Glendale Meeting Fails, Phoenix Coyotes to Relocate Imminently?

As some of you know, I’m a hockey fan – a HUGE hockey fan. As a result of my soft spot, I have followed the continuing saga surrounding the Phoenix Coyotes, formerly known as the Winnipeg Jets, and their troubled attempts to finalize a “legal” deal to remain in the desert. After reading and listening to the results of the “Cupcake Summit” between the feuding parties in Glendale,  it is clear that the Coyotes remaining in Glendale is remote. Eventually if a buyer is found, it is inevitable that it will be on terms that probably will not be favorable to the City of Glendale and high risk. Within a year or two of play, if the Coyotes are not playoff bound, the fate of the team may be sealed as well as an even bigger hole for the City. Kudos to Don Maloney for somehow fielding a competitive team on the sport’s most challenging budget.

For your convenience, I’ll present a very brief summary of the essential facts as I understand them. Glendale is a city just northwest of downtown Phoenix, one that seems to have long wanted to escape the shadow of the more affluent Scottsdale, a city east-northeast of downtown Phoenix. Elaine Scruggs has served as Glendale’s mayor for over a decade and has worked hard to change Glendale’s image to the tune of taking on huge debt to build the huge Westgate City Center complex (replete with shopping, dining, entertainment, high-end condominiums, parks, and office space) and stadiums to attract sports teams. The Jobing.com Arena was built in 2003 and cost the city of Glendale $180 million, moving the team out of its downtown arena and into a location somewhat inconvenient to downtown businessmen and Scottsdale residents. Mayor Scruggs has publicly repeated her belief that the entire Westgate project will succeed or fail based upon the presence of its major tenant, the Phoenix Coyotes.

In 2009, the NHL (National Hockey League) purchased the Phoenix Coyotes hockey team out of bankruptcy, which was filed by previous owner, Jerry Moyes, who reported huge annual losses from hockey operations. Despite the change in ownership and much slimmer margins, the NHL still reported operational losses exceeding an average of $25 million annually. Despite the Coyotes being a winning team and playoff bound, the club managed to attract only 12-13,000 fans on average, well short of the 17,125 capacity.

During its period of ownership, the NHL found virtually no takers for the Coyotes other than Canadian interests seeking to relocate the team up north. After spurning those interests and having an earlier deal fall apart with Jerry Reinsdorf, owner of the Chicago Bulls and White Sox, the NHL found Chicago-based Matt Hulsizer of Peak6 Investments. Like Reinsdorf, his interests in purchasing the team and keeping them in Arizona seemed to be predicated only upon receiving favorable treatment in order to offset the likely losses.

The NHL has no intention of owning the team for another year and potentially incurring huge multi-million dollar losses. The league and the City of Glendale embarked on a mission to find a new owner for the Coyotes who would keep the team in Glendale. Gary Bettman, NHL Commissioner, was able to procure a $25 million pledge to cover operational losses over the past year from an ostensibly anxious Mayor, desperate not to lose her primary anchor tenant in the arena.

Enter Matt Hulsizer, who recently agreed to purchase the Coyotes for $170 million from the NHL and whose term sheet for a 30 year arena lease agreement was quickly approved by the Glendale City Council – without allowing for a public vote. This deal calls for the City of Glendale to pay $197 million to Hulsizer to purchase parking rights ($100 million) and arena management fees ($19 million annually for five years.) Glendale would need to immediately raise $100 million via a bond sale to purchase the parking rights and send the proceeds to Hulsizer so he could purchase the Coyotes from the NHL. Of note, the $170 million purchase price is roughly $40 million more than the what Forbes reports is the current market value of the team. There are many more eyebrow raising details that I’m not covering (like whether the NHL can break the lease agreement and relocate the team and how the Coyotes new owner will be an out of state limited liability company who could just as easily go bust as Moyes did.)

