Phoenix Part XXXI: I feel I'm in a time loop

[PitbulI]

then all the City of Glendale needs to do is take it to court, get a declarative judgment, and away they go.

Maybe the COG council has already went to a judge and this was declined. Could that be a possibility.

IMO, the COG was told by MH that he needs 100 million dollars to help finance this deal with the NHL. At this point, it was decided by the council to have their city manager/finance people find ideas to legally get MH 100 million dollars. It just so happens that the buying of the parking lot seemed like it had the best shot.

I see only 2 things happening to save the Coyotes. COG buys the bonds at whatever rate the bond purchasers are asking or the NHL lowers the asking price or provides financing to COG for the 100 million.

 

[Koss]

I know this question has been asked before, but I'm not sure if we have an answer to this what the implications are. If the bonds are sold, and CoG buys the parking rights from MH for $100M, is the Franchise then only worth $70M? What does that mean for other franchises in the league?

 

[Whileee]

Maybe the COG council has already went to a judge and this was declined. Could that be a possibility.

IMO, the COG was told by MH that he needs 100 million dollars to help finance this deal with the NHL. At this point, it was decided by the council to have their city manager/finance people find ideas to legally get MH 100 million dollars. It just so happens that the buying of the parking lot seemed like it had the best shot.

I see only 2 things happening to save the Coyotes. COG buys the bonds at whatever rate the bond purchasers are asking or the NHL lowers the asking price or provides financing to COG for the 100 million.

Precisely, and all of the documentation of previous negotiations with previous ownership candidates will clearly show this lineage in the deal. Initially, the concept was to hand the financial responsibility over to a CFD. Reinsdorf insisted that the CFD find a way to come up with funds to support the purchase price directly. IEH had a lender to finance the purchase price, but the CFD was to pay the financing costs, with backing by the City of Glendale if the CFD's revenues were inadequate. The CFD never materialized, so this idea was developed. Wouldn't a sharp lawyer take advantage of the fact that the clear intent through all of these dealings had not been for the COG to purchase a valuable asset (the parking), but to find a way to give funds to prospective owners to help them purchase and operate the team. Having failed with the CFD route, they decided to just monetize the future parking revenue rights and sell it all up front to the COG. I wouldn't be surprised that if this ever did see the inside of a court room the GWI might be looking for communications between parties that directly show this logical flow in negotiations, which clearly shows the underlying financial motives and logic.

 

[OthmarAmmann]

Just an Fyi... The Scottsdale Mayor has very, very close ties to the GWI. In fact, his campaign person has worked for the GWI and his former chief of staff went to work for the Rose law firm. So, I'm not too surprised he would come out against the CoG's deal with MH, and indirectly prop up the GWI.

IT could also be a reason they don't find themselves in the same mess.

It is highly likely that the parking revenues would collapse if the team left. The COG has addressed this, however, by:

- requiring that MH commit to a 30 year term and agree to a non-relocation covenant, separate and apart from the lease; and

- providing that if the team breaches the covenant (bankruptcy being pretty much the only way), the team pays a liquidated damages amount of >$200M (I forget the actual $ amount). The proceeds of any franchise sale would be used to pay that claim.

The way I read the second point, the team would have to pay damages for going bankrupt. Is that correct? If so, how would that be enforced?

 

[cbcwpg]

Dreger is also the guy that was continually tweeting late last year (through much of 2011 to date as well) that the deal would close within a few weeks, Using that as guide, I expect something to transpire this week.

Well, there will definitely be news on Friday April 1st, the question is will it be real or will it be something like...

- IceedgeDJ is the front runner to be buying the Toronto Maple Leafs

- Hulsizer has decided to pay the NHL the entire purchase price of the Coyotes in cash.

Being that its April Fools day and all.

 

[cbcwpg]

Precisely, and all of the documentation of previous negotiations with previous ownership candidates will clearly show this lineage in the deal. Initially, the concept was to hand the financial responsibility over to a CFD. Reinsdorf insisted that the CFD find a way to come up with funds to support the purchase price directly. IEH had a lender to finance the purchase price, but the CFD was to pay the financing costs, with backing by the City of Glendale if the CFD's revenues were inadequate. The CFD never materialized, so this idea was developed. .

Question about the CFD. When was the idea of creating a CFD scraped and who scraped it? Just wondering, because my impression was that the CFD was stopped because it was thought there was not enough time to put a CFD in place at the time, but given how long this transaction has taken, might the CFD have been created by now if it was still being worked on?

 

[Mungman]

Under GWI's view, the COG cannot take any risk, since they should not be undertaking any type of business. That POV is not supported by the AZ Constitution, but that is still their particular pespective.



