Tuesday, December 23, 2003
Coyotes' strike a real deal
By Darren Rovell
This isn't the usual "if you build it, we will win" fairy tale about a professional sports team convincing a community to front millions of dollars for a new home so it can stay in the region and win a championship.
This one is real -- as in real estate.
Yes, the residents of Glendale, Ariz., have committed plenty of money to help build a new 17,799-seat arena for the Phoenix Coyotes -- $180 million of the $220 million price tag to be exact. But whether or not the team holds up its end of the bargain won't be measured in wins and losses, but by what the team's owners do with the building when it's empty and with the surrounding land.
"Our negotiations with the city were never about building a Stanley Cup contender," said Steve Ellman, a real estate mogul who assembled the ownership group that purchased the team three years ago. "While winning it all may be our desire, (the city was) looking at this as a financial transaction. They agreed to put up $180 million and we've essentially agreed to help build them a city."
In one of the most intricate agreements ever structured between a team and a city, the Coyotes will not only run the leased arena year-round, seeking to make as much use out of it as possible by hosting concerts and large functions, but Ellman agreed to develop the 223 acres surrounding the arena, promising that at least 1.6 million square feet would be developed into an area called Westgate City Center, an entertainment, dining and shopping area that will be built during the next seven years.
Since 1990, 15 Major League Baseball teams have moved into new stadiums, 15 NFL teams have gotten new digs (16 when the Arizona Cardinals move into Glendale in 2006) and 18 NBA teams have set foot into a spanking new home. Although many NHL facilities are shared with NBA teams, when the Coyotes faceoff against Nashville on Dec. 27 against Nashville, 23 of the league's 30 teams will be playing in facilities that are less than 14 years old.
(The arena opens Dec. 26 with a National League Lacrosse game between the Arizona Sting and the Vancouver Ravens.)
Local governments and their taxpayers, including those who don't care for sports, have agreed to pay over $14 billion towards these facilities, according to Paul Gessing, director of government affairs for the National Taxpayer Union.
A new facility creates a honeymoon period that usually lasts from three to five years. If teams aren't successful, the honeymoon can be even shorter. Such was the case with the Milwaukee Brewers and Pittsburgh Pirates, both of whom saw their attendance drop by 34 percent from the grand opening year in 2001 to the third season in 2003.
The connection between taxpayer money and winning is often established by team officials who convince the general public -- as well as city and state authorities -- that in order to be competitive they needed to have as many revenue streams available to them as possible. But new arenas don't necessarily lead to increased team spending, and higher payrolls don't necessarily lead to higher winning percentages.
Although little is developed -- the first group of Westgate's tenants, which include restaurants and a 20-screen, 4,000-seat Loews theatre, were announced Monday -- the city is already seeing a return, according to Glendale Mayor Elaine Scruggs. Ellman's commitment to the area has led to hundreds of acres of undeveloped land being purchased and a substantial increase in property values, Scruggs said.
"We are not putting all our hopes and all of our money into Coyotes hockey," Scruggs said. "We basically had a blank canvas and we've chosen to use the sports world to help us develop hundreds of acres of land."
City officials estimate the arena will more than pay for itself and even greater profits will be realized with the Westgate development. The Coyotes will pay at least $20 million rent during their 30-year lease and sales taxes from tickets, concessions and suites are predicted to bring in $43 million. The big money generator is parking, which officials figure will generate more than $130 million in revenue for the city over the life of the Coyotes' contract.
"We did not structure this deal as an isolated deal," said Art Lynch, Glendale's chief financial officer. "So the focus isn't going to be on one isolated piece. It's not like if the Coyotes don't win and the retail areas are successful, residents will say that the city of Glendale failed."
"The fans are clearly less concerned with what I do with Westgate and more concerned that we build a winning team," Ellman said. "The city is more concerned with what I do with Westgate and hopes that we can play .500 hockey."
|Glendale Arena will anchor Westgate City Center.|
If all goes as planned, Ellman and co-owner Jerry Moyes will recoup the $100 million they have lost since buying the team on arena revenue alone. As part of his deal with Glendale, Ellman receives all the concession money from the arena's year-round events and 100 percent of the revenue generated from naming rights, which is expected to yield more than $100 million for a 20-year commitment, Ellman said.
