Glendale, AZ voids lease with NHL Coyotes, leaving team’s future uncertain

The City of Glendale, Arizona called an emergency city council meeting tonight for one purpose: to vote on terminating the Arizona Coyotes’ lease at Gila River Arena. You may remember two years ago, when the Coyotes seemed bound for anywhere but the desert as the franchise’s reported financial losses piled up and the city faced bankruptcy in what could be considered the worst stadium deal in North America.

The Coyotes' demise in the desert is at hand

You may not see that banner up there for much longer

The NHL even bought the team and operated it for a while, waiting for an ownership group to come in and operate the team, hopefully not at a loss. The deal struck included a payment from Glendale to the Coyote owners’ arena management wing of $15 million per year over 15 years on top of $50 million in subsidies up front. That’s right, the city is paying the team to stay. Glendale was supposed to get limited event revenues, and because the team’s future was supposed to be secure, there were fewer worries about the city’s ability to handle ongoing arena debt. Eventually the team would start winning again and the money would roll in for both parties.

That money never came. The Coyotes haven’t averaged more than 13,000 per game in attendance since 2009. They haven’t been in the playoffs since 2012. Other than the small number of hardcore fans, no one came. The $15 million operating subsidy from the city roughly covers the lost revenue from 4,000 empty seats every home game when compared to other teams. No one’s happy. The current mayor and council have expressed displeasure with the Coyotes, the NFL over the Super Bowl, and its two spring training MLB tenants, the Dodgers and White Sox (at Camelback Ranch). Glendale has overextended itself time and time again, spending so much on pro sports and getting less than zero out of it. And unlike the arrangement at the Coliseum for the two venues there, Glendale, a city about the same size as Fremont, funded the arena itself.

All of this drama set the stage for the big vote. Supporters of the Coyotes came in from all around the West Valley to denounce the plan to kill the lease. The trigger for the lease termination was not about the losses, though the Coyotes have the ability to leave on their own if they accrue $50 million in losses over five years. Instead, Glendale cited a conflict of interest, which allegedly occurred when Glendale’s former city attorney took a position with the Coyotes shortly after the lease was approved in 2013.

After public testimony was cut off, those on the dais made a few comments, culminating with a 5-2 vote to terminate the lease. The Coyotes responded within minutes, threatening to sue Glendale for up to $200 million.

FOR IMMEDIATE RELEASE:
Wednesday, June 10, 2015

GLENDALE, ARIZONA — Arizona Coyotes Co-Owner, President and CEO Anthony LeBlanc issued the following statement following tonight’s Glendale City Council meeting.

‘We are disappointed with the city’s decision to violate its obligations under the agreement that was entered into and duly approved only two years ago. We will exhaust any and all legal remedies against the city of Glendale for this blatant violation of its contractual obligations to us.’

One thing to note is that the Coyotes had themselves reported $34.8 million in losses for 2014-15 season alone. The team’s well on its way to hitting that $50 million mark, and the only consolation it can provide to Glendale is that the city’s loss will be $6 million as opposed to the projected $7 million before the season.

Coyotes fans don’t deserve to go through all of the drama built up over the past decade. Yet they’re powerless, as fans often are. Their limited numbers don’t impress NHL brass, who stalled as long as they could while fighting off relocation rumors and threats. Right now three cities are considered frontrunners for a move, which could come this fall.

  • Las Vegas – A new arena on the Strip is being built by MGM and AEG. While its primary purpose is to be a major concert venue, it will have the capacity to host NHL and NBA teams. The arena won’t be ready until 2016, so a relocated Coyotes squad would play at the MGM Grand Garden Arena or Thomas and Mack Center for a year or so.
  • Seattle – Arena efforts have largely stalled since efforts to buy and move the Kings to the Emerald City died. NHL is also on the radar, though basketball is clearly the primary focus. A rival arena plan has been proposed for Tukwila, not far from SeaTac airport.
  • Quebec City – A brand new venue is nearing completion, and could be ready to host the Coyotes in September. The downside is that a move to Quebec would also cause the league to embark on another round of realignment. The already shorthanded Western Conference (14 teams) would send another one to the East (16 teams), forcing another team to move to the West.

