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Part VII Phoenix Coyotes post bankruptcy

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Old
05-23-2010, 01:30 PM
  #1
CasualFan
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Part VII Phoenix Coyotes post bankruptcy

MOD: Moved the last round of posts from the last thread so the discourse could be continued here.

Old Thread: http://hfboards.com/showthread.php?t=774882

Quote:
Originally Posted by GSC2k2 View Post
Nice job finding the Glendale parking agreement, BTW.
Prior to your post, I had completely missed the importance of Sec 5.1. After a quick review of all of this, the maneuver appears to be (in simplest terms)

1) Glendale assumes the parking structure obligations of CCD, LLC (or whatever entity was formed to develop/manage the parking structure) through bankruptcy (either directly or having the NHL assume the obligation and then immediately pass it to the city).

2) The city then cancels or amends the obligation they assumed in Step 1 to actually build a structure, thus creating $25M in "found money" in the escrow account.

3) Use the $25M to secure the BofA line of credit from which the NHL can draw for actual cash losses.

4) Attempt to satisfy the gift clause by removing the parking structure obligation the city assumed in Step 1, securing an arena manager, and protecting the direct benefits in AMULA for 10-11 season.

I welcome your comments/corrections to this rather elementary summary. I understand that without reviewing C-5575-1,2,3 there is still uncertainty.


Last edited by Fugu: 05-24-2010 at 07:42 AM. Reason: ...
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05-23-2010, 02:20 PM
  #2
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Quote:
Originally Posted by CasualFan View Post
Prior to your post, I had completely missed the importance of Sec 5.1. After a quick review of all of this, the maneuver appears to be (in simplest terms)

1) Glendale assumes the parking structure obligations of CCD, LLC (or whatever entity was formed to develop/manage the parking structure) through bankruptcy (either directly or having the NHL assume the obligation and then immediately pass it to the city).

2) The city then cancels or amends the obligation they assumed in Step 1 to actually build a structure, thus creating $25M in "found money" in the escrow account.

3) Use the $25M to secure the BofA line of credit from which the NHL can draw for actual cash losses.

4) Attempt to satisfy the gift clause by removing the parking structure obligation the city assumed in Step 1, securing an arena manager, and protecting the direct benefits in AMULA for 10-11 season.

I welcome your comments/corrections to this rather elementary summary. I understand that without reviewing C-5575-1,2,3 there is still uncertainty.
I think that is mostly correct, but I think #1 above seems to be this (like you, reading it quickly):

- CCD (Ellman's development entity, not the team) had an obligation to build a parking facility, but a while back agreed instead to put the money into escrow to be used by the CoG to build the parking facility itself;

- CCD has complied with this obligation, and its obligations were thereby extinguished some time ago, and the money is sitting there to be used by the CoG for that specific purpose;

- The city is obliged to the team to use that money provided by CCD (Ellman's development entity) to build the parking facility;

- If the NHL (the team) assumes that agreement from the Moyes estate, then they can convey its side of the contract (the right to have the parking facility built for the team) to the City;

- the city then owns both sides of the transaction - the obligation to use those funds to build the parking facility and the right to have the facility built for it;

- they would then cancel it (or expand the purposes to which the money can be spent under the Parking Agreement) as you described.

In essence, the only part of your decription which may be a bit off seems (again on my quick reading) to be that, rather than assuming the obligations of CCD (which seem to have been extinguished when they put the $$$ into escrow), the CoG are assuming the rights of the team to have the facility built for it.

I had long suspected that the parking money was going to play a role in this, back to when IEH was vaguely alluding to creative financing solutions pertaining to parking. Unfortunately, I didn`t have the document to review. Section 5.1 was the tip-off.

I will have to read this a bit more to get comfortable with this analysis.

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Old
05-23-2010, 05:48 PM
  #3
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Quote:
Originally Posted by GSC2k2 View Post
Where is the proof?
well, the fact that they have been bankrupt and owned by the league for a year is some evidence of their financial state....the league requiring $25m to cover losses for this year is another indication of how much they lose in one year....the fact that no owner will touch them without these massive subsidies seems to indicate that they are hardly a sound investment....the consistently empty arena and half sold luxury suites is more than anecdotal evidence....4 owners in 15 years must mean something.

there seems to be far less evidence of them being sustainable than not....if they were would the city be trying to circumvent the law to provide a $25m gift to the league as a last resort?...if there was even a shred of confidence in their viability they would have an owner....even after offering to pay more than 1/3 of the purchase price and handing out $100m in subsidies the city is still struggling to find someone who sees the potential that you do.

what is the evidence that it can work?