The Goldwater Institute (GWI, represented by chief executive officer Darcy Olsen and attorneys Carrie Ann Sitren and Clint Bolick), a “local nonprofit watchdog” created to protect the public interests, stated that they would sue to block the lease deal. Their primary reason for doing so is that the terms allegedly violate Arizona’s gift clause – a specific protection of the public against officials handing out money to private interests in excess of the value received. Not only is it in question as to whether the City of Glendale already owns the rights to the parking it is purchasing but there is also the issue of whether Glendale will ever see anything remotely resembling a reasonable return on its $197 million investment (for a team worth far less.) As a result of the public threat to sue, the City of Glendale’s ability to sell the bonds were stifled and the parties sit at an impasse.

It’s interesting to note a few intangibles, as if the cast of characters isn’t bizarre enough. Coincidentally, the wife of Arizona Diamondbacks owner, Ken Kendrick, apparently sits on the board of directors of the GWI. Those criticizing the actions of the GWI are quick to point out the absence of the GWI when the Diamondbacks pushed through public fund for Chase Field without the public being allowed to vote on this major issue. Senator John “Straight Talk Express” McCain has been a vocal opponent of the GWI, calling for a need to keep the Coyotes in Glendale as the future of Westgate is tied to the fate of the arena’s NHL anchor tenant. Coincidentally, Cindy Hensley McCain (John’s wife) is the controlling stockholder of the Hensley & Co., the primary beer distributor at Coyotes games.

And now we move to the present day. A decision needs to be made imminently in order to allow a new owner with the ability to set up team operations for the 2011-2012 season. Enter “The Cupcake Summit” of this past Thursday, one which included Goldwater, the City of Glendale and Hulsizer. The bottom line – what will it take for the GWI to call off its lawsuit? Goldwater has prepared seven questions for Mayor Scruggs and the City of Glendale to answer as well as seven suggestions that would move the deal towards approval by the GWI. A key point in issue – the GWI wants the City of Glendale to release the assumptions provided to private consultants who released financial projections for the deal.

After hearing a recording of the Cupcake Summit and reading pages 79-82 of the transcript, I’m convinced that there is virtually no hope for resolution. The Coyotes will not only be relocated out of Phoenix but there may be significant fallout in Glendale after this fiasco concludes.

Just prior to what I believe is the tipping point in this deal, Matt Hulsizer announces his perspective – he believes that his deal with the city is not an issue of “public funding.” The agreement is nothing more than a simple purchase and sale of parking rights. The fact that the city would need to sell $100 million in bonds to purchase those parking rights and immediately send over the entire proceeds which he would then use to purchase the team – apparently just a coincidence and a non-sequitur. Sure thing, Matty.

But the climax comes one prolonged irate moment after GWI’s Darcy Olsen demands that the City of Glendale turn over critical data that it has requested numerous times and is a primary reason for not blessing the City’s financial projections. After being asked the question, Mayor Scruggs immediately points to City Attorney, Craig Tindall, to handle all questions about when this data may be provided to the GWI. Tindall blusters about legal processes, reviews and does everything he can to dodge the question as to when the data will be provided – until Hulsizer intervenes and seems to offer to provide the data if the City won’t do so.  Tindall continues to grandstand, obfuscate the issue in a manner that would make the legal profession proud, informs the group that the data is all being revised and then also claims not to remember any such request coming from the GWI. At this point Hulsizer excuses and extricates himself from the Cupcake Summit before the proverbial fan suffers from oncoming debris. Read this excerpt from the transcript for amusement purposes only, as the truth seems too much to bear. I wish all the Coyotes and hockey fans in Arizona well (including the taxpayers) and send my deepest sympathies for all the heartache you’ve needlessly endured.

MS OLSEN: Why won’t you tell us when you can give us this information?

MR TINDALL: We’re in the midst of litigation — we’re in the midst of litigation, we’ll have the appropriate communications of all those lines. It’s your litigation, you filed it, we’ll do it appropriately, and that’s the answer to the question.

MS OLSEN: OK, so you won’t release the documents to the public today?

MR TINDALL: That’s not true. That’s a complete misstatement, a complete misstatement of what I just said. The records are being released. There’s thousands of pages that have come out. I continue to go through it. I have sat in the room with these people and explained the process that I have gone through for months, years now, on doing public records. So I dispute, and find it highly offensive, and take personal offense to the fact that I am not disclosing records, because we are working with the staff. And I would say –

MS. Olsen: But, Craig, you’ve —

MR. TINDALL: Ms. Olsen —

MS. OLSEN: — given the raw data to the consultants months ago. You have it.