It is highly likely that the parking revenues would collapse if the team left. The COG has addressed this, however, by:

- requiring that MH commit to a 30 year term and agree to a non-relocation covenant, separate and apart from the lease; and

- providing that if the team breaches the covenant (bankruptcy being pretty much the only way), the team pays a liquidated damages amount of >$200M (I forget the actual $ amount). The proceeds of any franchise sale would be used to pay that claim.




It is only speculation to suggest that the COG is "petrified", but its potentially broad-ranging impact is undoubtedly an issue.

If GWI did not want CoG to take on any risk then they should be advocating that the city close its doors and disband as any activity any person or organization takes during our day to day activities entails some measure of risk. What (from their POV) they are advocating is that the city should not be used as a risk mitigating measure for a private enterprise by sheilding MH and friends from the risk of backing the $100M that the city is exposing themselves to.

The 30 year lease is all well and good until you know what hits the fan, whatever clauses are inserted into the lease are GREAT until it gets into BK court again (potentially) and all the creditors lawyers start picking it apart, because guaranteed they will and at least some portion of the estate will be broken off and the CoG will be looking at "pennies on the dollar" for damages.

Petrified is overstating the case, but that is allowed in this venue, but it definitly enters into the calculation. IMO there probably has been contact at CoG from other governments in AZ wanting to avoid this ending up in court lest it chill what government can do. Really to mess up governments ability to act over THIS matter would (again IMO) be pretty moronic, better to keep the powder dry for a better matter than this one because the optics are terrible. If this were over a P3 for say a bridge or something it would be ALOT easier sales job to the general public versus a hockey team in an arena already financed to the hilt.

 

[GSC2k2*]

Reality check time ! Committing for 30 years is an illusion. Might as well commit for a million years. Hulsizer won't probably live for another 30 years. He's committed until he decides he wants out. He'll leave any investments behind, which will be minimal.

I doubt it is me who needs a reality check. By all accounts, he and his investors are investing $110M or so of their own monies. They will need to fund the team's losses, which according to folks like yourself, are going to be astronomical. In the scenario you describe, the investments will hardly be minimal.

 

[Whileee]

Question about the CFD. When was the idea of creating a CFD scraped and who scraped it? Just wondering, because my impression was that the CFD was stopped because it was thought there was not enough time to put a CFD in place at the time, but given how long this transaction has taken, might the CFD have been created by now if it was still being worked on?

Nobody has every really answered that question, to my knowledge. I thought it was always a dream in technicolor. My speculation is that everyone figured out that the CFD couldn't deliver the required revenues, which is why each ownership candidate had their way around it. Reinsdorf would find a way out of the lease if the CFD failed to deliver and Glendale didn't cover the difference somehow and IEH's bank insisted that Glendale back the CFD revenues directly.

Hulsizer is the one who figured it out, once Glendale was clearly desperate - why rely on the dubious prospect of a CFD generating all of those revenues to subsidize the purchase and operating losses if you can just get all the money up front from the City of Glendale, and through an "arena management fee"?

 

[PitbulI]

I doubt it is me who needs a reality check. By all accounts, he and his investors are investing $110M or so of their own monies. They will need to fund the team's losses, which according to folks like yourself, are going to be astronomical. In the scenario you describe, the investments will hardly be minimal.

MH/ownership group knows they will be funded around 20 million a year to subsidize the Coyotes. If for the first few years, they can lose minimal amounts with their "tweaking" and use money for other events as well.

The reality is that the COG are having to spend A LOT of money to keep a professional sports team in a non hockey market in order to maintain Westgate revenues.

 

[CasualFan]

But if Glendale is buying parking rights with the procedes from the bonds sale... it's not lending credit. It's purchasing an asset, is it not?. I don't see any correlation between that and the clause you cited Whileee.

[BTW... I know GWI's position the city owns those rights.... but to date they haven't said anything other than they "believe" that.]

CF?? GSC?? Please feel free to correct me if I'm off about this.

It appears Goldwater would attempt to frame the bond sale as lending the City's credit with the hopes a judge would rule on the nature of the transaction instead of the specifics. I don't know what case law they would use to support that notion but I believe they have an extremely weak position regardless of what they include. I recall a quote from a Goldwater staffer along the lines of "if it walks like a duck and quack like a duck, it's a duck and a judge won't be fooled."

I think they are overly optimistic about how a judge will view the transaction.

Note: Even if Goldwater were able to convince a judge the bond sale was lending the city's credit, they would still likely need to prove disproportionate equity to establish a violation.

 

[TrentSteele]

Why are these two things not done in separate transactions?

MH has stated that he does not need the COG's money to buy the team.

So why does he not buy the team with his own $170 million. Then in a completely separate transaction sell the parking rights to the city for $100 million?

If the deal is legal, there should be no problems. If the deal isn't legal, he will still own the team, and the parking rights, and be getting money to manage the arena.