Northern California cities such as San Francisco and Sacramento are not in the offing because both have built-in revenue competition from basketball teams, and the Warriors’ and Kings’ new venues won’t be optimized for hockey. If the NHL is going to move the Coyotes, they’ll go to a place that has minimal competition and an arena with few scheduling conflicts.

The Coyotes and Glendale could also reach some sort of truce, allowing both to co-exist and renew their partnership. It’s hard to see that as every bridge has been burned. The team is bringing legal action Thursday, so the battle is just beginning.

SC County Judge declares A’s-San Jose land option illegal

Just in from Santa Clara County Superior Court: Judge Joseph Huber, who has presided over the smaller Stand for San Jose-vs.-City of San Jose case for a few years now, has called the land option agreement between the City and the A’s against the law. Wrote Huber:

“The city is and has been in violation of (the law) for several years and it does not appear it will comply with the terms in the foreseeable future.”

Combine that with the blows that San Jose has received in federal court, and you have to think that any chance of a ballpark happening in the South Bay is toast, short of a miracle. Yet it all comes down to some serious strategic errors on San Jose’s part that could have strengthen their case, in this local venue and the federal one.

Remember that it was former mayor Chuck Reed who wanted to go to the ballot box in November 2009 (!), then March 2010. The deal would’ve set up the possibility of a voter-approved stadium deal in San Jose. Instead, he had a discussion with former MLB president Bob DuPuy, who relayed then-MLB commissioner Bud Selig’s desires to keep the deal on the shelf. Reed complied, there was never a referendum or initiative, and San Jose’s position has looked significantly worse ever since. All San Jose has right now is a prayer for SCOTUS to take the case, which isn’t likely. Throughout all of the various legal battles, at different levels, the weakness of the option agreement has been cited. The A’s have little vested interest in San Jose, and the City is no closer to putting together a deal than it was six years ago.

Now that even Lew Wolff has for all intents and purposes given up on San Jose, the spotlight is on Oakland, where that city faces an uphill battle at Coliseum City and could entertain an A’s proposal should the football stadium plan fizzle out. That brings to mind three scenarios.

  1. If Oakland can’t get Coliseum City done and the NFL doesn’t allow the Raiders to move to LA, the Raiders would either be forced to limp along at the Coliseum indefinitely or consider a move to either San Antonio or even St. Louis. The former would be a continuation of the awkward status quo, with no new venues in sight for either the Raiders or A’s.
  2. Should the Raiders vacate, they would clear the path for the A’s to build a new ballpark at the Coliseum, infrastructure or other public contributions to be up for significant debate. Or maybe no new infrastructure (no baseball village) because no one has figured out how to pay for it.
  3. If Oakland gets Coliseum City to work out with only a football stadium (the NFL’s and the Raiders’ preference – no one sane is buying into the multi-venue fantasy at this point, right?), the A’s are pushed out (per lease terms) and have no obvious backup plan. Would MLB direct the A’s to start looking in the East Bay and maybe the broader Bay Area for ever diminishing land opportunities, or start playing hardball and making threats as it does with so many other markets? How does a stifled San Jose factor in? And what of the Giants?

It’s just as well, we’re so overdue at this stage for a stadium that San Jose will soon have to deal with Sharks owner Hasso Plattner on his designs for a makeover at the 21-year-old arena that bears his company’s name. And if the goal is to get on par with the best new hockey arenas, it won’t be cheap. That discussion is for another day.

P.S. – The scant output over the last month was an intentional move on my part to see what would happen if I chose not to be swayed by every little gesticulation in the media over the A’s or Raiders. While readership was down a little, I felt it was the right move because there was no need to blog about mostly vague details or the rumor mill. Therefore I’m getting to stick to publishing 2-3 times a week while using Twitter to get out quick notes or retweets. If you haven’t already, follow the feed. Things should pick up again in June with the next set of Coliseum City deliverables is expected to be released.

San Jose City Council approves taking antitrust case to Supreme Court

Despite losing handily twice in federal courts, the City of San Jose won’t relent, voting unanimously today to take its antitrust case against Major League Baseball to the Supreme Court. While its chances of overturning baseball’s antitrust exemption remain slim, the City’s game plan is simply to have the Supremes take the case, which could cajole MLB into settling. Even that outcome is a long shot, as Wendy Thurm explained at Deadspin two weeks ago. Regardless of the long odds, Mayor Sam Liccardo seems to be spoiling for a fight:

We may know the Court’s decision by summer.

