Part XIII: Phoenix Coyotes - The Final Cut?

william_adams · Oct 11, 2010

LadyStanley said:
Depends on the bond. There may be no way to pay off the bonds/debts "early" (and thus needing less than $280m).

(I don't have access/knowledge to know the specifics, but are there any bond traders who know or can make an educated guess on municipal bonds?)

I admitedly don't know much about US muni bonds, but a quick check on bloomberg shows a similar example: the glendale 4.25% 7/1/2016 bonds as specifically non-callable. If that's also the case for the bonds in question, then they are on the hook for all of the principal and interest still remaining on the bonds.

Ciao · Oct 12, 2010

supahdupah said:
Good to see people are still pretty much making things up.

Mmm hmm.

I wonder if Bill Daly was letting his imagination run wild when he said so long ago to the effect that there is a lot of local interest in buying the Coyotes? Fact or fiction?

Was CoG lying, ignorant or just holding something back that we don't yet know when it said no taxpayer dollars would be used for the $25MM "insurance policy" the NHL demanded. Apparently now Mayor Scruggs either believes that a new purchaser will take that liability off the City's hands, or she hasn't any idea what will happen. Fact or fiction?

Any "good news" from CoG, the NHL or any prospective purchaser lately? If there were any, it would likely be publicized very quickly.

OthmarAmmann · Oct 12, 2010

RR said:
Either kdb or mouser broke down the various bond issues last summer. IIRC, only a small portion (if any) can be paid early without penalty. We can trust their estimates of $280M - $300M.

Convention is to typically to state debt in term of principal owed rather than principal and interest. Even if they're non-callable, they could still be purchased in the market or the city could pay somebody to cover their obligation. Neither would be cheap of course, since buying the bonds would likely move the market and the counterparty would likely charge a significant premium.

It's notable that their claim against Moyes is only $200 mm. They could just invest that to cover the future P&I

Killion said:
You'd have to implement a graduated parking fee structure over 3-5yrs in order to make it palatable, while simultaneously increasing ticket prices annually.. It would be foolish to try & ding the consumer for $15 to park when their holding a ticket with a face value of less. Their are all kinds of things that have to happen here, not least of which is ticket pricing. I would rather have an arena half full with people who are willing to pay comparable prices for NHL seating & parking & "tarp" the upper levels than continue to give away entertainment & product virtually for free. Create a buzz, demand (and prices) goes up.

Working from IEHs MOU, $7.5 mm of parking revenue would require between 325k and 750k car trips at $10 to $20 a pop. I'm also guessing that demand is very price elastic (I read the other day that 1 in 8 Arizona mortgages is over 90 days delinquent), so I don't see how that actually would get to the contemplated revenue number.

So what do the businesses in the CFD even contribute? All I remember is parking and ticket surcharges... if it's some sort of sales tax it would just be passed along to the consumer. Even if that tax is only applied on event days, it probably would affect demand to some extent.

All of this of course will make Jobing.com arena less attractive to non-hockey events.

Tommy Hawk · Oct 12, 2010

william_adams said:
I admitedly don't know much about US muni bonds, but a quick check on bloomberg shows a similar example: the glendale 4.25% 7/1/2016 bonds as specifically non-callable. If that's also the case for the bonds in question, then they are on the hook for all of the principal and interest still remaining on the bonds.

Like OA said, They do not have to retire them if they are non-callable. They can just buy them on the market and then they are in effect paying themselves. So if you look at the current price of the bonds, that is the amount owed.

kdb209 · Oct 12, 2010

OthmarAmmann · Oct 12, 2010

Re Part IX - I suppose IEH actually had no input in Moss' dismissal.

kdb209 said:
edit: I was kind of hoping for a "Phriday the XIII" themed thread name.

"cut" kinda gets there

Fidel Astro · Oct 12, 2010

Something tells me the debate over this team is going to continue well after the ownership issue is resolved (one way or the other).

Jesus Christ Horburn · Oct 13, 2010

I'm not sure if this was mentioned in the last thread, but Winnipeg Free Press editor John White took part in a Q&A with ESPN's Scott Burnside this afternoon and asked about the Coyotes situation:

John (Winnipeg)
Who do you believe in the Coyotes sale fiasco? Mayor Scruggs who says they've done all they can, or Gary Bettman who says Glendale is the primary negotiator?

