June 15 (Reuters) - A decision by the city of Glendale, Arizona, to cancel its contract with the National Hockey League’s Arizona Coyotes is a credit positive for the sports-laden Phoenix suburb.
Glendale’s city council voted last week to exit a deal that obligated the payment of $15 million a year to the Coyotes to manage the city-owned arena. Moody’s Investors Service on Monday called the move a credit positive, because it reduced Glendale’s professional sports-related costs.
The Coyotes, however, did not take the decision lightly. On Friday, the team’s owners, IceArizona, secured a temporary restraining order to block the cancellation. Last week, the team’s attorneys threatened to sue the city for $200 million in damages.
The arena contract, along with hundreds of millions of dollars of sports-related debts, has strained Glendale’s finances. Moody’s rates Glendale at A3, while S&P is BBB-plus.
In 2014, after the first year of the 15-year, $225 million agreement with the Coyotes, the city earned back $5.9 million in arena-tied revenues.
Glendale has reinvented itself from farm town to sports mecca over the past 15 years. It borrowed $180 million to build the Coyotes arena and another $200 million for a Major League Baseball spring training ballpark. It is also home to the National Football League’s Arizona Cardinals and it hosted the SuperBowl in February.
The hockey arena was Glendale’s first foray into professional sports, in the early 2000s, as an effort to spur economic development.
“At the time, it was a great idea,” said David Evertsen, chief executive of Municipal Solutions, an Arizona-based public sector consulting firm. “It was boom time in the valley. All the municipalities were growing.”
But the recession bankrupted developers’ plans to build high-end stores and restaurants surrounding the sports facilities, and Glendale was left trying to shoulder its debts without much of the anticipated new revenues. The city still has $133 million in arena debt, Moody’s estimates.
“The bond is water under the bridge,” said Andrew Zimbalist, a professor of economics at Smith College and a prominent sports economist. “They have to pay that whether or not they have a hockey arena.”
“I always felt the Coyotes never belonged in Glendale. The only way the Coyotes could stay in Glendale was with this massive, $15 million-a-year subsidy,” Zimbalist said.
The Coyotes lost more than $34 million in the most recent fiscal year, including a one-time player buyout for $12 million. Actual losses were around $16 million, according to a team spokesperson. (Reporting by Robin Respaut)