The $64.5 Million Question: Who holds the Arena Bonds?

Buy Now…… Pay (‘dearly’) later!…….Land Development Subsidies and ‘How the Rich get Richer’

‘With all the talk of the Phoenix woes with the land subsidy scandal related to CityNorth (as discussed in this previous article), could it be that Glendale is a closer neighbour to Phoenix in more than just geography? Has the City of Glendale sold out to private corporation usury in land development subsidies that grossly inflate the payments that otherwise ‘should be’ made on infrastructure projects?

Mayor Elaine Scruggs in 'better times' with Wayne Gretzky

Mayor Elaine Scruggs in 'better times' with Wayne Gretzky

And, as it relates to the Phoenix Coyotes court case, what incentive would this situation ‘add’ to the City of Glendale’s desire to keep things quite ; to ensure some truths don’t come out? So much so, that the City has turned on it’s relationship with Wayne Gretzky, and are questioning his being owed some pretty significant money?

In our last post, we mentioned some players in this hockey game that extends off the ice, and into the investment arena.

Michael Dell, and his MSD Capital Corporation, is implicated in the Supreme Court battle in Phoenix on the CityNorth

Michael Dell (Dell Computer)

Michael Dell (Dell Computer)

subsidies, where the bottom line is the City is on the hook for approximately $480,000 for a place to park a car. There were 200 parking spots paid by taxpayers to the tune of $97 million dollars. Great deal for the private corporations lending effort to help a city develop it’s land. But, the cost to the taxpayers is significant. It’s like buying furniture with no money down, and no payments for 12 months, only to find when the interest rate comes into play, you are left scrambling to find a banker to  save you from the ridiculous amount the financer expects you to pay. If you do the math, you might be able to buy the same item if you ‘had the cash’ with a small fraction of the total obligation.

Why would Glendale get itself involved in something like this? Well, you would think once you make this kind of decision, you likely would consider it ‘going for broke’. Broke in this case may be the operative word.

From the Sports Economist:

Several years ago, Phoenix suburb Glendale paid about $180 million to build a hockey stadium for the Coyotes. The Coyotes had already been in the Valley for several years, losing money all the while, and had shed one ownership team for another fronted by Wayne Gretzky. It was shear madness to build them a stadium, as their chances of financial success were almost non-existant. It was already clear at this point that hockey was not going to be a big draw in Arizona. For this reason, Scottsdale and Phoenix both ended up passing on subsidizing the team before Glendale, out to prove it was a “real” city, stepped up to the plate with a wad of taxpayer money.

Bond details: $180 million (of which $150 million is in the form of  ‘sales tax’ bonds). The ‘sales tax’ issue may be where a subsidy issue lies, similar to the CityNorth fiasco.

There is some confusion in reporting as to how much the City of Glendale must pay on the arena bonds, and what the total debt obligation may be.

The City’s reported payment figure of $9 million per year doesn’t make sense if the  $720 million lease penalty is an indicator of total obligation. Would that suggest the bond is costing much more? Sounds more like that $480,000 parking ‘spot’ doesn’t it? And, it may explain the huge penalty, and ‘long term’ requirements of to produce sales tax revenues.

If the true overall cost of the lease obligation to the City is $720 million , that would be the equivalent of building arena four times over:

jobing_arena_bowlGlendale spokesman Gary Husk confirmed the $720-million penalty clause and added the municipality expects it to be paid should the Coyotes vacate the arena, built three years ago at a cost of $178 million.

Is this penalty reasonable? It lends itself to much speculation as to what the bond terms are, in light of the facts.

The big question that comes to mind is, when companies see  great profit opportunities like CityNorth, would they be inclined to continue to build relationships with the municipality, and look for other great subsidy opportunities? You would think so. And it also makes you wonder what they are feeding us, when they say it will just hurt the restaurants and bars surrounding the arena? Wait, aren’t those the same restaurants and bars that the new owners would seek concessions from?

Well, it’s interesting to note that again, the secured creditor in the Phoenix Coyotes case, Michael Dell, has more land involvment in the Phoenix area, interestingly in Glendale:

The Bidwill family helped put Glendale on the world’s sporting stage when it moved the Arizona Cardinals to the West Valley last year.

Now, in the Bidwills’ first plunge into a major private development, Arizona’s NFL dynasty plans to build a 4.4 million-square-foot corporate district just south of University of Phoenix Stadium, The Arizona Republic has learned.

cbd101 - The Next Great Subsidy Deal?

cbd101 - The Next Great Subsidy Deal?

The development, called cbd101, would bring Glendale its first skyscraper, an iconic tower reaching upward of 40 stories, rivaling Arizona’s tallest buildings.

And the article continues:

The Bidwills are plunking down $55 million to purchase the land from MSD Capital, an investment firm owned by computer magnate Michael Dell. The first phase of the development could break ground as early as 2009.