Scott Burnside (4:27 PM)
John; Well, having a pretty good sense of the mishandling of this from the Glendale end of things (there's a good reason they call it Gongdale) I think the fault lies pretty squarely with local politicians who have squandered a vast amount of taxpayers' money but are dithering over completing a deal that needs to be completed. The clock continues to tick towards a return of NHL hockey to the 'Peg.

The only link is to JetsOwner, where John White posted it:
http://returnofthejets.:eek::eek::e...ex.cgi?board=ROTJ&action=display&thread=11005

william_adams · Oct 13, 2010

Tommy Hawk said:
Like OA said, They do not have to retire them if they are non-callable. They can just buy them on the market and then they are in effect paying themselves. So if you look at the current price of the bonds, that is the amount owed.

Umm... First the holders have to agree to sell, and some (ex: holders that own the bonds to defease a liability) will not be keen to give them up. Second, the market price for a bond reflects the sum of all future payments (admittedly discounted but with USTs at record lows, not going to discount much!)

Bottom line is the amount owed is not going to be significantly lower than the sum of the future payments.

Tommy Hawk · Oct 13, 2010

william_adams said:
Umm... First the holders have to agree to sell, and some (ex: holders that own the bonds to defease a liability) will not be keen to give them up. Second, the market price for a bond reflects the sum of all future payments (admittedly discounted but with USTs at record lows, not going to discount much!)

Bottom line is the amount owed is not going to be significantly lower than the sum of the future payments.

Ummm, yeah, the price will be much lower than the sum of all the payments. Think Mortgage. And if there is a risk of default on the bonds or a downgrade because the Yotes leaves, the price of those bonds are going to drop like the Cubs in September. People will be begging to get rid of them.

william_adams · Oct 13, 2010

Tommy Hawk said:
Ummm, yeah, the price will be much lower than the sum of all the payments. Think Mortgage. And if there is a risk of default on the bonds or a downgrade because the Yotes leaves, the price of those bonds are going to drop like the Cubs in September. People will be begging to get rid of them.

I live in japan, my mortgage rate is less than 1%, over a 30-year period, the total amount of interest is surprisingly small. The US yield curve looks pretty similar to japan's in the front end.

Having said that, I just looked up the bonds and did he math: it would appear that the bulk of the debt is maturing way out the curve where indeed rates are still (relatively) high. There are 45.73mm Series A bonds left to be repaid (current mkt value somewhere 'round 50mm bucks) and 96.37mm of the Series B (mk value 'round 106mm). So a total of 156mm bucks is the market value of the debt (compared with 273.5mm still owed in principal and interest through July 1st 2033 (more than half payable on that date actually)

Still, I'd reckon these bonds are held by retail or small institutions mostly so wud still be next to impossible to get all the bonds back. But the point is conceded: there ARE significant savings in accounting if monies are in hand now.

Somehow they're rated Aa2/AA+ - I'd think that means there is support to pay regardless of yotes, no?

RR · Oct 13, 2010

OthmarAmmann said:
Convention is to typically to state debt in term of principal owed rather than principal and interest. Even if they're non-callable, they could still be purchased in the market or the city could pay somebody to cover their obligation. Neither would be cheap of course, since buying the bonds would likely move the market and the counterparty would likely charge a significant premium.

It's notable that their claim against Moyes is only $200 mm. They could just invest that to cover the future P&I...

Where'd you get that number? Court docs indicated the liquidated damages claim is $550M? Judge Baum never did rule on damages.

Killion · Oct 13, 2010

OthmarAmmann said:
So what do the businesses in the CFD even contribute? All I remember is parking and ticket surcharges... if it's some sort of sales tax it would just be passed along to the consumer. Even if that tax is only applied on event days, it probably would affect demand to some extent.All of this of course will make Jobing.com arena less attractive to non-hockey events.

