During a special meeting convened Wednesday night that featured threats of a $200-million lawsuit and emotional fans wearing team jerseys, city councillors in Glendale, Arizona, voted to cancel the arena management contract that sees the city pay $15 million a year to the Arizona Coyotes.
The decision leaves the future of the struggling NHL team very much in question.
Without the revenue from the arena contract, a team that is already widely believed to lose more than $30 million a season will see its losses further widen. Speculation has already started about how soon it might be until the team leaves the Phoenix market.
In June of 2013, the NHL said went so far as to say the team might move to a different city in time for the 2013-14 season if Glendale did not approve the contract. Days later, council approved the $225 million contract that was cancelled on Wednesday night.
Coyotes majority owner Andrew Barroway was oddly nowhere to be seen during the meeting Wednesday. Part-owner Anthony LeBlanc and Coyotes lawyer Nick Wood both told city council the team would immediately begin legal proceedings.
Wood said the Coyotes will file a $200 million lawsuit.
In an interview on Hockey Night in Canada before the final vote, NHL commissioner Gary Bettman said, "I'm not concerned about the Coyotes. If I lived in Glendale, I'd be concerned about my government."
The city council meeting latest nearly two hours and featured comments from city councillors, residents of Glendale and Coyotes fans who live in the Phoenix area. As the Chicago Blackhawks were closing out their 2-1 victory over Tampa, Glendale council voted 5-2 to kill the arena deal.
“This is not about hockey,” said vice mayor Ian Hugh, shortly before the vote. “It’s about the integrity of the process.”
Mayor Jerry Weiers, who had to briefly threaten to remove hecklers from the audience, said, “I don’t care how good a deal is. If you’re breaking a law you’re breaking a law.” Three sports investment bankers who specialize in NHL team sales told TSN it's questionable whether the Phoenix market is big enough to sustain an NHL team, particularly without the $15 million arena management agreement.
Last season, according to one source with a copy of the NHL's combined Unified Report of Operations (URO) the Coyotes generated less than $25 million from ticket sales, while the average NHL team generated about $48 million.
The departure of former city attorney Craig Tindall's from his position more than two years ago was central to the argument to cancel the agreement.
Tindall was asked to resign as city attorney in February 2013 by Weiers. Tindall left his position on April 1, 2013, but accepted six months of severance, meaning he was on the city payroll through Oct. 1, 2013.
The city and Coyotes reached their arena management deal on July 2, 2013, when Tindall, who had gone to work for the Coyotes, was still being paid by the city.
The city in its vote Wednesday relied on state statute 38-511. That statute, which is included in the arena management deal, says that the state can cancel a contract within three years if anyone involved in negotiating or drafting the contract for the state or any public department, is an employee of any party to the contract (the Coyotes).
It’s unclear what will happen after the Coyotes file litigation against the city.
“What happens if you’re the team and you file for an injunction and win and the city appeals and wins on appeal midway through the season?” said one investment banker who has advised clients both purchasing and selling NHL teams.
“It’s a nightmare any way you look at it.”
That scenario would result in large legal fees, and would cast a shadow over the team that would depress everything from season ticket sales to local sponsorship deals.
“There are a lot of questions even now about whether the current owners of this team will be able to fund losses next year, let alone if they have huge legal costs and lose the arena management cash,” said the investment banker.
Several NHL sources said it’s also possible that the Coyotes might ask the league for permission to move to a new market, such as Quebec City or Seattle.
Quebec City is doubtful. For starters, moving a team from the Western Conference to the Eastern Conference would leave 17 teams in the east and just 13 in the west. It’s possible a Quebec franchise could be directed to play in the west, much the same way the Winnipeg Jets played several seasons in the east.
A bigger issue would be the loss to other NHL team owners of expansion fee cash that’s anticipated in Quebec.
Seattle is another possibility. That market has a ready-made arena but there are mixed opinions about how NHL hockey might do there. One former NHL team owner said based on Western Hockey League attendance figures, it’s questionable whether the NHL would do well, but an investment banker said a team in Seattle would command the attention of hockey fans throughout the Northwest U.S.
There is a also third option.
A former NHL team owner would only speak on the condition of anonymity because he is in talks to buy a minority interest in another NHL club said that the NHL might direct the Coyotes owners to put the team up for sale, allowing new owners to start fresh negotiations with the city of Scottsdale, another suburb of Phoenix that is more affluent than Glendale.
The former NHL team owner said Scottsdale city staff might be enticed to help finance an arena if new team owners manage the relationship well, perhaps also promising to build a new practice facility in Scottsdale.
“To me, that’s the one that makes the most sense long term,” the former NHL team owner said. “You go to Glendale in the meantime and say ‘let’s avoid the legal fees over this and just agree to cut the arena management deal to three more years.'' They can probably live with that and you have yourself a bridge to a new building.'”