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05-23-2010, 05:51 PM
  #4
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Quote:
Originally Posted by peter sullivan View Post
It seems that by using the parkade money they have two routes to avoid the gift clause. Prove that it isn't taxpayer money or GSC's argument that bailing out the team is an infrastructre improvement.

To prove that it's not taxpayer money the source of that revenue becomes very important. Money doesn't just appear magically. It was not a charitable donation. It came from the sale of a public asset so I fail to see how it is not considered public money.

If they are going to make the argument that the team is an infrastructure asset. Or at least critical to the operation of a piece of infrastructure then why are they going to all the trouble of using this money in escrow? If that argument can fly then tax dollars could have been used.

I guess I dont fully understand their approach yet. I wonder I'd they do. Maybe it's a case of making it so convoluted that challengers might get lost.
A couple of things:

1. Who made the argument that the team is an infrastructure asset? Is THAT what you get from the above analysis?

2. You seem to be hung up on the notion that CFDs can only be for infrastructure improvements. In short, if that is your belief, you are mistaken.

3. I am not sure that you understand the nature of this money held in escrow for the completion of the parking infrastructure. If the above analysis is correct (and it is not complete, BTW), that money is restricted cash at this point. The CoG cannot simply spend it as they wish. THe team has the right to demand that they build a parking facility with it.

4. Again, the issue is simply what consideration (value) is being exchanged between the parties. In its essence, the transaction appears to be:

CoG pays up to $25M in cash for operating the arena and providing the tenant.

In return, the NHL provides the services, absorbs the losses of operating the arena, pays all of the fees payable under the AMULA and foregoes its right to have the CoG build a parking garage with the funds that have been provided for that purpose.

Peter I know you come at this from a particular POV. To that end, you (and others) are constantly hung up on the idea that the NHL is using its payments to offset its losses. In the end, that does not legally matter. What matters is whether one side is giving disproportionately more than they are receiving. The fact that the payments to the NHL are variable calculated on the basis of its operating losses does not matter. That is simply a fee calculation mechanism. Assuming that you do what we discussed for a living, I assume that you are familiar with cost-plus contracts. Contracts are frequently determined on the basis of costs incurred by a contracting party.

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05-23-2010, 05:53 PM
  #5
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This probably A: old news or B: already been covered and I've missed it in this thread. I didn't know about this Dec 31 deadline, and I found this(yes I know it's yahoo, I'm looking for something more "concrete")



Quote:
Winnipeg remains in NHL picture

http://ca.news.yahoo.com/s/cbc/10052...<br /> <br />
Sorry if I messed up the quote system...

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05-23-2010, 06:06 PM
  #6
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Quote:
Originally Posted by GSC2k2 View Post
A couple of things:

1. Who made the argument that the team is an infrastructure asset? Is THAT what you get from the above analysis?

2. You seem to be hung up on the notion that CFDs can only be for infrastructure improvements. In short, if that is your belief, you are mistaken.

3. I am not sure that you understand the nature of this money held in escrow for the completion of the parking infrastructure. If the above analysis is correct (and it is not complete, BTW), that money is restricted cash at this point. The CoG cannot simply spend it as they wish. THe team has the right to demand that they build a parking facility with it.

4. Again, the issue is simply what consideration (value) is being exchanged between the parties. In its essence, the transaction appears to be:

CoG pays up to $25M in cash for operating the arena and providing the tenant.

In return, the NHL provides the services, absorbs the losses of operating the arena, pays all of the fees payable under the AMULA and foregoes its right to have the CoG build a parking garage with the funds that have been provided for that purpose.

Peter I know you come at this from a particular POV. To that end, you (and others) are constantly hung up on the idea that the NHL is using its payments to offset its losses. In the end, that does not legally matter. What matters is whether one side is giving disproportionately more than they are receiving. The fact that the payments to the NHL are variable calculated on the basis of its operating losses does not matter. That is simply a fee calculation mechanism. Assuming that you do what we discussed for a living, I assume that you are familiar with cost-plus contracts. Contracts are frequently determined on the basis of costs incurred by a contracting party.
Under the terms of the existing agreements, if the parking facility was constructed, who would own it?

