For the bullet summary, please go here.
All baseball fans know the term ‘squeeze play’.
Well, in business, the term ‘hostile takeover’ is familiar, especially after the movie, ‘Wall Street’ hit theatres many years ago. If we are not careful, we risk ‘dating ourselves’. Oh well, with age comes wisdom; something at least we benefit from as the years sail along.
When I think of Jerry Moyes, I think of a man that obviously fell on difficult times when the gas prices made trucking a nightmare. Moyes was not alone in this problem, as truckers, both independent, and the larger companies, like Mr. Moyes’ were hit hard with shrinking cash flow and profit margins. There is one thing about the trucking industry though, the people are downright genuine. There is not too much hidden that you cannot read in the eye. Something to be admired. A hard life, but a simple life. These men and women really do earn their money in an honest way.
When things started to go bad, Moyes did what he could to save the Coyotes team, and poured a good chunk of his personal wealth into the franchise. It just goes to show you, that in business, passion beats logic. We don’t want to lose what we place our identity in. I think it is fair to say, Jerry Moyes was honest and passionate about the Phoenix Coyotes, evidenced by his willingness to lose much to keep the team afloat. Even going as far as buying a 1000 tickets a game to get the attendance to 14,000. Sounds like a man that took pride in his team. Not perfect, but the evidence is in the money poured from out of his pockets to the team.
Looking at the current court fiasco with the Phoenix Coyotes, I can’t help but reflect on the presumptuous nature of the ‘stay home’ bid placed by Jerry Reinsdorf. This, of course, started long before learning of the close relationship that his son Michael Reinsdorf shares with the City of Glendale. And, before learning of Michael Dell’s involvement with CityNorth in Phoenix, that is now in the Supreme Court being challenged for the ‘Gift’ laws which prohibit private corporations from taking advantage of the taxpayers, and relates to sales tax based land subsidies. In short, it means taxpayers pay many times over for a given project. As the example cited, the $480,000 single parking spot. As argued, the person could be taken by helicopter cheaper!
And, as we learned, it would seem that Michael Reinsdorf is responsible for a fair bit of sports facility development in Glendale, a strong reason to want to ensure it succeeds. Michael Dell, involved in land development, and also land ownership (in Glendale) seems to have deep roots in the infrastructure growth in parts of Phoenix as well.
So, again, on the outside looking in, we would be led to believe that Jerry Reinsdorf was ‘courted’ by the City of Glendale and the NHL because he was a succesful, knowledgeable sports magnate, and that would be true. But, it is only when we look at the ‘bid’ that we start to question how on earth he would expect it to satisfy the court, the City of Glendale, and the secured creditors.
The City of Glendale has ‘partnerships’ with business people like Michael Reinsdorf to consult and manage, and with wealthy people that are willing to invest in the land development projects. If there is one thing to be learned, these projects have promise of huge revenue streams for the investors, and what better way to ensure payment, than when the arrangement is with a municipal government like Glendale, backed by the taxpayers?
We can see that land development is a competitive issue, as other municipalities in Phoenix area, and Arizona would compete to try to get the same investors to build in their cities. What would win the prize in all liklihood is a generous offer from the municipality, and a high price tag to the taxpayer. International Facilities Group (IFG), owned by Michael Reinsdorf, was responsible for the negotiation and consultation on the Arizona Cardinals Stadium, and the competition was described as ‘fierce’. As I mentioned before, I would like to know how lucrative the offer to those investors was.
Here lies the problem. As a government, when you get in deep with private corporations that provide infrastructure growth, are you at risk of favoritism? I would argue, and I am sure the Goldwater Institute, and the Supreme Court for that matter would argue the same. Correct me if I am wrong, but shouldn’t government be run in a non-biased, fair to all bidders way? I would again argue yes.
Otherwise, what may happen, is the private corporations will acquire too much power through the relationships with the municipality. And, by the nature of the debt obligations that the City would be on the hook for, the private corporations start to have too much say, and voila, we have a municipality at the mercy of private corporate influence, a taxpayer’s nightmare.
Is this what is happening in parts of Arizona? In Phoenix which has led to the benchmark CityNorth case in the Supreme Court? In Glendale? I would have to say, absolutely. And, will it continue to happen if the court or political battles don’t stop it? Yes again.
