CXLVII - Is this the 'Final Countdown' in Arizona?

[MNNumbers]

I'm guessing that the 150M is actually service on the bonds that was used to build the place in the beginning. That is sunk cost. And, it's also a reason that no city should build an arena for a team by itself. You can't come out of that ahead in money.

Previously, AMR contracts have suggested that the bottom line is that the arena, with no events, costs about 6M to run. You can do the math on that and come up with 130M in 20 years, if the arena manager did absolutely nothing.

That's the reason I think the 150M is the service on the bonds.

 

[Major4Boarding]

Folks - Let’s leave Mod actions out of the discussions (openly)

Thank you

 

[Shwan]

Previously, AMR contracts have suggested that the bottom line is that the arena, with no events, costs about 6M to run. You can do the math on that and come up with 130M in 20 years, if the arena manager did absolutely nothing.

Winner Winner Chicken Dinner.

Let's say it's $6M to run the arena. Now that Coyotes are gone, ASG gets the naming rights cash now which could be anywhere from $1 to $4M annually. Given that the Yotes are in the hole $10M this year while shedding most expenses I'm going to wager it was in the higher $3M range.

So for ASG half the battle every year is in the bag by just having the words "Desert Diamond Arena" on the building for the next 10 years if they got a similar deal with their naming rights agreement.

If they get their 15-20 events every year they'll probably turn a tidy profit, and the city still collects on the taxes with the increased foot traffic.

It's like the people who've been managing the Arena for the last 6 years have a competent business analytics crew and realized that entering into a 20 year agreement was in their best interests.

Shocker.

 

[PainForShane]

Why would ASG volunteer to get into a business arrangement that would lose them $150,000,000?

Sounds like a dumb business plan to me.

Maybe someone's not as smart as they think they are. smh

For everyone else... in summary Desert Diamond Arena by itself isn't making money, in fact they are losing quite a bit of money. This was said in the $150m figure in the article, but it's also obvious if you just take a look at how few events they've had over the last year (with no Yotes) and compare it to years past (with Yotes). Mouser took a quick look at this (thx @mouser ), it looks like the number of events right now are about the same or maybe even slightly fewer than before, we all know GRA was struggling even with the Yotes, so without the Yotes (and slightly fewer events) they certainly haven't turned it around yet. You can quickly verify the number of events yourself at the events page on Desert Diamond, just click around to compare the different months. Events | Desert Diamond Arena

Anyway, having an unpredictable loss in the ~tens of millions isn't great for the city of Glendale because the unpredictability makes budgeting almost impossible -- ie without knowing how much money this arena will lose, how do you be even a little bit responsible in terms of the city's budgeting? It's much more desirable for a city to put a hard cap on losses so that way they know how much money to set aside and therefore what they'll have available to spend on other programs.

***

Enter ASM Global.

ASM is a legit company that owns / runs a lot of arenas and stadiums in the world. They say they're the world's largest venue mgmt company, and they're probably right. You can take a look at some of the arenas / stadiums they own, it's an impressive list, over 350 venues and $5B in assets. ASM Global

***

So basically ASM Global is like, "Hey Glendale, we can take this arena off your hands, we think we might be able to turn it around" and Glendale's like, "Yes, absolutely we need to cut our potential losses" so Glendale gives them a sweetheart deal incl 25m in up front renovations as well as a 20 year lease with full ownership rights / upside including a buy option at the end. In return, ASM Global gets all the potential upside as well as most of the downside, but is now fully free to do whatever it is they want, they have enough experience they'll almost certainly be better owners than Glendale, because managing arenas like this are what they do for a living.

If you've ever heard of the private equity industry, or buying distressed assets, that's what's going on here. Not uncommon for deals like this to happen, heck Meruelo made his money by turning around distressed assets like casinos, that's the only reason he was able to buy the Yotes in the first place. Anyway ASM Global thinks that by owning rather than just managing, they're in a better position to make money out of this thing than the city of Glendale. And most likely, they're right, my guess is partly by now having the ability to allocate the renos in the most logical, money making way possible. And also because they can afford to wait a few decades on the real estate ownership play.

Either way no one really knows, but we'll see what happens. The valley is stronger with a well-run stadium / arena on the West Side and I hope we get there relatively soon

 

[Shwan]

Either way no one really knows, but we'll see what happens. The valley is stronger with a well-run stadium / arena on the West Side and I hope we get there relatively soon

That was a lot of words to end with saying you don't know what you're talking about lol.

I guess you could say:

As such Desert Diamond Arena isn't hurting though.

 

[PainForShane]

That was a lot of words to end with saying you don't know what you're talking about lol.

As such Desert Diamond Arena isn't hurting though.