City Manager Ed Beasley said the Bidwills’ plans wouldn’t compete with other nearby developments but

City Manager, Ed Beasley

City Manager, Ed Beasley

 rather would fulfill one of the Glendale’s primary goals: luring high-end jobs. “The possibilities now become extremely exciting,” Beasley said.

The city has experience working with team owners on commercial development.

Well, we are starting to see how Glendale, Phoenix and likely Arizona are using private corporations to mortgage the taxpayers’ future. But, has it and will it actually do what it is supposed to do…increase growth, jobs, and attract residents? That is another story.

It should be noted, that Michael Reinsdorf”s company, International Facilities Group (IFG) built the Bidwills the Cardinals Stadium, and note the level of involvement as described in the company website:

az cardinals stad

AZ Cardinals Stadium

IFG has been involved in multiple aspects of the 1.7 million square foot stadium. During the bidding phase, every major City in the Phoenix metropolitan area was involved in a fierce competition to host the state-funded facility. IFG was retained as the representatives for the City of Glendale to provide expertise on the financing and operational questions that were elements of the City’s proposal. After the proud day when Glendale was announced as the host, IFG continued to advise the City during its negotiations with the Cardinals and the State of Arizona.

In mid-2004, IFG was chosen to be the operator of the stadium, in a joint venture with Global Spectrum. IFG now advises the design and construction team on operational issues, ensuring that the stadium will operate efficiently and economically.

 So, how did Glendale win the bid amongst  the ‘fierce competition’ that IFG claims? It must have been a great offer to the developer, beating all other municipalities. I’d be interested to see the nature of that deal. According to IFG their involvement was ‘to provide expertise on the financial and operational questions.’

It is very obvious to this reader, that there is a growing network of key private corporation players in Glendale that are responsible for consulting, financing, land development and ongoing recommendations. An economy of it’s own would be a way to describe it. 

Glendale, it would seem, is in deep with ‘sales tax’ related land subsidies with private corporations. Land development subsidy opportunities abound in Glendale, and it is obvious to see the opportunity for several key players. Quite simply, it’s like taking candy from a baby.

Getting back to hockey and the Phoenix Coyotes, the important question has always been, why would the City of Glendale want to keep the infrastructure arrangements alive, and why would it have sought Jerry Reinsdorf out as the new owner of the Coyotes? Well, it would seem to be a case of  a networking of business alliances, in a strategic manner that are truly partners in growth, with the City of Glendale.

So, why would Michael Dell be OK with reworking of his $80 million creditor stake? How would Jerry Reinsdorf know it would likely be accepted? I think we are starting to see a picture here.

Having Michael Reinsdorf in tight with the City of Glendale doesn’t hurt either.

Maybe now we can stop wondering why Jim Balsillie is having trouble with a bid so high that you could build a library with the difference?  Or, ironically (even prophetically), it is pretty close to the sale price in 1996 when Barry Shenkarow, then owner of the Jets, sold the team to Richard Burke and Steven Gluckstern ($65 million).

jim b

Jim Balsillie of RIM

 The ‘club’  (NHL Board of Governors) that Jim Balsillie needs to break into isn’t the big issue here.

The real problem is  the club of private corporate friends to the City of Glendale  he needs to consider.  It may be the ‘$64.5 million question’, and we are likely getting closer to the answer. 

The ‘ah ha’ moment likely lies in the mystery to ‘who holds the bonds’.  And, if there is a ‘common friend’ responsible for lining up all these ‘fat deals’ for the wealthy investors? 

 The truth might then explain why Gary Bettman was rushing  that day, to ensure Jerry Moyes didn’t go through with the

NHL Commissioner Gary Bettman

NHL Commissioner Gary Bettman

 bankruptcy…proxy or no proxy.  Twenty minutes from finding an owner? Ya, right?


6 responses to “The $64.5 Million Question: Who holds the Arena Bonds?

  1. Pingback: Are we onto ‘Something’? Time for the ‘Real Truth’! « Make It Eight, eh? Hockey again for Winnipeg!

  2. Pingback: Everybody gets a new lease on Coyotes (part duh!) « Make It Eight, eh? Hockey again for Winnipeg!

  3. Pingback: Testing a Judge’s resolve: The case of the ‘waiting chair’….a precendent in the making « Make It Eight, eh? Hockey again for Winnipeg!

  4. Pingback: Let’s see….Plan ‘C’, a dumber yet City, and Mr. Balsillie: “The sky is falling” « Make It Eight, eh? Hockey again for Winnipeg!

  5. Pingback: “Double Bubble” or The Real Reason Why Glendale Will Not Accept $50 Million « Make It Eight, eh? Hockey again for Winnipeg!

  6. Pingback: City of Glendale wonders about the $64 million question (and perhaps the $50 million opportunity lost) « Make It Eight, eh? Hockey again for Winnipeg!

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