Cost of operating Arena a complex formula

Sources say recent documents released by Glendale on cost of managing arena ignore numerous factors.

A report by the The Arizona Republic on Monday caused quite a stir among prospective Coyotes buyers, Glendale City Council members, the NHL and the team.

Citing documents recently published on the city’s website, the report stated that “the true cost to operate 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 problem with those numbers? Well, here’s one perspective.

“The figures aren't even close to being accurate,” said NHL deputy commissioner Bill Daly, whose league has run the team for a while and should also have a pretty good idea of management costs.

While Daly was “not prepared to say more at this time,” multiple sources say the numbers ignores several key factors.

Current arena loss: While it's largely correct that the annual operating costs of the Arena are about $5 million a year, that assumes the losses would be the same in a world without the Coyotes. That seems unlikely, because when the Coyotes are playing, the revenue they generate for the city from various sources more than offset the additional costs that are incurred. 

Arena manager: In a world without the Coyotes, the city would still have to hire an arena manager. The city’s request for proposals provides three methods in which a manager can operate. The most likely is a fixed management fee, where the manager is paid a fixed cost to operate, and the city is on the hook for the losses. While it’s hard to guess what the fee proposals will be, no bids of less than $5 million are expected.

Current city revenue: The city currently earns revenue from the arena in the form of ticket surcharges on hockey games and rent from the team. Last year, that revenue accounted for approximately $3 million, and it has risen as high as $6 million in some years. The vast majority of that revenue will be lost without the Coyotes.

Incremental new city revenue: All ownership groups are open to creating new revenue streams for the city, including parking, non-hockey events and additional surcharges. Without the Coyotes, the opportunity for the city to achieve new revenue is tied completely to the number of events in the building – a building that would have just lost at least 43 events, not including the NHL playoffs. How many events does Glendale currently have booked in Arena before the fall? Three. Two Taylor Swift concerts later this month, and the New Kids On The Block/98 Degrees/Boyz To Men show in July. How many events did competitor and well-situated US Airways Center book in all of 2013 that were not Suns, Mercury or Rattlers games -- in a market that also has other venues (Comerica Theater, Ashley Furniture Pavilion, Grand Canyon University) competing for events? Thirty-two. 

Additional tax revenue: The nearby Renaissance hotel and the restaurants and shops in Westgate take in additional tax revenue for the city when the Coyotes are playing. There could be a significant sales tax drop without the Coyotes, not to mention the potential loss of jobs at numerous stores, restaurants and the Arena itself in a post-Coyotes world. One estimate says the Renaissance will lose more than $1 million a year if the team leaves, which means about $150,000 in lost revenue to the city. 

So what is the actual cost of managing Arena? Well, that depends on your study, and there have been several. Most estimate the costs much higher. Here’s one commissioned by Glendale itself in 2012.

Most studies estimate the cost between $10 and $15 million, recognizing that when the Coyotes are actually playing there are associated costs including electricity, vendors and staff. The $15 million figure was what Greg Jamison’s group was set to receive from the city in a previous deal and the Reinsdorf/Kaites group, which has deep Glendale ties, estimated the cost between $10 million and $13 million. 
The annual management fee is the most critical component of hammering out a deal between a buyer and the city. If Glendale holds to the $5 million to $6 million per year range, the Coyotes will likely be headed elsewhere to play.

But the picture might not be so gloomy. Recent comments from council member Gary Sherwood, vice mayor Yvonne Knaack and even Mayor Jerry Weiers have suggested they are open to a fee as high as $10 million or $12 million per year -- not far off from the high-end estimate of $15 million floated by some ownership groups.

It would be stunning to see a deal fall apart over a couple million dollars per year, but there is new leadership in Glendale since the last management deal was reached, and it is believed any deal would still need to secure one more council vote for passage.

That one vote could decide the Coyotes’ fate. 

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