Could cities use eminent domain to acquire teams? Don’t hold your breath

Field of Schemes‘ Neil deMause has an intriguing article at VICE Sports today positing the idea of teams buying teams via eminent domain. It’s not an entirely original idea. You see it on a message board every so often, and the City of Oakland famously tried to use ED to keep the Raiders from moving to LA (it failed). deMause doesn’t consider any eminent domain proceedings to be a slam dunk, as their efficacy could vary wildly based on jurisdiction. Instead, deMause looks at the ED threat as a cudgel to use against another threat, the move threat teams often wield over cities. Whether or not teams actually talk about moving to other markets, the possibility of being tied up in court, having to open the books, etc., might make team owners think twice about it.

As for eminent domain actually having teeth, it’s difficult to argue for it. California already has two cases on the books that support teams and leagues over cities, and of the teams that have recently built or are looking to build new venues, none are using that extortion weapon – except perhaps for Arte Moreno against Anaheim.

The Green Bay Packers are often touted as the model for publicly-owned sports franchises. The franchise was stabilized nearly 90 years ago when they became run as a public corporation, with real stock sales. Once issued, shares cannot be resold except back to the franchise, and the stock doesn’t offer any sort of dividend or significant voting rights, so they’re mostly for stadium improvements or for financially supporting the team, which struggled through the Great Depression.

Let’s say Raiders fans wanted to try such a model in Oakland. They’d have to raise $1 billion, or 10 million shares at $100 each. A new stadium would also cost around $1 billion, so make that 20 million shares. If the NFL was amenable to the idea (they have disallowed publicly owned franchises except for allowing the Packers to be grandfathered in), it might work. 20 million shares at $100 with no tangible returns is pretty hard sell, though cheaper than Coliseum City when you think about total costs. deMause floated the idea of cities using eminent domain, then raising bonds for the team purchase. Cities don’t have the cash to competitively outbid private parties in today’s escalating franchise sales wars. If eminent domain were considered legal for this purpose, it’d probably be the only way a city could buy a franchise.

You may consider the concept of cities attempting to own sports franchises a serious overreach of government power and responsibility. On the other hand, you might see it as a reasonable alternative to the increasingly money-driven, greedy ownership model we currently see. A third way might be the public stock offering, which worked in Green Bay and is also in use to a much greater degree in European soccer. Whatever your take, the very rich men who plowed nine or ten figures into their sports franchise investments have zero desire to change the current ownership model. If that is legitimately threatened, you can be sure that they’ll fight to the bitter end to protect those investments. While I wouldn’t expect it to happen, challenging the status quo can often be a good thing. I’d like to see what happens. It’s not my retainer, after all.

Stand For San Jose lawsuit returns

In August I posted a note about the Stand for San Jose-vs-City of San Jose lawsuit. The lawsuit, which was actually the product of two consolidated cases, had been disposed in late July. No explanation was given as to why, though the timing was curious.

On Friday Stand for San Jose filed yet another suit against the City. Fangraphs’ Nathaniel Grow has more:

Curious indeed. SFSJ drops the suit after the A’s sign their 10-year lease at the Coliseum, then objects to the option agreement and files suit thereafter. I’m certain there’s no coincidence. Brent Mann followed up with a couple tweets:

We knew about the blood ties with Pillsbury, but a SF PR firm too? Couldn’t source locally, eh? That’s so Giants.

It should be abundantly clear by the ties to the Giants, along with SFSJ’s actions always happening on the heels of what the A’s do, that S4SJ has about as much legitimate interest in San Jose as the Giants do. With SFSJ’s use of Giants fans to prop up the lawsuit and the Giants’ sage advice to Jean Quan in trying to push for a waterfront ballpark in Oakland, this legal battle has become a complete farce. And if the A’s sign a deal to develop a ballpark at the Coliseum, any bets on how quickly this lawsuit will also evaporate?

All hail the SF Giants, great guardians of the welfare of San Jose.

90 Days Or Bust

The last post had some fortuitous timing, as a breaking Chronicle item came in just as I was about to hit publish. That was followed by articles in the Tribune and SF Business Times, so read those to get the full (for now) scoop.

