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True Jobing.com Arena operating costs are well below what Glendale has paid

By Paul Giblin The Republic | azcentral.com Sun May 5, 2013 10:47 PM

The true cost to operate Jobing.com Arena ranges from $5.1 million to $5.5 million a year, which is about $10 million to $20 million a year less than the Glendale City Council has agreed to pay hockey-related interests to manage the facility in recent years.

The net management costs, included in documents recently published on the city’s website, are bundled in the city’s solicitation for a new company to operate the city-owned arena.

Glendale council members interviewed by The Arizona Republic said they hadn’t reviewed the documents and were surprised by the figures.

“I wasn’t aware of that,” Mayor Jerry Weiers said. “Then again, I know damn good and well that the way it’s been run, they’re not putting anything extra into it whatsoever.”

For years, estimates by city officials and consultants about the actual cost to operate the hockey and concert arena have varied wildly.

A firm grasp of the cost is critical to negotiating a management deal that limits the financial burden on residents, who have seen taxes increase and services decline as millions of dollars from the city’s operating budget have gone to fund pro sports.

An arena-management deal also will be critical for any future buyer of the Phoenix Coyotes, which was purchased out of bankruptcy in by the National Hockey League in 2009 and has since been run by the league as it tries to find permanent ownership.

The team has played in Glendale since 2003.

Theoretically, a buyer could simply lease the arena without managing it, but every potential buyer to date has said the management component is essential and has spent months negotiating how much the city would pay.

The question is whether an outside company can do it for less than what the city has agreed to pay hockey-related interests in recent years. The city’s solicitation is open to all comers — potential Coyotes owners and non-owners alike.

The city should find out May 24 when bids from potential management firms are due.

How the city’s plans mesh with the NHL’s efforts to sell the team remains to be seen.

The team’s continued presence in Arizona hinges on a two-step process:

First, the NHL must sell the team to an investment group interested in keeping the team in Glendale.

NHL Deputy Commissioner Bill Daly recently told a Canadian cable-TV sports network that league officials are negotiating with a group called Renaissance Sports & Entertainment, among others.

Second, the NHL’s preferred buyers must reach a separate agreement with Glendale to manage the arena.

Daly told the Sportsnet network that league officials are making progress with Renaissance’s principals concerning a sale, but future dealings with Glendale concerning the management package remain a “big question mark.”

Daly said there are no guarantees the Coyotes will stay in Arizona. Likewise, Glendale officials have offered no guarantees to keep them.

Anthony LeBlanc, one of the principals in the Renaissance group, has said he would need a management deal similar to the one offered in the past, which would have the city pay an average of $15 million a year.

“We understand that there are some cash constraints, but at the same time, we can’t do a deal that wouldn’t be economically feasible for us,” LeBlanc said in February. “It’s a verbose way of saying, ‘Look, we understand that it won’t be the same deal, but we’re trying to find a middle ground that would make sense for both sides.’ ”

LeBlanc declined comment last week.

Glendale’s seven council members will have to discuss money soon. The council is expected to authorize the city’s budget for fiscal 2014 on June 11.

The current draft budget pencils in the arena-management payment at $6 million. And the payment remains $6 million a year throughout the city’s five-year budget forecast.

The figure stands in stark contrast to the far more lucrative amounts the council has been willing to pay in recent years.

The council paid the NHL $25 million a year in both 2011 and 2012 to run the arena.

It also agreed to pay former San Jose Sharks CEO Greg Jamison an average of $15 million a year for 20 years to manage the arena, if he met a city-imposed deadline to purchase the Coyotes by Jan. 31.

Jamison missed the deadline, voiding the offer.

It’s unknown whether council members have the stomach to negotiate beyond the $6 million figure just weeks after they told the city’s fire chief they were willing to close a fire station because of a lack of money to keep a full fleet of firetrucks rolling.

Most current council members have never cast a vote on hockey matters.

Weiers and two other council members took office in January, after the previous council lineup approved the $25 million-a-year and $15 million-a-year arena-management packages. A fourth new member took office before his colleagues to fill an early vacancy, but never voted on the hockey matters either.

The new council opted to do what the previous council majority wouldn’t: put the contract out to bid to see how much the market would require the city to pay.

The justifications for previous management deals revolved around a commitment to keeping the team in Glendale. Loyal fans pleaded with council members for the team’s future. And a council majority saw advantages, including thousands of fans trekking to their city 41 nights a year to watch hockey and spend money in the city’s restaurants and shops.

The city collects revenue associated with the team and arena through leases, parking fees and tax collections for food and merchandise sales in the nearby Westgate Entertainment District. Those figures have been on the upswing, particularly since an outlet mall opened last fall.

Total collections were $4.7 million in fiscal 2011, and reached $6.4 million through just the first eight months of the 2013 fiscal year, according to the city. That money helps pay, but doesn’t fully cover, the city’s debt to build the arena.

The team also lends a certain amount of panache to the city, making it more attractive for business relocations, interim City Manager Dick Bowers said.

What the previous council didn’t have was a solid number on what the city should pay for arena management. Prior to the team’s bankruptcy, the team owner paid those costs.

“We’ve never been able to get a hold of a solid number,” five-term Councilman Manny Martinez said.

Former City Manager Ed Beasley told the council on May 11, 2010, that the then-proposed first $25 million payment was strictly to pay for arena operations.

“There’s some things … I think that have been misunderstood. This item is not to pay operating losses for the NHL. It’s a fee to the NHL to operate our arena and maintain the team,” he told the council during a public meeting.

