Coyotes' future in Arizona in doubt due to arena lease dispute

The NHL's Arizona Coyotes may be forced to relocate if the city of Glendale terminates its Gila River Arena lease deal.

Just one week after commissioner Gary Bettman said the Arizona Coyotes “are not going anywhere,” the City of Glendale has called a special meeting for Wednesday that might prove him wrong.

The meeting will focus on the possibility of ending the city’s arena lease agreement with the NHL franchise. If that happens, the experiment of hockey in the desert could come to an end.

According to a report in The Arizona Republic, the reasons for this sudden turn of events can’t be revealed because they were discussed only in an executive session of the City Council. However, it’s thought that the council is building a case to end the agreement based on its belief that the Coyotes’ ownership group, IceArizona, breached the contract by using money from the city as part of the lease agreement to pay down debt incurred when it bought the team in 2013.

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The city currently leases Gila River Arena to the Coyotes and pays $15 million in management fees to IceArizona. The deal has a total commitment of $225 million over its 15 years.

The Coyotes responded with a statement that reads, in part:

“This is a blatant attempt to renege on a valid contract that was negotiated fairly and in good faith and in compliance with all laws and procedures. In the event the City Council initiates any action to revoke, repeal or otherwise rescind the agreement, the Coyotes will immediately take all actions available to them under the law against the City of Glendale.”

The NHL released its own statement Wednesday morning.

“We have been advised by the Coyotes that the City of Glendale’s contentions are without merit and we fully expect the Coyotes to continue to play at the Gila River Arena and for the City to continue to honor its obligations to the Coyotes. After everything that has transpired, it is extremely disappointing that the City of Glendale would do anything that might damage the Club.”

Coyotes co-owner, President and CEO Anthony LeBlanc added, “This action by the City of Glendale is completely ludicrous, especially in light of the fact that myself and Andrew Barroway visited with the City yesterday and the particulars of this were never raised. In fact, we to this moment have not been advised of this other than the notification on the City website. The City of Glendale is displaying a complete lack of good faith, business acumen or an understanding of a business partnership. We want to reassure our great fans that the Arizona Coyotes are committed to Glendale and playing at Gila River Arena."

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Committed or not, this relationship appears to have soured beyond the point of repair. And honestly, no one should be caught off guard by this.

Shortfalls in revenue sharing with the Coyotes cost the city $8.1 million last fiscal year, and Glendale expects to lose up to $8.7 million on the arena this fiscal year. Under even the sunniest estimates, those losses will continue to pile up over the duration of this agreement.

That’s a staggering financial burden for a population of less than a quarter-million to bear. And it appears some members of the Glendale council feel as though terminating the agreement is their only way out from under it.

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But there’s no real win for the city here. If the council votes to end the lease, it will have to gird for what could be a lengthy legal battle with IA and the NHL. And even if a court eventually does side with Glendale, the “victory” is an arena with no anchor tenant that it will be stuck servicing debt on for a generation.

How is that better than the current situation? My best guess is this: After years of being forced over a barrel in negotiations with the NHL and various ownership groups, Glendale's council still believes IceArizona intends to exercise its option to relocate when that option opens up. And rather than pouring more money down the drain until that happens, it would just as soon cut its losses now. That wouldn’t stop Glendale from paying more money into the arena, but at least it would maintain a greater degree of control over its commitment.

But is going nuclear the only option on the table? Hardly. In fact, there is easily attainable middle ground here, at least if IceArizona is truly committed to the market.

IA could offer a sign of good faith by renegotiating the deal to eliminate the out-clause, ensuring that the team will remain in place for the duration of the agreement. It could also recognize that the current deal has put the city in an untenable situation both politically and financially and re-work it to mitigate the risk assumed by Glendale.

LeBlanc though seems disinclined to go that route, and who can blame him? This is a deal that was negotiated and agreed upon by both sides and if Glendale is taking a bath as a result, well that’s on the city.

But this uneasy partnership is slated to run for another two decades. And unless IA does intend to exercise that out-clause, making small concessions—even under these conditions—might be preferable to 20-plus years of Glendale's unhappiness hanging over their heads.

The alternative: IceArizona holds the line and prepares for what could be a costly legal battle.

If it gets to that point and they lose in court, what would a termination mean to the future of the Coyotes?

It’s tough to say at this point, but given that we’re in the middle of June, immediate relocation isn't going to happen. The last time we saw something like this the Thrashers announced a move from Atlanta to Winnipeg on June 1, 2011. A similar date, but there was existing team infrastructure in place via the AHL’s Manitoba Moose that facilitated a successful transition in a very short period of time. That support doesn’t exist in any current relocation option.

There's always a chance they could look into an arena sharing agreement with the NBA's Phoenix Suns, but as tenants they'd miss out on significant revenue streams critical to their survival.

The best bet is that a termination of the agreement/court decision in favor of the city would be followed by a lame duck season in Arizona financed with the assistance of the NHL. After that, relocation would be inevitable—most likely to Quebec City, where the Centre Vidéotron is about to open its doors. Hardly ideal, but nothing about hockey in Arizona ever was.