphis. When the Charlotte Hornets could no longer make a go of it after more than 10 seasons, the NBA allowed the team to move to New Orleans. Thereafter, when a new and viable ownership group emerged for Charlotte, the NBA returned to the market by awarding new owners an expansion franchise at a handsome price of $300 million.

Similarly, after much effort, it would be no shame for the NHL to accept that the Coyotes are a failure in the Glendale market at this time, and that it no longer makes sense to support the team there. If the franchise is permitted to relocate, all stakeholders will benefit: It will cost NHL owners less, players will earn more through the greater revenue that the franchise will surely generate in a better market, and the taxpayers of Glendale will be $100 million richer for it.

With places like Quebec City and Winnipeg eagerly vying for the return of NHL hockey, the league should embrace those opportunities with enthusiasm rather than remaining defensive over the occasional failure of its Sun Belt strategy.

Jeffrey A. Citron (jeffcit@gmail.com) is a corporate finance and sports lawyer in Toronto.

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