Arena deals for Kraken and Arizona Coyotes offer a lesson in public funding and economic impact

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Inside the NHL

Eight years ago this summer, I was in Glendale, Arizona, watching as city council members there debated the future of the area’s NHL team and whether they should risk having the Coyotes relocated to Seattle.

At the time, New York investment banker Ray Bartoszek claimed he was willing to relocate the Coyotes overnight, with the supposed blessing of the NHL, unless the council approved a new lease for the team at what is now Gila River Arena. Well, the council then, as politicians often do when pressured by sports teams and leagues, voted 4-3 to keep the Coyotes rather than call Bartoszek’s bluff to have them play at the KeyArena temporarily while Seattle Figured Out How to Build a Better Venue Later.

However, given what has happened over the past week, we can say that Seattle emerged as the long-term winner from the NHL events of that bizarre, tumultuous summer.

Glendale initially lost millions in what is arguably the worst arena lease in North American sport. Meanwhile, our city not only won its own NHL team at the Kraken, but also a very private, over $1 billion overhaul of the KeyArena into today’s Climate Pledge Arena.

Unlike 2013, no additional arenas are needed here. Not so in Arizona, where Glendale informed the Coyotes last week that it will be terminating its amended annual lease and wants them out of its publicly funded, city-owned arena by June 30, 2022.

The team has long sought public funding for a new arena in the greater Phoenix area, where existing venues are not well suited to NHL games. There is, mind you, a relatively new NHL-qualified arena that also popped up as a Coyotes alternative back in 2013, only that’s 2,700 miles away.

The Center Videotron in Québec City was built at the time – also with plenty of public funding – and finally opened in 2015 and has unfortunately been waiting in vain for an NHL return ever since.

Anyway, that’s not our problem. While both Glendale and Quebec City suffered financial losses in the name of NHL love, our city received the equivalent of a multi-billion dollar arena privately paid for by developer Oak View Group (OVG) and its partners. The city also received revenue guarantees to avoid the annual financial losses that plagued Glendale.

However, in a fun twist — depending on your sense of humor — a Seattle native helped ignite Glendale’s push to end his Coyotes relationship for good. Kevin Phelps, a former Seattle businessman and former Assistant Secretary of Pierce County, was hired in November 2015 to fill the key position as Glendale City Manager.

His hiring came not long after the Seahawks played and lost a Super Bowl to the New England Patriots in Glendale in February 2015. Glendale, exhausted by the Coyotes saga by this point, had begun playing hardball with sports leagues and as a result nearly all of that year’s Super Bowl events were moved from the NFL to neighboring Phoenix.

In mid-2015, citing a conflict of interest from a former city attorney who was hired by the Coyotes after the 2013 vote, Glendale terminated the highly unfavorable lease and reverted to the current annual renewal, which offers no guarantee of the team’s whereabouts.

Faced with a key tenant actively looking to move out and knowing that more public money will soon be needed for major upgrades to arena infrastructure, Phelps commissioned an analysis from Phoenix-based consulting firm Applied Economics to determine exactly what the Coyotes were looking for generate city tax revenue.

“My responsibility is, if they leave, what do I do with a fairly large (arena) asset?” Phelps told me this week. “And so we looked at this saying, ‘How can we survive without hockey?’ “

The study examined the spending patterns of patrons at the arena and the adjacent Westgate Entertainment District retail, bar and restaurant complex over four years during the Coyotes’ home games compared to an average of 17 annual concerts held there.

And the results released last week attracted a lot of attention.

Sarah Murley, director at Applied Economics, concluded that concert-goer spending was “significantly higher than at Coyotes events” — $58 per person compared to $27. Murley attributed this to concerts being a “special event” with visitors staying longer and more likely to stay in nearby hotels.

The Coyotes’ longstanding problem has been that much of the ticket-buying fanbase resides in affluent Scottsdale and other communities. Far away Glendale has no public transport, meaning hockey fans often drove 45 minutes or more in the rush hour to midweek games, grabbed a quick bite at the arena, and then headed straight home.

The study found that even by eliminating all 43 seasonal Coyotes home dates, the city could still generate as much tax revenue if 20 more concerts with at least 10,000 fans apiece were added.

“It’s become apparent that not only could we survive,” Phelps said, “but that we would actually be better off financially than being tied to the 43 dates a year that we tie in the arena.”

Reserving those dates alone, he added, requires 200 nights of lockdown per year until the NHL releases its exact schedule. Now that these dates are free, the city can more easily book concerts in advance.

“The speculation in the media was that I was trying to increase our leverage to get them to sign a long-term lease,” Phelps said of the severing ties. “And that’s not the case. We made the decision that it was in our best interest to be able to be more aggressive after more impactful types of events.”

And that’s the lesson Glendale and countless other municipalities have learned the hard way when it comes to allocating public money to professional sports teams and infrastructure. There are almost always things with greater “impact” that local governments can invest in.

It’s a whole different story here, where the Kraken – not the city – will be the entity holding the proverbial bag if the NHL product doesn’t become a smash hit. The Kraken’s owners and OVG development partners have already spent $1.7 billion on the arena, team and training center.

In other words, very different from Glendale, our local politicians designed this arena deal so that our NHL team would have all the motivation to stay with it long-term to recoup their huge investment. And the city, with its guaranteed cut about to flow, has no incentive to let the Kraken go.

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