I thought then & think now that IEH's projections on parking revenues were wildly optimistic so I wont even bother addressing it short of saying it would have to be instituted slowly & gradually in terms of price. As for the private businesses "voluntary participation" in the CFD, ya, it'd have to be a sales tax, but no, not just on event dates, all year long. I dont quite follow your reasoning that jobing would be a less attractive a destination if implemented. Parking & luxury taxes are the norm in dozens of markets throughout the US. Dont get me wrong, Im' no advocate for immediate $20 parking or 10% surcharges & taxes. It would have to be done slowly. Thus far, Ellman & the merchants are not included in the CFD, likely awaiting the disposition of a sale before moving forward.

RR said:
Where'd you get that number? Court docs indicated the liquidated damages claim is $550M? Judge Baum never did rule on damages.

Im guessing he got it from the upcoming (Nov) hearing before Baum. Isnt the COG seeking $200M from Moyes Estate, Moyes countering with $5M?.

Whileee · Oct 13, 2010

Killion said:
I thought then & think now that IEH's projections on parking revenues were wildly optimistic so I wont even bother addressing it short of saying it would have to be instituted slowly & gradually in terms of price. As for the private businesses "voluntary participation" in the CFD, ya, it'd have to be a sales tax, but no, not just on event dates, all year long. I dont quite follow your reasoning that jobing would be a less attractive a destination if implemented. Parking & luxury taxes are the norm in dozens of markets throughout the US. Dont get me wrong, Im' no advocate for immediate $20 parking or 10% surcharges & taxes. It would have to be done slowly. Thus far, Ellman & the merchants are not included in the CFD, likely awaiting the disposition of a sale before moving forward.

Im guessing he got it from the upcoming (Nov) hearing before Baum. Isnt the COG seeking $200M from Moyes Estate, Moyes countering with $5M?.

Certainly, the CFD would have to tap into revenue from businesses year-round, not just on the days of Coyotes games.

In that regard, I continue to wonder about the business case for this. According to an article in The Arizona Republic, the sales-tax revenue from the Westgate businesses was about $13 million (http://www.azcentral.com/community/glendale/articles/2010/08/11/20100811glendale-sports-debt.html). Raising sales taxes for that district would have to make it worthwhile for the local businesses. So how much of their business is generated by Coyotes fans? I begin with the simplifying, but optimistic estimate that 7500 Coyotes fans (i.e. more than 50%) patronize Westgate businesses in connection with each and every Coyotes game. If each of them spend $50 ($200 for a family of 4) on local businesses, then the total revenue for the year would be about $15 million. I have seen it noted that the Glendale sales tax rate is about 3%, in which case the total tax revenue from Coyotes fans on game days would be about $450,000. This represents about 3% of the total sales tax revenues that Glendale reports that they receive from the arena and surrounding Westgate businesses.

This suggests to me that although important, Coyotes fans per se must represent a rather small proportion of the revenue generated at Westgate businesses. So, the question for those businesses must be how much they are willing to increase their cost structure to support the Coyotes operation.

I welcome comments on this analysis, which is admittedly simplistic. Particularly, I would be interested to know whether others have any estimates about the proportion of Westgate's total business revenue is driven by Coyotes' fans.

OthmarAmmann · Oct 13, 2010

Killion said:
I thought then & think now that IEH's projections on parking revenues were wildly optimistic so I wont even bother addressing it short of saying it would have to be instituted slowly & gradually in terms of price. As for the private businesses "voluntary participation" in the CFD, ya, it'd have to be a sales tax, but no, not just on event dates, all year long. I dont quite follow your reasoning that jobing would be a less attractive a destination if implemented. Parking & luxury taxes are the norm in dozens of markets throughout the US. Dont get me wrong, Im' no advocate for immediate $20 parking or 10% surcharges & taxes. It would have to be done slowly. Thus far, Ellman & the merchants are not included in the CFD, likely awaiting the disposition of a sale before moving forward.

I had meant that the parking fees and ticket surcharges would make it relatively less attractive compared to competing venues in the Phoenix metro area. At least, less attractive than it is now, all else equal.

Killion said:
Im guessing he got it from the upcoming (Nov) hearing before Baum. Isnt the COG seeking $200M from Moyes Estate, Moyes countering with $5M?.

This is correct. This amount would likely be sufficient to fund their future debt service. Of course, it might be more fun for the city to blow it on some ill conceived project or some perks.

