Coyotes agree to sell controlling interest to Andrew Barroway
GLENDALE, Ariz. -- Coyotes governor and chairman George Gosbee was back in his hometown of Calgary when he presented Andrew Barroway's offer to buy the entire team to his partners.
Some of those co-owners were with him in Alberta; others were on a conference call.
"It was one of those 'wow' moments where everyone realized how great this was for us, and then the phone went quiet," Gosbee said. "After everybody had had a moment to reflect, people started saying, 'Well, I don't want to sell.'
"I always tell people you should never fall in love with an investment, but we all fell in love with this one. It has gone way past the point of being an investment. It's become a passion for all of us."
So instead of selling the entire team, IceArizona agreed to sell 51 percent to Barroway -- an approximately $155 million investment to give him controlling interest -- in a deal the Coyotes announced on Friday that is still pending NHL Board of Governor's approval.
Why cede control of a franchise it had purchased just one year earlier? The answer is twofold.
The first answer should be obvious. Barroway is making an approximate $155 million investment in a team IceArizona bought one year ago for $170 million. What businessman in his right mind would turn down that sort of financial gain?
"We took the risk, de-risked it, proved the model works, waited for the model to unfold with investment pieces, and we monetized it," Gosbee said. "It's that simple."
The second answer is this: By bringing in Barroway, the Coyotes now will be U.S. owned, giving them greater financial flexibility and access to the NHL's credit line (around $100 million) through Bank of America and Citibank; a move that would have been taxable in Canada.
The interest rate on that new credit line is believed to be somewhere around 4.5 percent. Compare that to the $85 million loan the team took out through Fortess Investment Group at a rate believed to be around 9.5 percent and it could mean up to $9 million more in cash flow for the team. In hockey fans' terms, that could mean two more impact players.
The sale is based on a franchise valuation of $305 million. Barroway's investment is expected to allow IceArizona to pay off its loan with Fortress that was used to purchase the team. There would be an immediate re-investment of $30 million into the club -- $15 million each from Barroway and IceArizona.
The Coyotes had hoped to announce the deal when NHL commissioner Gary Bettman was in town for the season opener Thursday, but CEO Anthony LeBlanc said there were some minor legal issues to wrap up, so the announcement was delayed, as was Barroway's scheduled visit to the Valley.
There are no issues with the City of Glendale's arena management agreement with IceArizona being transferrable when Barroway takes over because he is coming in as part of IceArizona. He is buying a portion of the team, so no transfer is necessary.
However, there is still the possibility that City of Glendale could approach the Coyotes and ask to renegotiate the 15-year lease agreement it agreed to last year at an annual average rate of $15 million.
"I would be very surprised and disappointed if the city tried to come back and renege on a deal that they just made," Bettman said Thursday. "If the city were to renege on the deal I couldn’t control that, but that certainly wouldn't be constructive."
As for rumors that Barroway is buying the team to relocate it, LeBlanc reiterated Bettman's statements from Thursday.
"I can't be more emphatic how unfounded those rumors and speculation are," he said.
Gosbee took it a step further by noting the reported expansion fees other cities could command for a franchise, which have ranged anywhere from $400 million to $1.2 billion for a second Toronto-area franchise.
"If I had a willing buyer and a new franchise fee, why would I allow a club to move to that market?'" he said. "It makes no sense. Follow the money. If there are offers for expansion teams, why would the NHL forego that revenue?"
LeBlanc still expects the ownership group to maintain its out clause, which allows the team to relocate if its losses reach or exceed $50 million after five years. When asked why that would be the case if the out clause was lender driven and the Fortress loan was going to be paid off, LeBlanc said "there would still be financing involved with this franchise. It's just the nature of how you do these kinds of deals. We will continue to have financial institutions involved with this franchise."
LeBlanc insisted that relocation is never discussed by IceArizona, but he also noted that the stated goal of the group is to be profitable by Year 3 of its tenure, which would make the out clause a moot point.
Recent reports on the Coyotes' losses in Year 1 of the group's ownership have varied wildly, ranging anywhere from about $9 million to $35 million. LeBlanc acknowledged the Coyotes did lose money in Year 1, but he said every number has been incorrect and most have grossly exaggerated the number.
"Our business model budgeted for three years of losses, so it's not like we're surprised, saying 'Oh, my god' and going into a state of shock that we had losses in our first year," Gosbee said. "We didn't think it would turn around after one year, especially because we came in late in that first year."
LeBlanc and Gosbee both said they have discussed with Barroway the importance of keeping the team in the Valley; a stance with which they say Barroway agrees.
Most of the information available on Barroway at this point is second-hand, since the NHL won't allow him to address the deal with the media before BOG approval. LeBlanc described him as someone who is "cut from same cloth" as the other owners and an "easy gentleman to do business with."
Gosbee described him as "a sports junkie" who just wants to be part of a pro franchise.
Barroway has previously been involved in efforts to buy the New Jersey Devils, New York Islanders and the Philadelphia 76ers. He is the managing partner of Merion Investment Management LP, an event-driven hedge fund that currently manages more than $1 billion.
Once the transaction has been approved and the closing has occurred (both should happen by the end of the month), Barroway will serve as the Coyotes chairman and governor, while Gosbee will likely shift to alternate governor. LeBlanc is expected to remain as the team's chief executive officer.
The Coyotes released a statement from Barroway regarding the transaction.
"This is truly a dream come true for me and my family," he said. "I am extraordinarily grateful for the opportunity of a lifetime and look forward to working and solidifying a strong partnership with the club's current ownership group.
"As a group, we are committed to serving our fans with a new level of excellence and our collective goal is to put a competitive team on the ice every season and, one day, win the Stanley Cup."
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