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05-23-2010, 06:12 PM
  #7
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Quote:
Originally Posted by Mulligan View Post
If $25 million for one year is proper legal consideration, then the City of Glendale should be able to legally offer $600 million ($25mx24) for a 24 year lease.

Correct ?
No. Incorrect.

The key to the entire transaction is Section 5.1. The City/NHL has to assume the Agreement for the Replacement of Temporary Parking, dated as of July 1, 2008, by and among City of Glendale, Coyote Center Development, LLC, Glendale Garage LLC, Coyotes Hockey, LLC and Arena Management Group, LLC from the Moyes estate via Bankruptcy court.

If they are able to accomplish assumption of that agreement, they would then be in position to control both sides of the contract - the right to have the parking structure built and the obligation to build it. They could then attempt to manipulate the agreement (cancel it, amend it) so the relief from the obligation is consideration under a Gift Clause challenge.

It's a clever slight of hand but it's not something they could repeat annually for the next quarter century.

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05-23-2010, 06:14 PM
  #8
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Quote:
Originally Posted by Greschner4 View Post
Under the terms of the existing agreements, if the parking facility was constructed, who would own it?
City of Glendale would own it.

http://www.glendaleaz.com/Clerk/agen.../062408-07.pdf

Quote:
This permanent structure will be located on Lot 8 at Westgate and will be owned by the city.

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05-23-2010, 06:32 PM
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So this $25 million is sitting in an account and is a part of the bankruptcy ?

Do the CoG/NHL have more right to this money than the unsecured creditors like Gretzky etc. ?

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05-23-2010, 06:51 PM
  #10
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Quote:
Originally Posted by CasualFan View Post
Then they'd be converting monies dedicated to construction of a capital asset that they'd own, and that would give them (and non-Coyote tenants) benefits independent of the Coyotes, into covering operating losses. The parking garage is truly "public infrastructure" and is really just an improvement of the arena, which the city is obviously within its rights to make. Even if the consideration is somehow deemed comparable -- unlikely -- the city is swapping an unquestionably eligible expenditure for something different in kind.

Anybody looking at substance over form will see this fairly easily.


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05-23-2010, 07:31 PM
  #11
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Originally Posted by peter sullivan View Post
a couple of months ago the director of winnipeg's downtown development corporation said in the paper that there has been an option taken out on all the land across from the MTS centre to build a parkade, hotel and entertainment facilities....he said they would know if it would happen by june 30th.....that date meant nothing to anybody so nobody bothered to call and find out that it was chipman's real estate company....how hard was that to connect those dots...but the media was completely oblivious.
Peter, I'd be really interested in reading that article if you still have a link to it.

I searched for it myself, but the closest thing I could find was from the Brandon Sun:

Quote:
CentreVenture CEO Ross McGowan said in an interview the agency recently acquired the former Wild Planet building across the back lane from the other two buildings. It wants to turn all three properties into a new mixed-use development which could include a hotel, residential units and retail space. He said it will be a multimillion-dollar project, but he refused to disclose any details until planning is complete.

"There is progress being made with commercial and hospitality interests," McGowan said. "I think by July or August we'll be able to make an announcement."
http://www.brandonsun.com/breaking-n...599.html?thx=y

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05-23-2010, 07:40 PM
  #12
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So this $25 million is sitting in an account and is a part of the bankruptcy ?

Do the CoG/NHL have more right to this money than the unsecured creditors like Gretzky etc. ?
No.

You've got to go all the way back to the start and follow the process.

- The original Mixed-Use Development Agreement (MUDA) - http://156.42.40.50/UnOfficialDocs/pdf/20011155422.pdf - acknowledges that areas of Westgate that are designed as parking lots in 2001 may be conveyed to the developer later because they would be far more valuable if they had residential/retail development instead of just being a parking lot. Put simply, Ellman (via Coyote Center Development, LLC) can turn parking lots into development as long as they replace the parking lot someplace else in the complex.

Fast forward to November 2005. Ellman (via Coyote Center Development, LLC) identify that Lots 7 and 14A are more valuable as residential units than parking lots. Per the MUDA, Ellman agrees to transfer 1,440 spaces in return for building the residential units. This agreement provides them until November 2008 to complete the transfer.