Fidel Astro · Oct 13, 2010

I don't mean to derail from the financial discussion here, but does anyone have numbers for Coyotes attendance at home since that first exhibition game?

...or was that the only home game so far?

The reason I ask is because attendance was so brutal, yet a number of Coyotes fans were blaming it on all kinds of outside factors. I was just curious if any games since then have been equally low, or if things have actually improved. Thanks.

David_99 · Oct 13, 2010

They've been playing the Bruins in Prague so far. I think their home opener is this Saturday, if I'm not mistaken.

Killion · Oct 13, 2010

Whileee said:
If each of them spend $50 ($200 for a family of 4) on local businesses, then the total revenue for the year would be about $15 million. This suggests to me that although important, Coyotes fans per se must represent a rather small proportion of the revenue generated at Westgate businesses. So, the question for those businesses must be how much they are willing to increase their cost structure to support the Coyotes operation?

I think your being, ah, "generous" @$50 per person Whileee!. $25 would be a safer bet IMO. It never ceases to blow me away whenever Im in the states how much cheaper everything is. A large part of the attraction in signing a lease at Westgate is the fact that the UofP Stadium and jobing are right their, on-site. If I had a business their I wouldnt have a problem with tacking on an extra 3-5% per sale.

OthmarAmmann said:
This is correct. This amount would likely be sufficient to fund their future debt service. Of course, it might be more fun for the city to blow it on some ill conceived project or some perks.

His estate has nowhere near that kind of money in it, so even if Baum awards Glendale $200M it'll be a hollow judgment.

Whileee · Oct 13, 2010

Killion said:
I think your being, ah, "generous" @$50 per person Whileee!. $25 would be a safer bet IMO. It never ceases to blow me away whenever Im in the states how much cheaper everything is. A large part of the attraction in signing a lease at Westgate is the fact that the UofP Stadium and jobing are right their, on-site. If I had a business their I wouldnt have a problem with tacking on an extra 3-5% per sale.

His estate has nowhere near that kind of money in it, so even if Baum awards Glendale $200M it'll be a hollow judgment.

I agree that my estimates were generous, both in terms of the number of Coyotes fans that would patronize Westgate businesses every game, and the amount that they would spend.

Presumably, tacking on an extra 3-5% per sale might be plausible, but for what return? If you can increase prices by 3-5%, why not just pocket the additional profits? Why funnel the additional revenue back to the Coyotes' owners if their fans constitute such a small proportion of all of the Westgate business?

peter sullivan · Oct 13, 2010

their first game looks to be close to a sell out...maybe 1000 tickets left.

http://www.ticketmaster.com/event/1E004518175E9F34?artistid=806002&majorcatid=10004&minorcatid=9

second game several thousand but not as bad as it could be...

http://www.ticketmaster.com/event/1E00451817689F36?artistid=806002&majorcatid=10004&minorcatid=9

OthmarAmmann · Oct 13, 2010

Whileee said:
Certainly, the CFD would have to tap into revenue from businesses year-round, not just on the days of Coyotes games.

In that regard, I continue to wonder about the business case for this. According to an article in The Arizona Republic, the sales-tax revenue from the Westgate businesses was about $13 million (http://www.azcentral.com/community/glendale/articles/2010/08/11/20100811glendale-sports-debt.html). Raising sales taxes for that district would have to make it worthwhile for the local businesses. So how much of their business is generated by Coyotes fans? I begin with the simplifying, but optimistic estimate that 7500 Coyotes fans (i.e. more than 50%) patronize Westgate businesses in connection with each and every Coyotes game. If each of them spend $50 ($200 for a family of 4) on local businesses, then the total revenue for the year would be about $15 million. I have seen it noted that the Glendale sales tax rate is about 3%, in which case the total tax revenue from Coyotes fans on game days would be about $450,000. This represents about 3% of the total sales tax revenues that Glendale reports that they receive from the arena and surrounding Westgate businesses.

This suggests to me that although important, Coyotes fans per se must represent a rather small proportion of the revenue generated at Westgate businesses. So, the question for those businesses must be how much they are willing to increase their cost structure to support the Coyotes operation.

