NHL sources: Impending Coyotes deal brings financial stability
When the New York Post reported the Coyotes were being sold on Thursday, it sent shock waves through the Valley. Were fans about to be put through the wringer again? Was the team planning to leave one year after emerging from a four-year nightmare of bankruptcy and NHL ownership?
NHL sources told FOX Sports Arizona that Philadelphia-based hedge fund manager Andrew Barroway’s impending deal to purchase 51 percent of the franchise is anything but concerning. It should finally mean financial stability for the franchise 18 years after it arrived in the Valley.
The deal could be announced in the next few days, and while the Coyotes have not confirmed the Barroway deal, three NHL sources did. The requisite paperwork and league approval will take another few weeks to complete.
"It wouldn’t really be a "Coyotes sale" in the traditional sense," NHL deputy commissioner Bill Daly wrote via email on Thursday. Instead, Daly said the move should be viewed as a financial restructuring; an infusion of capital that will have major ramifications for the team in a variety of areas, including payroll.
Here are a few important details regarding this restructuring:
— NHL sources confirmed Barroway originally wanted to buy the entire team, but IceArizona did not want to leave the ownership group, so he agreed to a 51 percent stake.
— The Coyotes have received numerous expressions of interest from potential investors over the past year at higher valuations than the one at which IceArizona purchased the franchise last year ($170 million).
— IceArizona has had several conversations with Barroway about its desire to keep the team in the Valley, and Barroway has agreed it makes sense. Although there is no known formal language in the deal that guarantees the team stays, Daly said fans should not be concerned about the team leaving. That is not the purpose of this deal.
— The $305 million equity valuation of the team that the Post reported is accurate. Barroway is buying 51 percent based on that valuation.
— The infusion of capital would allow IceArizona to wipe out its loan from Fortress Investment Group (believed to be $85 million). It’s unclear whether that might also eliminate the current out-clause that allowed the Coyotes to leave the Valley if their losses reached or exceeded $50 million in five years, but the out clause was lender driven (for security). IceArizona would still owe part of the $85 million the NHL loaned it.
— Bank of America and Citibank are currently expanding a program that would allow each team a $100 million line of credit at low interest rates. The Coyotes would likely have access to that.
— The infusion of capital and an improved balance sheet would mean more financial flexibility for the Coyotes than they have ever enjoyed in the Valley. That flexibility would absolutely allow them to increase payroll, although an exact increase amount is still unclear.
— There are no anticipated changes with regard to the Coyotes management team, either on or off the ice. (As majority owner, Barroway would be the team governor, current governor George Gosbee would be alternate governor, and Anthony LeBlanc would remain as chief executive officer.
— There are no issues with the City of Glendale’s arena management agreement with IceArizona being transferable if a new majority owner takes over, because Barroway is coming in as part of IceArizona. He is buying a portion of the team, so no transfer is necessary.
Barroway tried to buy the New Jersey Devils two years ago and believed he had an agreement to buy the New York Islanders earlier this year before owner Charles Wang instead reached a deal with Jonathan Ledecky. As part of this deal, Barroway agreed to drop his $10 million lawsuit against Wang (he already has), which alleged the Islanders owner reneged on a deal to sell him the team.
IceArizona bought the Coyotes for $170 last summer, but faced with an excellent financial opportunity, the partnership is willing to cede financial control. As for the franchise’s surprising $305 million valuation one year later, one source believes it is the product of two main changes.
First, there has been a paradigm shift in franchise valuations since the Los Angeles Clippers were sold for $2 billion in May. With a finite amount of professional teams available and the demand to buy them increasing, the prices are going up. In that sense, Ice Arizona’s purchase of the Coyotes last summer was well-timed.
Additionally, NHL revenue hit a record $3.7 billion last season and is expected to climb. With the new Rogers TV revenue added in a year later, that figure should top the $4 billion mark in 2014-15.