In short, the City Council voted 6-1 to approve a 90-day extension. That’s a marked departure from the 6 months that was previously expected. Motivation for moving up the deadline is unclear. It could be confidence on the new investor group’s part. It could be the need for Oakland to show something before the February NFL relocation window opens, which only a 90-day timeline would accomplish. Perhaps it’s a little of both. In any case the City of Oakland and the new working group, New City Development LLC, will have until MLK Day to prove itself.

Raised park concourse that runs through Coliseum City

Raised park concourse that runs through Coliseum City

New City will be headed by Floyd Kephart of Renaissance Companies in San Diego. Renaissance is a consulting and advisory firm. Kephart’s main task will be to bring in the remaining money required to bridge the funding gap. He’s also responsible for signing up a master developer to oversee the entire 800 acre project. There are only a handful of companies that have experience doing projects of this size and scope. Forest City was expected to be the master developer originally, but they backed out when they saw the costs and potential returns. Miami Dolphins owner Stephen Ross runs Related Companies, another experienced firm for such work. Related is heading up the massive, $6.5 billion development north of Levi’s Stadium in Santa Clara. What does Kephart see that Forest City didn’t? We should soon find out.

The lone dissenting vote was CM Rebecca Kaplan, who pointed out that several deliverables are still missing, including the deal terms and financing model. Both of those items were expected over the summer, and when BayIG was pressed for them, were promised again in August (and apparently not delivered). Kaplan’s ties to the A’s extension and Lew Wolff’s recently returned campaign contributions make her moves somewhat suspect, but lack of follow-through on BayIG’s part is rather disappointing and unsettling when you consider the lead time they had to assemble the deliverables.

A big surprise to come out of the session was CM Larry Reid’s complete 180 on the project. He has been a fervent critic of the plan for at least a year now, and his effusive praise of Kephart is quite startling. That said, the project is in his district, so he stands to benefit if it comes through. He’s also not up for reelection this year, so he doesn’t have to back either Kaplan’s or Mayor Jean Quan’s visions. Reid remains Vice Chair of the Coliseum JPA Board.

Three months is an awfully short time to get the deal done. It’s not a matter of tying up loose ends. There are major deal points that have to be addressed.

  • Sign at least one tenant, preferably the Raiders to start
  • Engage the A’s and Warriors (even though neither team is interested)
  • Provide deliverables and reports that haven’t been completed yet (deal terms, financing, 2nd phase market analysis)
  • Bring in a master developer
  • Line up needed capital for stadium phase and ancillary development phases
  • Figure out who pays for the remaining debt at the Coliseum and Arena (if necessary)
  • Gather support of the JPA and Alameda County

It all feels like it’s going to get severely rushed, which could end in a horrendously bad deal for Oakland if they’re not careful. Quan’s calling the announcement a victory, though she neglected to mention that she said several times throughout the year that a team – the Raiders – would be a signed partner, at first during the summer, then late summer, then fall. Problem with trying to sign the Raiders is that because of the lack of concrete information on financing, investors, and viability, there’s no reason for the Raiders to sign on, and national reports echo that. Every time someone in Oakland talks up how the Raiders are getting ready to officially be a part of this, Mark Davis knocks that notion down. With the season almost half over and the NFL’s relocation window looming in February, there’s no reason for Davis to commit to anything before he feels it’s the right moment. The best deal for Davis comes with having the most options open, and that includes Oakland, Los Angeles, and maybe even San Antonio. He at least has limited leverage in that scenario. As for the the A’s, Lew Wolff is standing as far away from this as humanly possible, not wanting to make it anymore complicated, and not wanting to draw the short straw.

The JPA is busy getting ready for life after the Coliseum too. Last week they were ready to hire Republican Guy Houston, but the vote on his hire was delayed amidst renewed scrutiny into legal issues Houston had while in the State Assembly. The JPA did make a hire on Tuesday and his name will be familiar: former Oakland City Manager Robert Bobb. Bobb’s consulting firm is consulting the JPA on stadium and other development at the Coliseum, whether it’s Coliseum City or a Wolff-developed alternative. The cost to the JPA? $25,000 a month. Check out this org chart showing Bobb, Houston (or someone else), and the JPA.

Org chart supplied by The Robert Bobb Group

Org chart supplied by The Robert Bobb Group

The JPA doesn’t have the power to make any planning or zoning decisions. Only the City does. The County is co-owner of some of the land and could provide resources, so it also has a say in whatever happens. All I can say is that when you look at the above chart and all the different parties involved in Coliseum City, it’s a lot of cooks for one kitchen.