I welcome comments on this analysis, which is admittedly simplistic. Particularly, I would be interested to know whether others have any estimates about the proportion of Westgate's total business revenue is driven by Coyotes' fans.

Perhaps the city could just turn over the $13 mm that is already raised at 3%? I'm not sure if that's possible. A moderate increase could then raise a substantial amount of revenue in that case.

I believe doubling the tax rate would seriously impact that amount of business that's done within the district.

Killion said:
His estate has nowhere near that kind of money in it, so even if Baum awards Glendale $200M it'll be a hollow judgment.

Sure, but I just said that amount would be sufficient.

Whileee · Oct 13, 2010

OthmarAmmann said:
Perhaps the city could just turn over the $13 mm that raised at 3%? I'm not sure if that's possible. A moderate increase could then raise a substantial amount of revenue in that case.

I'm not sure what you mean by "turn over the $13 mm that raised at 3%". Can you clarify?

Glendale can't directly turn over any of the tax revenue to the Coyotes, but they can set up a CFD with the voluntary participation of local businesses. The main questions relate to how many of the businesses would want to participate, and how much additional tax would they be willing to collect to contribute to the Coyotes' owners. The point of my simplistic analysis was to suggest that it seems unlikely that the Coyotes fans contribute that much to the Westgate businesses, so it might be a hard sell for many of the local businesses to raise their costs and turn the additional revenue over to the Coyotes' owners.

To put a finer point on it, if Glendale raised $13 million in sales tax revenue from Westgate and environs, then total sales revenue would be over $400 million annually (based on a sales tax of 3%). In that case, Coyotes fans are a very small proportion of the business, which might discourage local businesses from changing their price structures for a relatively small return.

This goes back to my speculation that the City of Glendale and previous MOUs might have been overly optimistic in projections of CFD revenue that could be provided to the Coyotes' owners. Since the CFD revenues have been central to the business plans outlined in previous MOUs, perhaps this uncertainty is constraining the completion of a lease and sale.

Killion · Oct 13, 2010

Whileee said:
Presumably, tacking on an extra 3-5% per sale might be plausible, but for what return? If you can increase prices by 3-5%, why not just pocket the additional profits? Why funnel the additional revenue back to the Coyotes' owners if their fans constitute such a small proportion of all of the Westgate business?

Because Westgate is a Sports & Entertainment Park/Mall. People visit & spend all year on event & non-event days to checkout the home of the Coyotes, UofP Stadium etc. You pay into the CFD for the cache', or not. :naughty:

OthmarAmmann said:
Perhaps the city could just turn over the $13 mm that raised at 3%? I'm not sure if that's possible. A moderate increase could then raise a substantial amount of revenue in that case.I believe doubling the tax rate would seriously impact that amount of business that's done within the district.

Sure, but I just said that amount would be sufficient.

OK, see your point. Ya, it'd sure enough be sufficient, so would winning the Lottery, and about the same odds as Glendale ever seeing that kind of money from Moyes's Estate. :shakehead

An no, the COG cant turn over its taxes to the CFD for disbursement to the Coyotes. I have to disagree with you over a 2-3% surcharge on goods & services over & above the existing 3% tax. Do you really think that paying, say, $2.75-$3.75 on a $50 purchase would be detrimental/devastating?.

OthmarAmmann · Oct 13, 2010

"could just turn over the $13 mm that is already raised at 3%?"

I fixed my post. I was wondering whether they could just funnel the sales tax that is currently raised to the Coyotes. This would require no increase in the sales tax rate, which obviously would be fine with business owners in the district. I have no idea whether that's even possible.

If the tax rate increased by 5% to 8%, you would probably see a substantial loss of business activity within the district.

OthmarAmmann · Oct 13, 2010

Killion said:
Do you really think that paying, say, $2.75-$3.75 on a $50 purchase would be detrimental/devastating?.

Probably not devastating, but detrimental. Especially if you can avoid paying the tax by just going somewhere else within the same city.

Killion said:
OK, see your point. Ya, it'd sure enough be sufficient, so would winning the Lottery, and about the same odds as Glendale ever seeing that kind of money from Moyes's Estate. :

Oh, winning the lottery is far more likely.

Part XIII: Phoenix Coyotes - The Final Cut?

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