 

[RAgIn]

Might be time to shut this thread down for a week or two, until some news actually occurs, so we can get back to out lives. Then again, we might miss the every couple of days of the CoG and GWI

I know for a fact that the wife would certainly love that idea. More time away from the computer. But I don't like those chances

 

[RAgIn]

Does anyone else find it highly doubtful that "the incredibly patient group awaiting word in Winnipeg" said anything about whether the deal will close or be scuttled this week? I expect he would have received nothing more than a polite "no comment", like every other reporter has.

Agreed. Its also quite likely that there is some sort NDA between TNSE and Dregger. IMO.

 

[Larabee]

I doubt it is me who needs a reality check. By all accounts, he and his investors are investing $110M or so of their own monies. They will need to fund the team's losses, which according to folks like yourself, are going to be astronomical. In the scenario you describe, the investments will hardly be minimal.

Guess again hot shot. CoG is giving MH 197 million. So he's 87 million ahead of the game. Should last about 4 or 5 years before he bails.

 

[Jet]

The last line in that quote by Dreger irks me..."we'll do our best to keep the focus on the Coyotes march into the postseason and away from the organization's fight for survival. "

Huh? It's news and Dreger plus the rest of TSN are reporters...yeesh.

It's just further proof that Dreger is an NHL parrot. Can't blame him, why would you want to bite the hand that feeds you, but the guy has always said exactly what the NHL has said. The NHL wants the focus to be on the Coyote's playoff push, and voila, that's what he wants to push.

 

[goyotes]

Guess again hot shot. CoG is giving MH 197 million. So he's 87 million ahead of the game. Should last about 4 or 5 years before he bails.

The notion the CoG is giving MH $197M, while sounding good, is not really an accurate statement. Regardless of whether one agrees the parking rights are valued at $100 M, the City is buying something from the team owner (MH), and in exchange for parking rights, the ability to obtain naming and other advertising rights, and a put option, the city is paying consideration. Is the consideration grossly disproportionate to the value received? Objective posters can disagree on this point.

As to the other $97 M, you do understand that includes the fact that the CoG will no longer have operating expenses it would otherwise have if it operated the arena itself. Those expenses have been estimated to be as low as $13 M, and as high as $21 M. Best case for MH is a difference of $32 M, which he must split with the CoG as profit in excess of expenses. So, his best case appears to be roughly a $16 M profit as arena manager over 5 years, or just better than $3 M per year.

Throwing large numbers out to criticize the deal, something the GWI likes to do, doesn't really advance the debate when the numbers mischaraterize the transaction. And, of course, MH expects to lose in excess of $10M on the team for the next several years until the market stabilizes and the economy improves in Arizona.

Bottom line to those who ask why MH doesn't pay $170M of his own money to buy the team, is because the value of the team is likely closer to $100M in this market. Certainly, a relocation of the team to another market would actually increase the free market value of the team. At this point, however, relocation of the NHL asset is not something on the table.

Until the NHL sets a deadline, the CoG will let this play out with the GWI and not sell the bonds for one basis point higher than they must. Whether it is the GWI or the CoG that is looking to protect the taxpayer, no one can argue that the CoG can wait until 11:59 on "the relocation clock" to pull the trigger and sell the bonds.

I also think what MH is doing is not so much for the benefit of the GWI and its stated opposition to the deal so long as it includes bonds. The GWI is off in the deep weeds and besides the Goldwater Gansta mayor from Scottsdale, I believe only one other state politician has sided with the GWI. They seem to be out there on their own in this case, and traditional conservatives are not voicing support for the GWI.

I believe what MH is doing is for the purpose of reassuring potential or prospective buyers of the bonds that the tax-exempt status of the bonds will not be lost in a successful court challenge. He is basically making the transaction as water tight as possible, perhaps to aid the CoG in negotiating the best interest rate available.

By the way, I just signed my season ticket holder renewal for the next two years, and paid for my playoff tickets.

 

[PitbulI]

I was also going to bring up the value of the franchise.

While say another franchise might sell for 200 million, that doesn't mean that every franchise is worth the same amount. The Coyotes probably only worth what MH is willing to spend.

And in terms of money lost for MH. Has he agreed to pay for the arena loan as well? If that's the case then the arena management fee is no longer an issue. if not, then he's getting way to much for it.

I think MH looks at it like this. He's spending 70 million on a franchise that is falsly estimated between 170-200 million. Since he could probably buy another franchise for this amount, he has the ability to sustain the next couple of years with arena management fees and the fact that he's saved 100 million on the franchise so if he loses 100 million over 5 years, the COG backed amount has now turned into break even for him.

I don't think MH should pay what the NHL is asking for but then again, I don't think hockey belongs somewhere anymore that has failed to latch on (No matter the ownership issues) for over a decade.