Beasley also told the council that it was unlikely the city would ever make the $25million payment to the NHL because he was confident that investors would buy the Coyotes and strike their own management deal by June 30, 2010.

Beasley retired two years later, by which time the city had agreed to pay the NHL a second $25million management fee, while the Coyotes remained unsold.

Former Mayor Elaine Scruggs said council members based their decisions on information provided by Beasley and other city staffers at the time. “We were told that’s what it costs,” she said.

“We made our decisions based on the information that was presented to us,” she said. “More information came out later on. Some of us changed our positions; others did not.”

Scruggs said she changed her position after former City Attorney Craig Tindall sent a memo to council members last spring that advised them that the city had provided documents to the Goldwater Institute that showed the actual cost was about $6 million a year.

At the time, members of the conservative-leaning Goldwater advocacy organization were questioning whether the city was subsidizing the NHL.

Less than two weeks before Tindall’s memo, the arena-consulting firm International Facilities Group, of Chicago, told the city that a reasonable estimate to operate the arena without an anchor sports tenant would be in the range of $13.8 million to $14.7 million a year.

The firm’s executive vice president, Kevin Greene, noted in a letter to Beasley that the estimate was based on a preliminary analysis. Jobing.com Arena’s unique maintenance costs, event-related expenses and repair costs would have to be considered to confirm the estimate, he said.

Scruggs did not stand for re-election last year, and Tindall resigned earlier this year after Weiers moved to oust him, noting only that the city was moving in a more “pro-business” direction.

The city published its solicitation for arena bids on April 16, which included up-to-date profit-and-loss statements compiled by the NHL subsidiary Arena Newco, which manages the arena.

Arena Newco and the Coyotes are both owned by the NHL and share employees and office space.

Arena Newco recorded a net loss of $2.1 million during the first seven months of the current fiscal year, a loss of $5.5 million in 2012, and a loss of $5.1 million in 2011, according to the documents.

The profit-and-loss statements omit the $25 million payments the city paid the NHL to operate the arena in 2012 and 2011. The statements also exclude other revenue sources, such as arena naming rights, sponsorships and ticket sales, which go to the team’s owner.

Councilman Gary Sherwood, who was seated in January, said the figures on Arena Newco’s financial statements are shocking.

“It looks like we’re paying them $25 million,” he said. “Added on to their $5 million in expenses, that’s $20 million. I mean, that’s a surprising number to me. Who wouldn’t jump on that deal?”

Weiers said he’s concerned that the city will have to offer the next management firm considerably more than $6 million a year to operate and maintain the arena. “As the years go by, there are repairs that have to be made. I think the money hasn’t been put back into the arena the way it should be,” he said.

Martinez, who also said he was unaware that the financial documents were posted on the city’s website, said he still doesn’t know the actual costs to manage the 17,125-seat arena.

“It’s been very difficult to get a hold of. I would hope that it’s in that range — $5 million to $6 million. That would be great, from my viewpoint. It would help us in our negotiations if somebody buys the team,” Martinez said.

The city’s request for proposals asks respondents to outline their plans to manage costs, increase revenues, attract anchor tenants, book events, sell sponsorships, and improve traffic to and from surrounding parking lots, among other objectives.

The management fee for any particular arena is difficult to estimate, said Vicki Hawarden, president and CEO of the International Association of Venue Managers, which is based in Texas.

Each deal is affected by a variety of factors, including seating capacity, maintenance needs, the number and complexity of events, the area’s labor costs and the owner’s expectations, she said. The best way to determine the cost to run a particular arena is to put the job out to bid, Hawarden said.

“These companies are pretty sophisticated. They manage lots of venues,” she said. “Usually, these bids come in competitive against each other. It will be priced right to get the job.” Who’s in, who’s out?

Several groups of investors have flirted with the idea of buying the Phoenix Coyotes, with the intent of keeping the team in Arizona. Here’s the latest lineup:

First line

Renaissance Sports & Entertainment — NHL executives are trying to sign a deal with Renaissance, a company formed to buy the team.

The four partners are George Gosbee, chairman of investment-banking firm AltaCorp Capital, which is based in Calgary, Alberta; Anthony LeBlanc, a former vice president of BlackBerry manufacturer Research in Motion, which is based in Waterloo, Ontario; Avik Day, president of the investment firm Remvest Energy Partners, of Houston; and Daryl Jones, director of research at Hedgeye Risk Management, of New Haven, Conn.

Second line

Darin Pastor — “There are other interested people that we’re working with at the same time, as well. Nobody has exclusivity here,” NHL Deputy Commissioner Bill Daly told a Canadian cable TV network.

That includes Pastor, the founder and CEO of Capstone Affluent Strategies, of Irvine, Calif., who announced his interest in the team by issuing a press release. He called NHL executives later. He said he heads a small group of friends and family members who would invest with him.

On the bench

Matt Hulsizer — The former Coyotes suitor was aligned with LeBlanc earlier this year, but the two are no longer working together for reasons that haven’t been publicly explained. Hulsizer is the co-founder and CEO of financial-services firm Peak6 Investments of Chicago.

John Kaites — Another former Coyotes suitor is not actively involved in discussions with the NHL, his spokesman David Leibowitz said. Kaites, a Phoenix lobbyist, previously was aligned with Chicago White Sox and Bulls owner Jerry Reinsdorf to buy the hockey team.

In the box

Greg Jamison — The former San Jose Sharks CEO could have secured a lucrative arena-management deal with Glendale if he had purchased the team from the NHL by Jan. 31, but he blew the deadline. He vowed to continue his efforts, but he has not returned messages from The Republic to clarify his current status.