Tweets and commentary from 10/1 Oakland Planning Commission meeting

The public came out of the Planning Commission meeting with more questions than answers, and that’s a good thing. When the EIR comment period ends, it’s up to City staff and consultants to provide answers to the many question posed by the public.

A presentation was given to start. Early discussion focused on affordable housing as part of the plan. The plan calls for 5,750 housing units to be built. 25% of those are supposed to be affordable, whether via rental or purchase. The Bay Area’s ever-skyrocketing housing market makes that 25% a growing subsidy (public and/or private) with each passing month. According to trulia, the median price for a home in Oakland is $475,000, up 8% from September 2013. Oakland uses a HUD formula to calculate affordable housing on a regional basis. In essence, 25% of housing would have to be affordable for households making $72,000 or less per year. However, the median income in Oakland is less than $52,000/year. To make it work, the City and developers would have to crunch some serious numbers to determine the proper mix of pricing and subsidies, not to mention addressing low income residents and senior citizens – both groups represented by commenters at the meeting. Chances are that most of it would come out of developers’ pockets, though Governor (and former Oakland mayor) Jerry Brown has been working to get rid of affordable housing set-asides. This puzzle has to be solved by all residential developers in California, so it would affect Coliseum City’s principals or Lew Wolff and partners if they were given the opportunity. One East Oakland resident got straight to the point.

As the Commissioners took their turns picking apart the plan, one asked about the status of discussions with other parties that need to be involved. The responses?

That third tweet is interesting. We haven’t covered the bay inlet much. That’s a reference to the new part of the bay that would approach the new arena (assuming the Warriors stay at Coliseum City).

Inlet at top

Inlet at top

You might think that the inlet was designed for a ferry terminal or for boats with a dock. You would be incorrect. It’s merely a shallow extension of the estuary, a tidal mudflat not meant for recreation. It’s meant to provide an additional habitat to go with all of the new construction, but it seems like a wasted opportunity. Of course, providing a ferry terminal would bring about an even greater environmental review since some dredging would be required. A couple commissioners seized on the fact that of the various development options the no-build alternative was barely touched except to say that the various venues would be demolished and other development would fill in at some point. Since this is a Specific Plan and not just a small project-level EIR, it’s within the Planning Commission’s right to ask about what happens if the teams leave, since it’s a distinct possibility. The scenario should be addressed in more detail in the final EIR.

A few Raiders fans showed up to provide their support, including Dr. Death and Godfather Grizz. They were largely outnumbered by local residents who expressed concerns about the aforementioned housing problem, gentrification, the need for improved police and fire services in the area, and questions about the effects Coliseum City could have on the rest of Oakland. One thing I’m surprised to not hear was a question about what impact a second downtown (which is what CC represents) would have on the current downtown/uptown area. While that’s a question that goes broader than the existing project, it’s well within the Planning Commission’s purview to take on that kind of dilemma – if it’s a dilemma at all.

Coliseum employees who want to see their jobs protected were well represented. One resident noticed the streetcar that runs through the complex and wanted to see it expand all the way out through East Oakland and up International Blvd. If a streetcar is going to be put in at all, that’s the way to do it. A commissioner noted that while BART and the new AirBART are getting a lot of attention, very little is being paid to how AC Transit and Amtrak will be integrated. AC Transit is as important as anything, because while buses aren’t sexy, they will be responsible for providing transit for many of the low-wage workers that will be working at the hotels in the plan, especially at odd hours.

Overall, there was a large undercurrent of sentiment that Coliseum City is being conceived as an island, not well integrated with East Oakland. That itself is a dilemma, because developers don’t want their shiny condos associated with East Oakland’s rep while community groups and residents are desperately hungry for the opportunities the project represents. As part of Mayor Jean Quan’s 10K-2 plan, Coliseum City represents a big piece of a goal she’s trying to reach.

The Coliseum area had lost a few hundred jobs over the decade from 2000-10. Now it’s being counted on to retain three sports franchises – two of whom have no interest in the plan, along with around 4,000 new jobs throughout the 800-acre development. Developers tend to make big promises about such economic growth which get lost in market realities. Perhaps it’s time for more scrutiny of these estimates.