Fast forward again to July 2008. Coyote Center Development, LLC agrees to put $25M is in an escrow account to build a parking structure on Lot 8 which fulfills their obligation to replace what they took in Lots 7 and 14A to build residential units back in 2005. That Agreement for the Replacement of Temporary Parking is among City of Glendale (City), Coyote Center Development, LLC, (Ellman) and Glendale Garage LLC/Coyotes Hockey, LLC/Arena Management Group, LLC (Moyes)

In May 2009 Moyes filed bankruptcy. Moyes has rights under The Replacement of Temporary Parking to have that $25M be applied to a parking structure built for the team. It is a Material Contract right, not an asset the can be liquidated or paid to unsecured creditors.
Note: Because that particular agreement (C-5575-1) has not been located/posted, there is some speculation here, however, it is pretty safe to make the assumption that Glendale Hockey, LLC/Arena Management Group, LLC held the right to have the parking structure constructed. We also don't have access to the escrow account, but the agreement was executed on July 1, 2008, so it's almost certain that Ellman's Coyote Center Development, LLC did make the deposit.

If Glendale/NHL is successful in assuming Moyes' rights under that agreement, they will control both sides of the equation which gives them unique leverage to alter the agreement to suit their needs without much risk of being successfully challenged.

Can they actually pull it off? Your guess is as good as mine.

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05-23-2010, 08:02 PM
  #13
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So it is the bankruptcy court that will decide if they are able to take over moyes' side of the contract? What does that entail?

I still don't understand how all of this doesn't distill down to money that was obtained through the sale of a public asset being used to pay for the losses of a private business. It's still public money.

I know gsc believes that it can be argued that they are providing a fair service for that money but if they were confident of that, why not avoid all of this and simply use general revenues to create the LOC because it would then be legal.

if this were all happening today, would the city be allowed to sign a contract with a private developer that exchanges land for a bank account that services the losses of a separate private company?..is that not what the final contract would end up being?


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05-23-2010, 08:20 PM
  #14
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Quote:
Originally Posted by CasualFan View Post
No.

You've got to go all the way back to the start and follow the process.

- The original Mixed-Use Development Agreement (MUDA) - http://156.42.40.50/UnOfficialDocs/pdf/20011155422.pdf - acknowledges that areas of Westgate that are designed as parking lots in 2001 may be conveyed to the developer later because they would be far more valuable if they had residential/retail development instead of just being a parking lot. Put simply, Ellman (via Coyote Center Development, LLC) can turn parking lots into development as long as they replace the parking lot someplace else in the complex.

Fast forward to November 2005. Ellman (via Coyote Center Development, LLC) identify that Lots 7 and 14A are more valuable as residential units than parking lots. Per the MUDA, Ellman agrees to transfer 1,440 spaces in return for building the residential units. This agreement provides them until November 2008 to complete the transfer.

Fast forward again to July 2008. Coyote Center Development, LLC agrees to put $25M is in an escrow account to build a parking structure on Lot 8 which fulfills their obligation to replace what they took in Lots 7 and 14A to build residential units back in 2005. That Agreement for the Replacement of Temporary Parking is among City of Glendale (City), Coyote Center Development, LLC, (Ellman) and Glendale Garage LLC/Coyotes Hockey, LLC/Arena Management Group, LLC (Moyes)

In May 2009 Moyes filed bankruptcy. Moyes has rights under The Replacement of Temporary Parking to have that $25M be applied to a parking structure built for the team. It is a Material Contract right, not an asset the can be liquidated or paid to unsecured creditors.
Note: Because that particular agreement (C-5575-1) has not been located/posted, there is some speculation here, however, it is pretty safe to make the assumption that Glendale Hockey, LLC/Arena Management Group, LLC held the right to have the parking structure constructed. We also don't have access to the escrow account, but the agreement was executed on July 1, 2008, so it's almost certain that Ellman's Coyote Center Development, LLC did make the deposit.

If Glendale/NHL is successful in assuming Moyes' rights under that agreement, they will control both sides of the equation which gives them unique leverage to alter the agreement to suit their needs without much risk of being successfully challenged.

