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12 questions Glendale should answer about Phoenix Coyotes deal

November 20, 2014

Glendale officials insist it’s time to end the debate over a $197 million incentive package the city is offering to a Chicago investor who wants to buy the Phoenix Coyotes and keep the struggling hockey team playing at the arena.

The deal that has been proposed is legal, they say.

The taxpayers are protected.

There are iron-clad guarantees the team will not be moved, even if it goes into bankruptcy again.

All of the relevant questions, advocates claim, have been answered.

But beyond words of assurance from the city, scant information has been provided about how much financial exposure the city’s taxpayers will face if the optimistic projections of a successful team do not pan out.

The team’s track record leaves some doubt.

It has never turned a profit since moving to the Valley in 1996. The Coyotes have lost as much as $40 million this season, prospective buyer Matthew Hulsizer told the media. Glendale posted $25 million to partially cover the losses. The team has consistently lost between $25 million and $40 million annually.

In 2009, the former owners of the franchise filed for bankruptcy. Glendale’s rush to put together a new incentive package came about because interested buyers wanted to move the team to Canada, leaving the $180 million arena without a major tenant.

The National Hockey League eventually bought the team. Hulsizer wants to buy it from the league for $210 million, which includes this year’s financial losses. To make the deal work, the city plans to issue bonds to raise $100 million that it will give to Hulsizer to help complete the purchase. The bonds are supposed to be repaid by arena parking revenue that the city claims the team owns. In addition, the city will pay Hulsizer $97 million as part of an agreement that he manage the arena for 5 ½ years.

Glendale officials claim that the economic benefits of keeping the Coyotes playing there are about a half-billion dollars, a figure they plucked from bankruptcy proceedings.

The Goldwater Institute has announced it is prepared to take the city to court under the state’s constitutional ban on governments making gifts to private entities if the deal, as currently structured, goes through.

The Goldwater Institute has been investigating Glendale’s efforts to keep the Coyotes since June 2009, when it filed a public records request for documents related to incentives the city was prepared to offer to others who tried to buy the team out of bankruptcy. More than 5,000 pages of city records have been reviewed by the Institute. Yet there are still no clear answers to many questions related to the incentives the city is offering and whether the taxpayers will be saddled with a bill for hundreds of millions of dollars if things do not work out as promised.

The public needs to know the answers to these questions before the deal is closed.

1) Hulsizer has offered to sign a non-relocation agreement. Will the NHL sign onto that agreement to guarantee the Coyotes franchise cannot be moved from Glendale even if Hulsizer’s company goes bankrupt or the team is sold? If the NHL is not willing to make the guarantee, what prevents the buyer from declaring bankruptcy, as the prior owners did, and allowing the team to be sold to an investor who wants to move the team? If the NHL is not willing to make that guarantee, how would the Hulsizer guarantee be enforced?

2) Has Glendale ever asked Hulsizer or any other prospective buyer to use his own money to buy the team without city debt or backing? Or has the city’s negotiating position always been about how much it is willing to provide to the buyer through incentive payments and/or debt? If the city has attempted to get a privately financed buyer for the team, it should provide documentation. Why can’t the city simply require that Hulsizer be personally liable for any shortfall of what is needed for full repayment of the $100 million in bonds? Has the city raised that prospect with Hulsizer? If so, the city should provide documentation.

3) The city now claims it has “strong language” to prevent Hulsizer’s company from breaking the terms by declaring bankruptcy. What guarantee does the city have? Has he signed a personal guarantee or simply a guarantee through his company, Arizona Hockey Holdings LLC? How can these guarantees be enforced if the company declares bankruptcy unless Hulsizer signs a personal guarantee?

4) The city claims it will lose $500 million in economic activity if the Coyotes leave, a figure that apparently was raised in the bankruptcy case. Who produced that figure and why has the documentation not been released? What is the time frame associated with that figure? Has the city conducted its own analysis of the amount of economic activity directly attributable to the Coyotes? If so, how does it differ from the number used in the bankruptcy proceedings and has that analysis been released?

5) Has the city solicited competitive proposals for management of the arena? Hulsizer is being offered $97 million to essentially manage the arena for a little more than five years. How was that figure derived? Has the city sought proposals from private arena management companies that would be responsible for bringing in events for a far lower sum than is being offered to Hulsizer, or for free in exchange for all or part of the net revenue? If the city has solicited alternative proposals, it should provide documentation.

6) The city has pledged to pay the NHL $25 million to cover the team’s losses for this year. Where did the money for that $25 million pledge come from? The documentation should be produced. If it’s from general revenues, why is that a better investment for the citizens than averting cuts in police, fire, libraries, etc.? If the money came from a different source such as an enterprise fund, why is retaining the Coyotes more important than other uses of the money?

7) The city is touting parking rights as a revenue stream to repay the $100 million in bonds, yet at this point it’s unclear who owns those parking rights now, how they were acquired and whether they are worth $100 million. On what basis does the city claim the parking rights being pledged to repay the bonds are owned by the team, rather than the city?

8) Has Hulsizer made specific, written, contractual guarantees to the city of his latest offer to ensure the arena will generate $75 million over the next 30 years? If there is additional documentation, the city should produce it.

9) Why does the city refuse to meet with the Goldwater Institute, which has met with Glendale officials repeatedly and has offered to hold open discussions with the media present? Why does Glendale refuse to meet on the record? Why has the city not responded to the Institute’s March 7 request for a meeting?

10) Why are Glendale taxpayers responsible for paying hundreds of millions of dollars to maintain the viability of shopping centers that were built by private developers? Were those developers not expected to face any risk when they chose to build, especially if their business plan relied so heavily on a team that was already losing money when the arena was built?

11) Why doesn’t the city simply offer to rent the arena to the Coyotes in competition with other potential event promoters? If the team is financially viable in Glendale, why does the city need to offer any incentive?

12) The city claims it has four legal opinions concluding the deal is not an illegal subsidy under the gift clause. Are those opinions in writing? If so, why has the city not released them publicly? If they are confidential under lawyer-client privilege, the city can waive that privilege so taxpayers could review the opinions before being asked to invest $197 million in the team. If the city does not have a written legal analysis, how can it proceed with the issuance of bonds without having done the requisite legal research?

Mark Flatten is an investigative reporter with the Goldwater Institute.



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