The Arizona Coyotes hockey team and the city of Glendale, Arizona are involved in some complicated legal squabbling that could have very negative financial consequences for the city. The legal battle was the subject of a previous report on LBN. In this report, Sequence Media CEO Mark Wahlstrom interviews Phoenix attorney Thomas Salerno on the complicated history of the two litigants and the possible outcomes for both parties.
The Coyotes were originally the Winnipeg Jets. They moved to Arizona in 1996, becoming the Coyotes, and they played for a number of years at the US Airways Arena in downtown Phoenix. This was a less-than-ideal situation for the Coyotes, who were looking for their own arena as their home. The city of Glendale wooed the Coyotes by building a large facility now known as the Gila River Arena. It was built to be a hockey arena that could host concerts on non-hockey nights. The Coyotes moved to Glendale in 2003, signing what amounted to a thirty-year lease. The Coyotes would pay about $500,000 yearly for the lease.
The Coyotes had financial difficulties from the outset in Arizona, a non-traditional hockey market. Phoenix businessman Jerry Moyes acquired full ownership of the team in 2006. His ownership of the club was unhappy. On May 5, 2009, he took the team into Chapter 11 and agreed in principle to sell the team to Canadian businessman Jim Basillie, who wanted to move the team back to Canada. Basillie was ready to pay $50 million to move the team. Glendale fought in bankruptcy court to keep the team in their arena and preserve the lease. In the end, the NHL took over the team. The league resisted any move to Canada, saying it could find a buyer who would keep the team in Arizona. When the league bought the team, it was with the proviso that it could move the team after one year if a buyer could not be found who would keep the team in Arizona. Glendale reluctantly agreed to the deal.
At the end of the 2009-2010 season, the league was ready to move the team. In order to get the league to keep the team in Glendale, the city agreed to put up $25 million to offset the league’s losses in running the team, about $30 million. After another year and more losses, the league again wanted to move the team, the city again begged them not to, and the league again asked for $25 million. Considering the $50 million from Basillie that had been turned down, this would put the city $100 million out of pocket to keep the team. Glendale is a city of about 200,000 residents and would be hard pressed to absorb this much loss.
However, the money was paid and ultimately a new owner was found. The new owner agreed to keep the team in Glendale for five years, provided that the team could be moved if it lost $50 million during that period. The new owner also wanted $15 million each year to manage non-hockey events at the arena. At the present, the team still is required to pay the city the $500,000 annual lease payment, and the city is required to pay the team $15 million to manage the arena for non-hockey events. The latter contract is what the city is contesting in the lawsuit the team has filed against the city. Salerno opines that this case could very well lead Glendale into a Chapter 9 bankruptcy. It could leave the city in a very large financial hole.
Salerno suggests that the worst case scenario for Glendale would see the Coyotes refusing to play its next season in Glendale, moving to a downtown Phoenix arena instead. That would cost the city $500,000 annually. However, the team’s lawsuit will continue, and it is possible that the city might ultimately end up owing hundreds of millions of dollars to the team.
Thomas J. Salerno is a partner in the Phoenix, AZ firm of Stinson Leonard Street LLP. He works in the Bankruptcy and Creditors’ Rights practice, and he represents distressed companies, acquirers and creditors in financial restructurings and bankruptcy proceedings, pre- and post-bankruptcy workouts, and corporate recapitalizations. The Legal Broadcast Network is a featured network of the Sequence Media Group.