Can they actually pull it off? Your guess is as good as mine.
Why aren't they simply saying "We, the city, owe the owner of the Coyotes a parking garage and have agreed with the owner, the NHL, that they won't sue us for breach of contract. In exchange, we've agreed to pay their operating losses for 2010-11, in the event the team isn't sold"?

Wouldn't that be easier?

Is it that the entities don't match up; in other words, that the COG isn't the entity with the obligation and the NHL isn't the entity with the right? There must be some reason.

And if the entities don't match up; in other words, if the COG doesn't owe the NHL some kind of material monetary amount, whether potential damages for breach of contract or otherwise, no slight of hand is going to create such an obligation and any money turned over to the NHL will be for no/little consideration. There's no mystery about who the ultimate payor and payee are under the agreement that was leaked a couple days ago.

If the argument "We're paying a private business now because it will generate money for us in the future" is allowed to prevail, the Gift Clause is toothless and we're all wasting our time. You can fit practically every subsidy into that template, and that's how subsidies are practically always rationalized.


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Old
05-23-2010, 10:00 PM
  #16
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GSC -- I'm really not trying to approach this from a particular perspective or argue with you. I'd love to see the Jets return to Canada, but I'm in Ontario, am a Leafs fan, and doubt very much that I'll ever have any reason to go to Winnipeg to see a game. It's not that big a deal to me. I also love Phoenix and the state of Arizona. It's an amazing place.

But I don't see the backing numbers for what you're saying here. The numbers are pretty stark, as is the fact that Glendale can't get anybody to buy the Coyotes without agreeing to huge public subsidies. Nothing in this agreement would offset any of this, either. Even if you set aside the legality of what the city is proposing, all this deal does is buy another season in Glendale, along with tens of millions in losses. Everybody knows that even if this ship can be turned around, it isn't happening anytime soon.

The bottom line here is that this is a HUGE gamble for Glendale. Even if the financing arrangements pass the giggle test in the courts, the city could still find itself unable to make enough lease concessions to please a buyer. So then the city loses all this money -- and it's public money no matter how you spin it -- just to see the Coyotes leave next year anyhow.

I honestly don't understand why Glendale is bothering. It also boggles my mind that a city that size would ever sink such massive cash into a public arena. What an incredible risk that was from the beginning. And now this is a huge mess for all concerned, and a risky political maneuver that could blow up in some faces given the already iffy financial position of the city and the state these days.

Anyhow, hope you're having a great long weekend. Cheers.

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05-23-2010, 10:09 PM
  #17
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As you can tell from my user name I would dearly love to have the Jets back in Winnipeg but I really am disillusioned with the way the NHL has gone about the "business" of finding a new owner for the Coyotes.
When I was young and the Jets were still in the WHA, there was a lot of talk about whether we would join the NHL. I clearly remember a sign that was hung in the arena it said:
“The NHL can go to Hell”
I am not a fan of the way Mr Bettman has played cities and fans against each other, I am still perplexed at how even though Mr Moyes was expected to lose large sums of money, the NHL must have the COG cover any potential losses. What does that say about the league and the product?
I have really enjoyed reading all the preceding posts, speculating on the fate of the team.

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05-23-2010, 10:22 PM
  #18
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Originally Posted by ToddGillForever View Post
I honestly don't understand why Glendale is bothering.
They have hundreds of millions in bonds to pay back and without somebody to run the arena for them, no way to pay it back.. The arena does not just bring in hockey revenue, it is responsible for ALL the foot traffic generated in the entire Westgate development through hockey and non-hockey events.. NOBODY locally has an issue with the entity bringing in all the revenue by running the arena getting a piece of the action..

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05-23-2010, 10:37 PM
  #19
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Yes, that's exactly it, the media doesn't know anything about media.
You're correct. They don't.


Quote:
That's right!

There are actually millions of hockey fans in Phoenix, but The Media feels it already makes enough money, so it's deliberately ignoring them.

Millions of sports fans.... with 4 major sports leagues and 2 minor ones competing for their attention.

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05-23-2010, 11:00 PM
  #20
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Quote:
Originally Posted by 52G228PIM View Post
They have hundreds of millions in bonds to pay back and without somebody to run the arena for them, no way to pay it back.. The arena does not just bring in hockey revenue, it is responsible for ALL the foot traffic generated in the entire Westgate development through hockey and non-hockey events.. NOBODY locally has an issue with the entity bringing in all the revenue by running the arena getting a piece of the action..
I think it would be easier to find someone to run the arena than buy the Yotes, they just keep bungling, i mean bundling, it together into one package.