 

[Larabee]

The notion the CoG is giving MH $197M, while sounding good, is not really an accurate statement. Regardless of whether one agrees the parking rights are valued at $100 M, the City is buying something from the team owner (MH), and in exchange for parking rights, the ability to obtain naming and other advertising rights, and a put option, the city is paying consideration. Is the consideration grossly disproportionate to the value received? Objective posters can disagree on this point.

As to the other $97 M, you do understand that includes the fact that the CoG will no longer have operating expenses it would otherwise have if it operated the arena itself. Those expenses have been estimated to be as low as $13 M, and as high as $21 M. Best case for MH is a difference of $32 M, which he must split with the CoG as profit in excess of expenses. So, his best case appears to be roughly a $16 M profit as arena manager over 5 years, or just better than $3 M per year.

By the way, I just signed my season ticket holder renewal for the next two years, and paid for my playoff tickets.

1) You're assuming again that CoG doesn't already own the parking. You can't prove they don't. And it's certainly not worth anywhere near 100M.
2) Operating expenses can be as low as $5 M per year.
3) Good for you... you can get your money back on those season tickets later.

 

[GSC2k2*]

Guess again hot shot. CoG is giving MH 197 million. So he's 87 million ahead of the game. Should last about 4 or 5 years before he bails.

"Hot shot". hmm.

The $97M is not money that he is simply getting. It is reimbursement of expenses that he will have to incur to operate the facility. You seem to be under the impression that he is getting $97M that he can then spend on whatever. Incorrect. It is a reimbursement transaction as and when he incurs future operating expenses, and only a not-to-exceed amount at that (FYI, it will not cover all of his operating expenses). He is not ahead $97M which he uses to offset or fund his equity.

"Hot shot". Hmmm.

 

[GSC2k2*]

As to the other $97 M, you do understand that includes the fact that the CoG will no longer have operating expenses it would otherwise have if it operated the arena itself. Those expenses have been estimated to be as low as $13 M, and as high as $21 M. Best case for MH is a difference of $32 M, which he must split with the CoG as profit in excess of expenses. So, his best case appears to be roughly a $16 M profit as arena manager over 5 years, or just better than $3 M per year.

Goyotes, you also are incorrect in respect of the above. The arena managemetn fee is structured such that MH only receives as much as his arena operating expenses are in a given year, up to the annual limit in the lease ($15-20M, depending on the year). He cannot receive more than he spends on those expenses, so there is no "profit" from it to split.

As i demonstrated at the beginning of th elast thread, in fact MH will not get all of his operating expenses covered. It would appear that he will be required to fund at least $13M in operating expenses out of his own pocket, over and above the amounts received from COG.

 

[Roadrage]

"Hot shot". hmm.

The $97M is not money that he is simply getting. It is reimbursement of expenses that he will have to incur to operate the facility. You seem to be under the impression that he is getting $97M that he can then spend on whatever. Incorrect. It is a reimbursement transaction as and when he incurs future operating expenses, and only a not-to-exceed amount at that (FYI, it will not cover all of his operating expenses). He is not ahead $97M which he uses to offset or fund his equity.

"Hot shot". Hmmm.

I have no doubt MH will reach at least $90M of that reimbursement by the end of the Arena Management contract.

 

[Dado]

CoG is not buying the parking rights from MH. MH doesn't own the parking rights. MH has never owned the parking rights. MH will never own the parking rights.

Who exactly they *are* buying them from is unclear, but they are certainly *not* buying them from MH.

Someone should ask the Mayor why they don't separate the transactions, and buy the parking rights from the NHL directly, allowing MH to have a much cleaner transaction (GWI-wise) with the NHL.

 

[GSC2k2*]

I have no doubt MH will reach at least $90M of that reimbursement by the end of the Arena Management contract.

As i demonstrated on the last thread, the $97M will not cover his arena direct operating costs. He will get no "profit" on that end of the transaction (mind you, given the way it is structured, he could not make money on the arena operating fee).

 

[yotesreign]

Reality check time ! Committing for 30 years is an illusion. Might as well commit for a million years. Hulsizer won't probably live for another 30 years. He's committed until he decides he wants out. He'll leave any investments behind, which will be minimal.

Well that seems a bit harsh doesn't it? Projecting "Hulsizer won't probably live for another 30 years".. he's 40 now, and you're projecting he won't probably make it to 70? Why?

Considering the average life expectancy for a 40 year old white male who isn't a former NFL player these days, 40 seems a bit young to expect he 'probably won't' have 30 years left.

According to google Clint Bolick is 53 years old. I won't guesstimate how many years he 'probably has left' - I don't despise him that much.

Anyway, not like a death would nullify anything.