HockeyArizona court ruling may impact future of Coyotes

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I confess I didn’t know anything about this story until yesterday afternoon, and have spent the last 24 hours learning as much as possible. So, to give you greater context, here is a summary from The Phoenix Business Journal:

“(The city of Phoenix) signed the agreement with CityNorth saying tax revenue would be lost to nearby Scottsdale if the project wasn’t built. City officials also pushed the development for its potential of bringing jobs to the city. The $97.4 million commitment to the developers was made in exchange for a 3,180-car parking structure, which the city also said it needed in the northern reaches of the city. From now on, local governments must consider two prongs in a development agreement: whether it serves a public purpose and whether the agreement largely constitutes a subsidy to a private enterprise.”

Taking taxpayers' interest into account

The court ruling is a victory for the Phoenix-based Goldwater Institute, which views these kinds of agreements as hurtful for taxpayers. It argued that $100 million was an outrageous price for parking. (Clearly, its members have never been to downtown Toronto.) And, this organization already has its eyes on the NHL, the Coyotes, the city of Glendale and Jobing.com Arena.

A Glendale city attorney is quoted here as saying this will not have any impact. It’s interesting, because an NHL source indicated last night the league was still trying to determine how much the decision would affect its arena-lease negotiations. (An email to prospective owner Ice Edge Holdings was not returned.)

“If there are any discussions about a subsidy or reducing rent in the arena in exchange for any suggestions that the Coyotes bring in sales tax or create new jobs ... the City North ruling makes it clear that’s not allowed,” Goldwater attorney Carrie Ann Sitren said in a phone interview.

The belief is that’s what the NHL and Ice Edge are attempting to do with Jobing.com. But, it’s difficult to know for certain, because the city of Glendale hasn’t released documents related to the issue. Goldwater filed a lawsuit asking to see non-confidential papers, while asking for a judge to review confidential ones to determine whether those should be made available too. A contempt-of-court hearing is scheduled for Feb. 12.

What we do know now is that the state of Arizona makes a clear-cut delineation between “tangible” and “intangible” benefits.

“A tangible benefit would be a public road, public infrastructure, utility lines ... Something the city gets to own or the public gets use of,” Sitren said. As for intangible (or indirect) benefits, “The two biggest are claims of raising tax revenues and creating jobs. Across the state, we do see a lot of deals or attempted deals saying they’ll bring in revenues, and that’s where the court says no.”

Owners could be responsible for shortfalls

For example, if Glendale was going to claim having the Coyotes was worth (for argument’s sake) $25 million in sales tax, the team might have to guarantee it – the “tangible benefit.” So, if there was a shortfall, whoever is paying the bills could have to cover the amount. Would anyone really be willing? (Keep in mind that one-time ownership hopeful Jerry Reinsdorf was asking for approximately $20 million from Glendale.) That’s problematic for the NHL.

“(The Coyotes case) is a little different because there is an existing lease,” Sitren added. “They are bound by this contract to pay rent to use the arena. So, if we see any restructuring and taxpayers not getting bad end of the stick, we’d be fine. What we don’t want to see is the Coyotes not pay as much and Glendale families suffer the difference.”

The court ruled that even though the CityNorth deal was allowed to continue, any existing contracts cannot be amended to avoid the new guidelines. So, Ice Edge would have to either live by the current lease or negotiate a new one that doesn’t violate the tangible benefits rule.

Is either scenario acceptable to a new owner? It seems unlikely. But for Canadians watching the Coyotes closely, it’s a big factor to consider.

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