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05-23-2010, 11:07 PM
  #21
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Originally Posted by Wolvesfan View Post
I think it would be easier to find someone to run the arena than buy the Yotes, they just keep bungling, i mean bundling, it together into one package.
I am pretty sure if they could separate the two they would.. If the team could just pay a flat rent amount per a lease it would be MUCH better off than being saddled with this whole arena management garbage and basically be tasked with the job of generating the foot traffic and revenue for the entire development year round..

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05-23-2010, 11:23 PM
  #22
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Originally Posted by 52G228PIM View Post
I am pretty sure if they could separate the two they would.. If the team could just pay a flat rent amount per a lease it would be MUCH better off than being saddled with this whole arena management garbage and basically be tasked with the job of generating the foot traffic and revenue for the entire development year round..
I'm pretty sure that a new owner would want to manage the arena to increase its revenue streams.

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05-23-2010, 11:34 PM
  #23
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Quote:
Originally Posted by 52G228PIM View Post
They have hundreds of millions in bonds to pay back and without somebody to run the arena for them, no way to pay it back.. The arena does not just bring in hockey revenue, it is responsible for ALL the foot traffic generated in the entire Westgate development through hockey and non-hockey events.. NOBODY locally has an issue with the entity bringing in all the revenue by running the arena getting a piece of the action..
Hundreds of millions? Just how expensive was this rink?! The only figures I find say it cost $180M. Now, I'm no moron...I realize the total cost will be more than that since they will be paying interest. However, I also realize the place was built 7 years ago so I assume some of that has been paid off already.

Your post also suggests that without an NHL team there is absolutely no way possible for anyone to "run" the arena. It's what arena management groups do. There are many of them out there that would take less of a cut and not demand the concessions or guarantees that are being made right now.

Lastly, saying the arena is responsible for ALL the foot traffic in the area is a bit of a reach too. It is a part of it, but if this were true the whole area would be a ghostown on non-game and non-event days. I'd wager it isn't. The football stadium is adjacent to Westgate....and a quick look at Westgate's 'Calendar of Events'...it seems there are plenty of attractions of 'foot traffic' without involving the arena. The development was built around the arena...that doesn't mean the arena is responsible for every last person that walks into Westgate.

I'm not sure what you mean by "the entity...getting a piece of the action". So if you manage the arena you should be allowed to collect a tax on every transaction made in the vicinity? I'm sure there are many people that have a problem with that. Taxing the area to pay for the arena is one thing...but taxing the area to give to a tenant in the area is a totally different story.

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05-23-2010, 11:41 PM
  #24
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I'm pretty sure that a new owner would want to manage the arena to increase its revenue streams.
That is the problem with the current agreement, you would have to be P.T. Barnum to generate enough revenue to make any decent cash.. Zimbalist did not really share that little tid-bit..

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05-23-2010, 11:42 PM
  #25
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I am pretty sure if they could separate the two they would.. If the team could just pay a flat rent amount per a lease it would be MUCH better off than being saddled with this whole arena management garbage and basically be tasked with the job of generating the foot traffic and revenue for the entire development year round..
Tasked with the job of generating foot traffic and revenue for the entire development?!? Why would they give a hoot about that? They would be tasked with putting events and ticket buyers into the arena because when they do that they make money from it. It's called a business...and it can be a very profitable one. You get paid to manage a venue on behalf of the owner...and you get a cut from the revenues generated by the building. You act as if this is some sort of unfair burden.

If it's such a burden I wonder why companies like AEG and Global Spectrum exist. They exist SOLELY to do just that...manage venues and put events and customers in the building. They don't care one bit if people support surrounding businesses...why would they care?!?

It seems you think an arena management company in Jobing.com Arena is shouldering some sort of obligation to make sure all the tenants of Westgate are financially successful. They aren't managing all of Westgate...they are managing the arena. If a new owner of the Coyotes doesn't wants to fold up the arena management company they operate and not take any non-hockey related revenue that the building generates....I'm sure they could do that. I'm just not sure why on earth they would want to do something that foolish.

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