MR. TINDALL: You can stop talking.

MS. OLSEN: Why won’t you release it?

MR. TINDALL: You can say all you want, but you are costing the taxpayers thousands and thousands of dollars of resources.

MR. DRANIAS: Craig, Craig, Craig —

MR. TINDALL: Nope, I’m not done. No, I’m not done.

MS. COHEN: Can you not raise your voice.

MR. TINDALL: Thousands and thousands of dollars —

MS. COHEN: Can you not raise your voice?

MS. Olsen: But, Craig, you’ve —

MR. TINDALL: Ms. Olsen —

MS. OLSEN: — given the raw data to the consultants months ago. You have it.

MR. TINDALL: You can stop talking.

MS. OLSEN: Why won’t you release it?

MR. TINDALL: You can say all you want, but you are costing the taxpayers thousands and thousands of dollars of resources.

MR. DRANIAS: Craig, Craig, Craig —

MR. TINDALL: Nope, I’m not done. No, I’m not done.

MS. COHEN: Can you not raise your voice.

MR. TINDALL: Thousands and thousands of dollars —

MS. COHEN: Can you not raise your voice?

(more arguing snipped)

MR. HULSIZER: What do you guys want? Want do you want? Just, what do you want?

MS. COHEN: An answer to the question, first.

MR. TINDALL: I’ve already answered the question as that we’ll do this — because we’re in litigation, we’ll do it through the litigation process.

MR. HULSIZER: We have the data. What do you want?

MS. SITREN: We can forward you all the questions we’ve sent to the City, and to the extent that you have the records and can give them to us faster than —

MS. OLSEN: Attendance, parking, revenues —

MS. SITREN: — it will speed things up for us.

MS. OLSEN: — everything that the consultants had has not been released.

MR. TINDALL: Those figures have been given out to the Republic and everybody else. We’re gathering them again, the updated ones, until Nick —

MS. SITREN: Why didn’t we get them?

MR. DRANIAS: Yeah, why can’t you give us them now?

MS. SITREN: We asked you for those months ago. Why didn’t we get them —

MR. TINDALL: I don’t remember asking for —

MS. SITREN: — and the Arizona Republic did?

MR. TINDALL: — months ago. I don’t remember any request months ago. We’re getting updated figures. Here’s the problem, guys, is now you want to take this into a point where you’re making it seem like we’re doing something wrong for the purposes of your little transcript here. I got this. I tried to cooperate, Nick. Did I not spend two hours on the phone, yes or no, with you yesterday?

MR. DRANIAS: Two and a half —

MR. TINDALL: Two and a half.

MR. DRANIAS: — and I thought we reached an understanding, but I’m hearing today we didn’t.

MR. TINDALL: No. This morning, we were working on all the things that we talked about yesterday. All right? We’ll continue to do that dialogue. I’m not on going to do it here. I’m not going to do public records here.

MR. HULSIZER: All right. Let’s — I’m going to get going a little bit. Is there anything else you guys got for me?

MR. BOLICK: Craig, I want to follow up with that because you have stated on the record that —

MR. TINDALL: What record are you talking about?

(Ms. Frisoni exits the room.)

MR. BOLICK: The transcript.

MR. TINDALL: Well, it sounds like it’s a deposition.

MR. BOLICK: Lawyerees. Sorry.

MR. TINDALL: It is lawyerees, and we’re not supposed to be doing this.

MR. HULSIZER: I’m going to interrupt you guys. I’m going to interrupt for a second. I’m going to go. Do you have questions?

Michael M. Wechsler, Esq. – has written posts on The Law Professor.

Michael M. Wechsler, Esq.

Internet / Mobile entrepreneur since 1989, Intellectual Property attorney since the mid 1990s, former in-house counsel at iVillage.com, Senior Vice President of Business Strategy at Zedge, Co-Founder of the IDT Internet Mobile Group, E-Discovery expert and legal consultant with Kroll Ontrack, and owner and operator of TheLaw.com