Neither sentence is even close to the point (which anyone can tell from that little part you quoted). Glad you still haven't figured out how to read

 

[Shwan]

Neither sentence is even close to the point (which anyone can tell from that little part you quoted). Glad you still haven't figured out how to read.

Why would a company who's been managing a "distressed asset" for the last 6 years decide to go all in for another 20 if it's "losing quite a bit of money."

 

[PainForShane]

Why would a company who's been managing a "distressed asset" for the last 6 years decide to go all in for another 20 if it's "losing quite a bit of money."

Read the post. Or don't

 

[Shwan]

Read the post. Or don't

Hmm.

ASM Global has successfully operated the city-owned venue for the past 6-1/2 years (taking over management July 1, 2016). 2022 marked Desert Diamond Arena’s best financial performance in the past 17 years, highlighted by multiple sold-out events including Pearl Jam, Eric Church, Grupo Firme, Alan Jackson, and two Billie Eilish concerts. 2023 is expected to surpass last year’s stellar fiscal record.

 

[mouser]

I'm guessing that the 150M is actually service on the bonds that was used to build the place in the beginning. That is sunk cost. And, it's also a reason that no city should build an arena for a team by itself. You can't come out of that ahead in money.

Previously, AMR contracts have suggested that the bottom line is that the arena, with no events, costs about 6M to run. You can do the math on that and come up with 130M in 20 years, if the arena manager did absolutely nothing.

That's the reason I think the 150M is the service on the bonds.

I don‘t think thats correct. The lease w/ purchase option agreement between Glendale and ASM Global doesn’t appear to contain anything relieving Glendale from the outstanding arena construction bonds. Even if it somehow did, ASM can choose when to take ownership of the arena multiple decades in the future after the bonds have been paid off.

My preliminary reading of the lease suggests the $150m figure is future operational/maintenance costs Glendale will be avoiding over the 20 year lease. Note that figure is not in the lease, must have been from the city manager presentation recommending approval of the new lease, going to look for that PowerPoint.

My first pass takeaways:
- $40m renovation ($25m from Glendale, $15m from ASM)
- ASM and Glendale are entering into a 20 year lease of the arena with three optional 10 year extensions
- ASM will pay Glendale $38m “purchase price” of the as-is arena over 4 years.
- ASM can choose to to continue on a “free lease“ as long as like, or take ownership of the arena for $10 (dollars, not millions) after the $38m has been paid.
- ASM will be responsible for all arena maintenance and renovation costs going forward (after the $40m renovation).
- Glendale is indemnifying ASM against any arena property taxes if ASM does take ownership. Glendale will strive to effectively have the arena on a permanent property tax GPLET. If that can’t happen for some reason then Glendale will reimburse ASM for property taxes.
- I assume Glendale is no longer paying ASM to manage the arena, but the new agreement doesn’t explicitly state that, only that it replaces the prior agreement. Want to double check this new agreement is the single and only agreement between Glendale and ASM and there isn’t some second lingering agreement.
- Glendale will not levy any ticket/event fees or surcharges on arena events unless those fees are applied to all events throughout Glendale.


Lease agreement is here if you’re interested in reading it:

https://destinyhosted.com/glenddocs/2023/AACC/20230228_4545/8455%5FDesert%5FDiamond%5FArena%5FGround%5FLease%5F%5BExecution%5D%2Epdf

 

[awfulwaffle]

This sounds just like a gas station. Gas station sells gas, only for the hope that people will go inside and buy something else. Glendale is basically giving away an arena to ASM in hopes that it will cause Westgate to get more foot traffic so Glendale will make some money.

But does this really matter? Coyotes are no longer in Glendale, and AM won't care if there is another arena fighting for events. His end goal always seemed to be the "district" itself with residential units for the steady stream of income.

 

[aqib]

This sounds just like a gas station. Gas station sells gas, only for the hope that people will go inside and buy something else. Glendale is basically giving away an arena to ASM in hopes that it will cause Westgate to get more foot traffic so Glendale will make some money.

But does this really matter? Coyotes are no longer in Glendale, and AM won't care if there is another arena fighting for events. His end goal always seemed to be the "district" itself with residential units for the steady stream of income.

So basically he is going to try Westgate 2.0 except unlike Westgate 1.0 he would have to foot the bill for an arena to the tune of almost $1 billion. In Westgate 1.0 the city chipped in $180 million out of $220 million of the arena.
An entertainment district/mixed use development makes sense, but does he need an arena anchored by a hockey team with no fans to make it work?

 

[awfulwaffle]

So basically he is going to try Westgate 2.0 except unlike Westgate 1.0 he would have to foot the bill for an arena to the tune of almost $1 billion. In Westgate 1.0 the city chipped in $180 million out of $220 million of the arena.
An entertainment district/mixed use development makes sense, but does he need an arena anchored by a hockey team with no fans to make it work?

