Monday, January 31, 2011

Is the Phoenix Coyote sale going to blow up again?

Bob McCown reported last week that once again the sale of the Coyotes is about to unravel again. Several weeks ago the City of Glendale and Matthew Hulsizer concluded lengthy negotiations on an arrangement where Glendale would pay Hulsizer for the rights to parking revenue around the Arena. In addition, Glendale would be paying Hulsizer to manage the arena. The money for parking rights ($100 million) would be paid up front which he would use to purchase the team from the NHL.

Glendale was going to fund the $100 million upfront payment through a public bond offering. The municipal bond market in the U.S. right now is in pretty bad shape so it should come as no surprise that the bond offer was not picked up. Not surprising the NHL denies all of this and some believe McCown looked foolish reporting the alleged scoop. But it may turn out to be correct.

I understand a 6% rate of return is not enough to tweak investors' interest. Now that could mean that Glendale is waiting for conditions to improve and try selling bonds again which would only delay the sale. Neither Glendale nor Hulsizer are in any rush. That’s because it’s the NHL that is running up losses in the interim. That creates an issue for Gary Bettman because his support from the other owners to keep the Coyotes in Glendale may likely hang on the owners recouping all their money through the sale. So as time passes, the price of the team has to go up for the league to break even. Even at the present time, the sale price is well above the value of the team.

So three things may happen. The NHL could once again begin putting the heat on Glendale to get this deal down and use the threat of relocation for leverage. The owners may come to accept that they will take a hit to keep the team in the Phoenix area and drop the price. Or the NHL may come to the conclusion that the Coyotes cannot work in Arizona and sell the team to a Winnipeg group that is quite eager to buy the franchise and transfer it to Canada. I suspect if the choice is between taking money out of their own pockets or out of the pockets of Glendale taxpayers, it won’t be difficult for the NHL owners to make a decision. Between 10 to 20 owners are losing money on their own franchise. In addition to sinking money into their franchise why would they want to subsidize another team?

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