Although competition for the entertainment dollar in Arizona is tough -- Phoenix is one of the lowest populated cities that has four professional sports teams -- the market is open enough that if the Coyotes could win, they might be able to fill their arena. The team has averaged 14,530 fans per season since moving from Winnipeg to Phoenix before the 1996-97 season.
The Coyotes were closing out their second season in Arizona when the Arizona Diamondbacks expanded into Major League Baseball's National League in 1998 and began commanding most of the attention in town. Today, the Diamondbacks are dumping payroll and are not expected to be as competitive. Combine that with the woeful Arizona Cardinals and the struggling Phoenix Suns and the Coyotes might be in good shape to capitalize.
Having already restructured their payroll, the Coyotes are regaining their competitiveness and aren't expected to undergo a personnel overhaul under the next collective bargaining agreement after the current one expires in September. Ellman is banking on the arena experience and the newly developed area surrounding the arena to give the Coyotes the edge.
In order to build the best arena, Coyotes management looked at 14 different arenas and took the best features from each. Elements of Pepsi Arena (Denver), Staples Center (Los Angeles), Xcel Energy Center (St. Paul), Nationwide Arena (Columbus), Air Canada Centre (Toronto) and Phillips Arena (Atlanta) are all included in the final product. The Xcel Energy Center and Nationwide Arena ranked first and second in fan experience among arenas in all four professional sports in ESPN.com's Ultimate Standings in January 2003.
Even though the Coyotes have yet to play a game in their new home, they've already experienced a revenue increase -- season ticket sales are up 20 percent this season in anticipation of the move to Glendale, according to Brian Byrnes, the Coyotes' executive vice president of business operations. And although the move to Glendale has resulted in a loss of 20 percent of their business base from the East Valley, Byrnes says that the team's arrival in Glendale has generated over 60 percent more new business from the West Valley.
In an effort to maximize the impact of the mid-season move, the Coyotes asked the NHL to front-load their schedule with road games. As a result, they'll play 28 of their 41 home games this season in Glendale.
"After fans went to a game at America West, they'd have to go home, since there's little to do around the arena," Ellman said. "We're not only going to have 25 restaurants around the arena open until 2 a.m., but we'll have bars, cinemas and live music outside every night."
Ellman doesn't expect the arena and its surroundings alone will keep the Coyotes prosperous; he knows the team has to be competitive. To make his $37 million payroll work, he's assembled one of the most impressive brain trusts in the league -- Wayne Gretzky, Mike Barnett, Cliff Fletcher and Doug Moss.
"I don't think people are expecting us to win more because we're in a new building," said Moss, the Coyotes' president and chief operation officer. "Fans are expecting us to win anyway, and the uniqueness of the way this deal was structured doesn't take us off the hook by any means."
But if the Coyotes disappoint during the next few seasons, the team is at less risk for the backlash other teams have faced after their city's taxpayers paid for the arena in exchange for a more competitive team.
While everything appears optimistic, some experts, including sports economist Mark Rosentraub, say the expense of bringing business to Glendale, a northwest suburb of Phoenix, might not be worth the cost.
"There is not enough wealth in town to support four teams in four separate buildings," said Rosentraub, author of "Major League Losers: The Real Cost of Sports and Who's Paying For It." "And leaving Phoenix behind in this way is a pretty bad precedent to set for future public policy."
A recent report commissioned by the city of Phoenix calculated that the loss of events from the 16,210-seat America West Arena -- 41 Coyotes home games as well as events lost to Glendale Arena -- would cost the city more than $700,000 in annual sales tax.
However, the Phoenix Suns are the primary tenants of America West and receive all the in-arena signage and luxury suite revenue. Additionally, because America West was built for basketball, a quarter of the seats are obstructed view and the ice quality is poor.
Ellman defended the move, saying Glendale is the only place in the region left to grow.
"We committed more to the city than what we got," said Ellman, citing that total returns on 6.5-million square feet of fully-developed land could yield the city $750 million in sales and property taxes. "And that's the difference between us and other teams that have asked their cities for help. We've said, 'Let's build the best economic engine that can benefit the taxpayers and that in turn will eventually lead to providing the fans with an environment that they will love.'"
||The fans are clearly less concerned with what I do with Westgate and more concerned that we build a winning team. The city is more concerned with what I do with Westgate and hopes that we can play .500 hockey. ”
||— Steve Ellman, Coyotes co-owner
Darren Rovell, who covers sports business for ESPN.com, can be reached at email@example.com.