He's a billionaire, the sports team is his toy. He said it in his intro press conference, it was his dream to own a sports franchise. Plus, that's elite company he's into now. He already owns a casino, now he owns a sports team. I don't think it really matters to him as much as it does to people here on this forum.

 

[aqib]

He's a billionaire, the sports team is his toy. He said it in his intro press conference, it was his dream to own a sports franchise. Plus, that's elite company he's into now. He already owns a casino, now he owns a sports team. I don't think it really matters to him as much as it does to people here on this forum.

He's supposedly worth about $2 billion (based on a google search). Does he really want to put half his net worth into an arena? The debt service would be about $70 million a year.

There are mixed use/entertainment districts all over the country that don't have an arena as an anchor. If you want to do a real estate development why spend $1 billion on an arena that doesn't appear to be a viable venture. With ASM owning the Glendale arena all the shows that they ASM is promoting will be there. You've got Footprint downtown which has the advantage of being downtown. So what's going to be left for this other arena?

 

[awfulwaffle]

He's supposedly worth about $2 billion (based on a google search). Does he really want to put half his net worth into an arena? The debt service would be about $70 million a year.

There are mixed use/entertainment districts all over the country that don't have an arena as an anchor. If you want to do a real estate development why spend $1 billion on an arena that doesn't appear to be a viable venture. With ASM owning the Glendale arena all the shows that they ASM is promoting will be there. You've got Footprint downtown which has the advantage of being downtown. So what's going to be left for this other arena?

Who cares? It's his money to play with. Like I said, the Coyotes are his toy. And he needs an arena to play in. He wasn't going to make money in Glendale, which is why he was looking for a new location. Now, he's trying to build an arena AROUND an entertainment district with residential and commercial space, so he can subsidize any Coyotes losses with the revenue he would make surrounding the arena itself. That's the whole point, and we are back to where we are with this megathread........

 

[Brodie]

has anything actually happened

 

[PredsHead]

has anything actually happened

Nope. The only thing that has happened since the Tempe vote two months ago, is the Coyotes CEO saying at the Draft that the team is looking at something like a dozen options in the Phoenix area and would hopefully have something to announce by the middle of the season.

 

[bleedblue94]

Who cares? It's his money to play with. Like I said, the Coyotes are his toy. And he needs an arena to play in. He wasn't going to make money in Glendale, which is why he was looking for a new location. Now, he's trying to build an arena AROUND an entertainment district with residential and commercial space, so he can subsidize any Coyotes losses with the revenue he would make surrounding the arena itself. That's the whole point, and we are back to where we are with this megathread........

I think people care bc if it's just another haphazard project that doesn't get executes or executed properly then it destroys the image of this franchise again and is another black mark for the league. The fact we are talking about Westgate 2.0 should say enough. More people want the coyotes to work than I think most give credit for, but they also know that for them to work on a market that they have torpedoed their own from for two decades they need to handle things properly and have the correct project.

 

[sh724]

So a few things.
1) this also ignores the time value of money factor. 50% over 15 years averages out to 2.74% over that time. He could just buy bonds and get that return
2) Seemingly every Coyotes owner just borrows to finance the debt and then the next owner assumes the debt in the deal. Gluckstern/Burke bought the team for $65 million. When Burke sold to Ellman, Ellman and partners paid $27 million (mostly installments) and assumed $60 million in debt. Ellman paid Moyes $100 million and gave him the team to buy out Moyes's interest in Westgate. Moyes somewhere along the way had a loan from Michael Dell's company for like $85 million. IceArizona had a ton of debt in their purchase, then Barroway assumed it when he bought, etc. So on the one hand you will have accumulating debt year after year and interest costs year after year. However since no one seems to be putting in much of their own money it means that their return on equity looks pretty great.

A fee other things....

1) Using the numbers above, losing $10MM/year for $15 years or $150MM total. A loss on the Yotes means that much less tax liability for his other businesses. The result would be him paying, roughly, $50MM less in income taxes over the course of the 15 years.

2) That is just straight income taxes, but purchasing a sports team comes with massive tax advantages. So his actual tax savings are going to be far greater than just surface level income taxes

3) We do not know where on the income statement that $10MM is coming from. There is a huge difference between economic profit and accounting profit. On an asset as large as a sports team the depreciation expense alone can be significantly more than $10MM. That expense only exist on paper and is not an actual cash expense. So if that $10MM loss figure is an accounting figure than from an economic perspective the team could very well be profitable.