O.K., so having rambled on, how on earth does this apply to the Phoenix Coyotes? How can I question the state of the Coyotes, and the worry that Jerry Moyes has been victim of a ‘squeeze play’? Good questions. I submit these facts for your consideration.
It is well documented that the Phoenix Coyotes have been bleeding red ink since their time in Phoenix, even before being moved to Glendale. When the Jobing.com arena was built, International Facilities Group (IFG) was responsible for the project. They even had a full time employee on site after the arena was built for ongoing consultation.
IFG also professes to be experts in lease negotiations and management. It begs the question, that if you built the arena, wouldn’t you suggest you be the consultant for the lease? And, if the municipality decided to go it alone, wouldn’t you suggest they get the professional direction you as a company would offer? You bet. I would.
There remains the questions. Who holds the Jobing.com bonds, and who is responsible to ensure the negotiations for the lease ‘suit the needs of the client’ and the tenants? To date, I cannot uncover that information. I wonder if someone else might be able to add some light in these important areas. The reason the bond is of significance, is in the ‘sales tax’ portion. Would that make it a ‘subsidy’ as is issue in CityNorth in Phoenix?
The reason the arena lease management is significant, is because the Coyotes were not doing well in aspect of paying the lease, or the expenses as a whole, and you would hope someone would jump up and shout, “let’s help Jerry, it isn’t working”? To my knowledge, the City of Glendale wasn’t helping Jerry much.
And here is the real kicker. We keep coming back to Michael Dell for some odd reason. Dell who runs SOF Investments, and is the secured creditor for $80 million.
Well, what is most significant with the loan to Jerry Moyes from Dell isn’t the amount. It is the terms that David Shoalts outlines very well :
Almost everything the Phoenix Coyotes own or earn is pledged as collateral to SOF Investments LP of New York, according to financial documents obtained by The Globe and Mail……
Further, all revenue is pledged to SOF, except $2.5-million annually in arena-naming rights, $1.50 a ticket owed to the city of Glendale (for paying $180-million toward the $220-million arena) and $9 a ticket for “all NHL hockey events” to the club. Other revenue includes NHL broadcasting rights, any share of future expansion or relocation fees, revenue sharing, merchandise sales, concessions, sponsorship contracts and practice facility rentals.
The $9 cut from ticket sales does not go far. Through 21 home games, the Coyotes ranked 26th among the NHL’s 30 teams in attendance with an announced average crowd of 14,789 a game.
The Coyotes received a reported $15-million in revenue sharing last season from the NHL’s wealthiest clubs, the most of any franchise that qualified for the handout.
Rocket science doesn’t have to assist us here. Pulling out the calculator supports definitively what Forbes and others are saying. With the current state of the finances, loans, lease, gate receipts, salary floor, etc., etc., the stand alone viability of the Phoenix Coyotes is a no brainer. It isn’t going to fly.
The immediate question is this. If the City of Glendale knew the lease was not working why didn’t they help? If Michael Dell knew the loan terms put Jerry Moyes in financial suicide mode, why didn’t he alter the loan terms? It wasn’t working, that was obvious. Was there a collusion between the City of Glendale, and the others involved to ensure the financial stranglehold on Jerry Moyes?
If Jerry Reinsdorf is going to take over this team why is Glendale negotiating with him when they wouldn’t with Moyes? If Jerry Reinsdorf needs to rework/renegotiate the SOF loan with Michael Dell, why would Dell do it for Reinsdorf and not Moyes?
From the outside looking in, one might speculate there are a couple of things likely here. Favoritism based on relationship, and favoritism based on a business network that exists
between these parties and the City of Glendale. Jerry Moyes just wasn’t in on the party!
There is one thing about baseball and the ‘squeeze play’. The team doing it all know their roles, and how it will come off. It takes the whole team to make it successful! Perhaps now we know what lawyer for the coalition, John Kaites meant, when he said
“It’s a robust group, and that is what it’s going to take to save the team,” .
May common sense and justice prevail – for the sake of the game, for the sake of the taxpayer, and even for Jerry Moyes, faults and all.