The proposed agreement between the city of Glendale and a group headed by Chicago sports baron Jerry Reinsdorf to purchase the Phoenix Coyotes is facing severe criticism from a conservative watchdog group.
Carrie Ann Sitren, lawyer at the Goldwater Institute, said Reinsdorf's memorandum of understanding on a revised lease made public on Friday "raises serious legal questions."
On the other hand, she said the memorandum with the other proposed buyer, Ice Edge Holdings, "looks much better."
Glendale city council is to vote on both memorandums on Tuesday night. If both are approved, the NHL would decide who would buy the team.
The league purchased the Coyotes in bankruptcy court last year.
Sitren noted that neither memorandum is legally binding and both are short on details.
But she said the Reinsdorf plan has serious problems with the state constitution's gift law and general contract law.
"It puts a huge amount of risk on the city and Reinsdorf takes on virtually no risk," Sitren said. "That means it could be a contract without give and take from each side. That would be an illegal contract."
The Ice Edge proposal relies largely on parking revenue at the arena and a ticket surcharge.
"It looks much better because the funding from it seems to come from people who visit the arena, which seems like an appropriate place for the business to make money …parking fees and ticket surcharges, which are totally fair," Sitren said.
John Kaites, a lead player in the Reinsdorf group, did not reply to an email seeking comment on the Goldwater Institute's concerns.
The institute remains embroiled in a court fight with the City of Glendale over access to documents from the negotiations, which were conducted in private.
Reinsdorf signed the memorandum with the city on April 1. It calls for creation of a "community facilities district" that would sell bonds and collect revenue. The city would pay the NHL up to $65 million US in three-year increments — $21.6 million the first year, $21.6 million the second year and $21.8 million the third year.
Reinsdorf also would have access to up to $25 million per year to cover operating losses to a maximum of $100 million over seven years.
In the fifth year of ownership, Reinsdorf can give notice to sell the team and it would be up to Glendale to find a local buyer. The purchase price would have to be at least $103 million.
Ice Edge would collect $7.5 million per year in parking revenue to pay for a bank loan and would get another $2 million from ticket surcharges.
The Ice Edge plan also calls for an account of at least $5 million per year to cover operating losses. The money would be from local landowners.
Sitren said the $5 million account would be acceptable as long as it is voluntary. If the city forces the payments, then the institute would have a problem with it, she said.
Ice Edge presented "an open letter to the citizens of Glendale" on Monday touting itself as "the superior choice" to buy the team.
In the letter, the group of five Canadian and U.S. investors acknowledged it is "both youthful and limited in terms of experience in owning professional sports teams." It noted, however, that group member John Breslow owned a small portion of the Coyotes.
"We have spent the last eight months working on a solution to keep the Coyotes in Glendale for the long term," the letter read. "No one is paying us to do this. We are simply passionate hockey fans who believe in the long-term future of Glendale and its hockey team."
Earlier in the day, Ice Edge chief executive officer Anthony LeBlanc responded to a report in the Toronto Globe and Mail that quoted sources close to the NHL board of governors as saying the league prefers the Reinsdorf bid.
"The NHL has been incredibly supportive throughout this entire process," LeBlanc wrote. "We have also had the pleasure of working with a variety of individual NHL teams and they too have been most supportive.
"Our plan is one that has been presented to the league, and our understanding is broad details have already been shared with the board. It serves us no benefit to focus on details outside of our control, we continue to be in this process because we feel we offer the best solution for the city, the NHL and the fans of the Phoenix Coyotes."
The Reinsdorf group has not commented publicly since the memorandums were released.