4) There could be many things burried in the Yotes expenses that arent directly related to the team. For example, AM could buy and title a vehicle under the Yotes but use it as his personal vehicle. The team could pay for many things that arent actually related to the operations of the team which would inflate the teams losses on paper but save AM money overall.

 

[Ciao]

I must have lost the thread here, because I'm not following.

Is @awfulwaffle suggesting that Meruelo is so fabulously rich that he really doesn't care if the Coyotes lose money because it satisfies his desire to own a sports team along with his casino(s)?

If that were the case, why would he have poisoned the well at Glendale? He could have lost as much money as he likes there.

I think that making a buck really does matter to this guy, and that he's not nearly rich enough to take his lumps and be happy.

Chances are I'm not following the conversation correctly.

 

[Stumbledore]

I must have lost the thread here, because I'm not following.

Is @awfulwaffle suggesting that Meruelo is so fabulously rich that he really doesn't care if the Coyotes lose money because it satisfies his desire to own a sports team along with his casino(s)?

If that were the case, why would he have poisoned the well at Glendale? He could have lost as much money as he likes there.

I think that making a buck really does matter to this guy, and that he's not nearly rich enough to take his lumps and be happy.

Chances are I'm not following the conversation correctly.

It's 41 out there on its way to 48 later today. I'm having trouble following any conversation correctly, especially when I keep being told it would be smart to sell my Arizona properties at a loss.

 

[awfulwaffle]

I must have lost the thread here, because I'm not following.

Is @awfulwaffle suggesting that Meruelo is so fabulously rich that he really doesn't care if the Coyotes lose money because it satisfies his desire to own a sports team along with his casino(s)?

If that were the case, why would he have poisoned the well at Glendale? He could have lost as much money as he likes there.

I think that making a buck really does matter to this guy, and that he's not nearly rich enough to take his lumps and be happy.

Chances are I'm not following the conversation correctly.

Which is why he wants to build a district, not just an arena, to help cover the cost of the Coyotes.

 

[PainForShane]

I must have lost the thread here, because I'm not following.

Is @awfulwaffle suggesting that Meruelo is so fabulously rich that he really doesn't care if the Coyotes lose money because it satisfies his desire to own a sports team along with his casino(s)?

If that were the case, why would he have poisoned the well at Glendale? He could have lost as much money as he likes there.

I think that making a buck really does matter to this guy, and that he's not nearly rich enough to take his lumps and be happy.

Chances are I'm not following the conversation correctly.

Ciao --

First of all, 100% agree that Meruelo wants to make (at least) a buck.

On that note, Meruelo owns the Yotes. He does not own Desert Diamond arena, nor the Westgate entertainment district.

In any of these new plans, he would own the Coyotes. And the new arena. And the entire new entertainment district (whatever they want to call it).

With all of that synergy, anyone would agree he has the potential / opportunity to make more money than if he only owned the Coyotes by themselves, esp since in Glendale he has to pay tens of millions of dollars in rent to the city of Glendale just to keep the lights on.

awfulwaffle basically said the same thing when he said:

he's trying to build an arena AROUND an entertainment district with residential and commercial space, so he can subsidize any Coyotes losses with the revenue he would make surrounding the arena itself.

If your post is in good faith, lmk (or anyone else) if that doesn't answer your Q

 

[Boris Zubov]

Ciao --

First of all, 100% agree that Meruelo wants to make (at least) a buck.

On that note, Meruelo owns the Yotes. He does not own Desert Diamond arena, nor the Westgate entertainment district.

In any of these new plans, he would own the Coyotes. And the new arena. And the entire new entertainment district (whatever they want to call it).

With all of that synergy, anyone would agree he has the potential / opportunity to make more money than if he only owned the Coyotes by themselves, esp since in Glendale he has to pay tens of millions of dollars in rent to the city of Glendale just to keep the lights on.

The Coyotes rent in Glendale was $500K annually, not sure where you're getting tens of millions.

Bottom line, Meruelo is no dope, he's acutely aware that the Coyotes can't turn a profit by themselves. His mistake was not buying Westgate when it was for sale.

 

[bleedblue94]

The Coyotes rent in Glendale was $500K annually, not sure where you're getting tens of millions.

Bottom line, Meruelo is no dope, he's acutely aware that the Coyotes can't turn a profit by themselves. His mistake was not buying Westgate when it was for sale.

The issue was arrogance. They just assumed people would want them instead of realizing Glendale was doing the franchise a favor for years. It is just so funny that they shit on westgate and the arena (claiming they would buy it later to tear it down), and here we are with them now talking about making the same type of project in a different location.

IF they had actually developed westgate properly, do people from the area believe that the fanbase would have grown in that area? I understand most of their support comes from the valley, but with the proper development in and around westgate (even when meurelo bought the team) is it possible/likely that we aren't where we are today?