More on the City of Glendale Arena RFP

Today I saw this article in the Phoenix Business Journal about the RFP to run the Glendale Arena. It is fairly accurate article and seems to have a bunch of inner-web folks quoting the 5 Million in loses per year as evidence to move the Coyotes. In an effort to understand the business a little better I began digging into the supplementary material for the RFP located here. The 5 Million in loses is located right here.

These are my thoughts/comments/questions:

  • The financial statements do not include hockey events so they do not include the major expense of 15 Million/per year that the city paid the NHL to manage the Arena 3 out ofglendale events the last 4 years nor does it include the revenue paid back to the city via a ticket tax that is usually implemented to “pay back” the city for the expense of the arena. I use quotes because this strategies rarely pay the municipalities back for the entire costs. (this isn’t an Arizona/Glendale issue….this is issue across all the US subsidies arenas/stadiums).
  • I went through the Non-Hockey Events sheets for the last few fiscal years to see that when you compare 2010 to 2012 the number events dropped from 52 to 22 and non-hockey attendance dropped from 359K in 2010 to 148K in 2012. That is a pretty dramatic drop and that isn’t related to the Coyotes. Keep in mind the NHL was running the Arena they would receive little to no benefit for booking more dates events for the Arena hence the drop off. Well when you have a drop off in attendance you probably have less opportunity to make money. That assumes that you don’t lose money per event. Interesting to call out there are a lot of reoccurring events and in 2010, 2011 & 2012 the PBR & AIA Basketball show up every year which probably means they have a long term agreement with the arena.

I dug into the financials a bit to get a sense of where money is being made, what kind of costs exist and how many events they would need to break even. I rather crudely broke each line item into fixed and variable to get some sense of a model going. Of course there are some blended Fixed vs. Variable line items and you can get some economies of scale for variable costs (i.e. bulk pricing) so by no means should this be considered a flawless model. Additionally, revenue & expenses can increase and decrease based on the type of event being hosted. In a perfect world you could segment the business a bit and create separate financial statements per event type and class. This is not that much complicated but requires the data to build the models.

So I punch the numbers and build the model only to find that based on the limited info shared by the city and my rather crude model, there is no way the arena can be profitable. I built out the scenarios for 50, 100 & 150 events and even if you were to book 150 events, they would still lose 4.6 Million….hmmm that is very close to the Glendale City Council put aside for next years budget.

Remember, this is non-Hockey events. The city of Glendale also paid the NHL $15Million to manage the arena 3 out of the last 4 years which isn’t even reflected in the Financial Statements. Based on that info, it appears the City of Glendale is paying 20 Million a year to run the arena. This doesn’t even take into account any debt service that must be paid back for the arena.

Feel free to comment but just let it be known this is a crude analysis limited to the information provided in the RFP and supplementary documents. That said, I am pretty certain I am pretty close. I imagine any arena manager will need to get anywhere between 4 to 6 Million a year from the city.

…and if you need any proof I have way too much time on my hands. (The truth is I am an accountant by education but haven’t worked in Finance or Accounting roles in almost 8 or 9 years…I love this #$%@!!!)

glendale finance statements

2 thoughts on “More on the City of Glendale Arena RFP

  1. Ok, I’m trying to put together the pieces… I’m a hockey guy, not a business guy. So the arena in Phoenix loses money with or without an NHL team? If I understand your article (and ledger) correctly, regardless of how many non-hockey events they hold the area loses about $5 mil per year. And you state that the city loses an extra $15 mil per year by hosting the Coyotes.

    So Glendale put out this RFP to try get a new management company that can raise revenue and/or cut cost for the arena.

    The Phoenix Business Journal article you linked to says that the Coyotes could leave Phoenix as soon as this summer! I haven’t heard any talk like that from the NHL.

    Is the Hansen group in Seattle even interested in buying the Coyotes? So far I have only heard serious talk about purchasing an NBA team from the Hansens. It seems to me that the Hansen group is focused on getting an NBA team first. It seems like it will be an NBA arena and an NBA ownership group that also hosts/owns an NHL team. Which is fine with me if it gets us an NHL team. Aren’t there some cities in Canada that want an NHL team first and foremost RIGHT NOW? So what’s the Seattle connection? What makes you think the Coyotes are coming here?

  2. You interpret my write up accurately. Glendale will lose money with or without a hockey team. Note that all numbers are based on the 2011 and 2012 financials that were posted. According to my model they will lose less per event they have but even if they do 250 events, they still lose 4Million. They city intends to pay some amount to the management company (I conclude this for their budget of 6Million next fiscal year).

    As far as the 15 Million goes for the Hockey team. Most arenas are paid back (to the city) via a tax on the tickets. I.e. every ticket sold, $5 will go back to the city. I don’t know what the deal is in Glendale but the league might get the 15 Million only to pay it back via the ticket tax. So that doesn’t really pay the city back for the cost of the arena since it is net zero but if the team left 3 or 4 years ago they would still need to pay for the arena and would not get the ticket tax. (Kind of make sense?)

    As far as the league not commenting on the Coyotes potentially leaving. You are correct. They keep their cards pretty close to their chest but when the Jamison deal fell through at the end of January, Bill Daly said, “we are closer to plan B” or something to the effect that the league might end up looking elsewhere. One thing to note is that Jamison had a sweetheart lease agreement that was approved under the old city council. The new city council is not as owner friendly, as in they will not give them 15M.

    Hansen has said that he will not own the hockey team. He wants to find an ownership group that is just as passionate about hockey as his group is passionate about Basketball. Don Levin is one guy that has expressed interest but Hansen and Levin had some differences of opinion on the arena and it is unclear if they have worked it out. There are others out there but they won’t go public as the league would prefer it that way, particularly during the playoffs (All attention on the game, not off ice issues). Bettman also talked about Seattle market a couple weeks ago implying it is a good market with a great rivalry waiting to happen with Vancouver. There is no doubt he is looking here and I am sure he has owners in mind.

    Realistically, the chances of the Coyotes landing here are low. I would say 25% right now and zero chance if the Kings don’t move here first. Also interesting note is that the Lease agreement that Hansen worked out with the city for Key Arena calls for 750K rent for a hockey team should the need arise.

    Ok..that’s a lot and I cut a lot of corners so let me know if you have any questions.

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