Phoenix LXXX: Is there another way out?

[Mungman]

George wants to buy a candy bar. It costs $1.70. He offers $0.45 of his own hard-earned allowance. The seller of the candy bar loans him $0.85 and says that George doesn't have to pay him back for at least 5 years. Still not enough. A hedge fund loans $1.20 for the venutre, and the municipality in which the candy bar store operates is on the hook to pay back that $1.20 to the hedge fund at a rate of about $0.15 per year.

You win the internet today sir!

 

[CasualFan]

Nothing has changed from yesterday. It's still all about what Glendale is willing to give up. We now know that RSE wants 120M from them. Until we find out in what manner they'd like to collect that money, we don't really know anything about this situation at all. If it's 6M per year for 20 years than this thing will close. If it's 16M per year for the first five years and 4M per year for the subsequent ten years, than this all means nothing. If it's 5M in year one, 10M in years two through five and 7.5M for the ten years following, then maybe there is a deal to be struck somehow.

Who knows?

Othmar is a sharp dude. The input was that adequate IRR would require a call of around $13MM-$15MM per year from Glendale. Which is also pretty much in line with what previous deals had sought.

Glendale has taken some pretty aggressive steps which indicate they're not even going to consider that. We'll see if they waver from that approach.

 

[Brodie]

there's no way in hell it's a 20 year deal

 

[OthmarAmmann]

Othmar is a sharp dude. The input was that adequate IRR would require a call of around $13MM-$15MM per year from Glendale. Which is also pretty much in line with what previous deals had sought.

Glendale has taken some pretty aggressive steps which indicate they're not even going to consider that. We'll see if they waver from that approach.

I think it was more along the lines of "we think we can get $13 million a year, how much can we borrow?"

 

[CGG]

If you are very generous and assume the team in Phoenix is actually worth the same as the Atlanta Thrashers were in Atlanta, you get a value of $110 million. That's roughly what the St Louis Blues were sold for recently as well. It's probably overestimating the true worth of the Phoenix Coyotes, but let's go with it.

The NHL will have an $85 million loan on the team.
Fortress will have a $120 million loan on the team.

The combined debt load on the team will be $205 million, roguhly 186% of the "real" franchise value of $110 million.

Why would the league allow this to happen? That has disaster written all over it.

 

[Llama19]

You're still missing the point that the hedge fund will want a return on their money. What kind of astute money manager would loan $120 million today with the expectation that they'll be paid back a total of $120 million at some point in the future?

I completely pulled the $15 million number out of left field. But not 8 years. I'm thinking $15 million a year for 20 years. $300 million total. That would be an IRR of about 10.92%, which is still probably way too low for a hedge fund investor when there's far less risky options out there that would offer similar investment returns.

Those would be correct assumptions, since the lease for Jobing.com arena does not expire until 2033.

Any 'out clause' has always been a sticking point in past negotiations.

 

[Brodie]

I wonder if the NHL's being so quiet because Gary's running through his rolodex

"Hey Les, old pal, how's things in Houston? I heard you had a vacancy at your place..."

"Dave! Good to talk to you! Saw you got out of the soccer biz... say, howsabout we relive old times, get you set up with another hockey team in Missouri?"

"Paul! Saw that new XBox, man that thing looks cool! Can I get one for the kids? Oh, and hey, any room for hockey at the Rose Garden anytime soon?"

"Chris, this is Gary Bettman. Save me, please, they speak French for christsake!"

 

[CasualFan]

I think it was more along the lines of "we think we can get $13 million a year, how much can we borrow?"

Gotcha. Thanks for putting the hedge fund/markets stuff in easy to understand terms. I definitely need it at an elementary level to follow it.

 

[Whileee]

- There is nothing in Dick Bowers bio to indicate he is going to conduct business as Beasley did. It doesn't seem like there will be any more erroneous Hockingization of the numbers. Skeete was retained as Asst City Manager and as I recall, he recommended against the JIG lease as it was fiscally imprudent. If potential Coyotes owners do not present a deal that complies with the city's financial policies, Bowers is unlikely to advance it to the council for consideration.

It seems that Bowers and city administrators have learned a valuable lesson from the awkward position of Horatio Skeete. Poor Horatio knew that the Jamison deal was fiscally unsound, but was forced into developing and presenting it to city council by the "Clark Cabal", who held the majority. By writing language forbidding the COG from entering into illegal and fiscally imprudent deals, and getting it passed by city council, Bowers has immunized himself from the sort of situation that afflicted poor old Horatio. Beasley would absolutely hate this sort of approach.

 

[rt]

They will have to be well north of $10 million every year in order to hit the rent Fortress will charge. $6 million per year for 20 years is interest free.

At $6 million per year they have a gap of about $50 million on purchase price, give or take.

You're still missing the point that the hedge fund will want a return on their money. What kind of astute money manager would loan $120 million today with the expectation that they'll be paid back a total of $120 million at some point in the future?

I completely pulled the $15 million number out of left field. But not 8 years. I'm thinking $15 million a year for 20 years. $300 million total. That would be an IRR of about 10.92%, which is still probably way too low for a hedge fund investor when there's far less risky options out there that would offer similar investment returns.

Othmar is a sharp dude. The input was that adequate IRR would require a call of around $13MM-$15MM per year from Glendale. Which is also pretty much in line with what previous deals had sought.

Glendale has taken some pretty aggressive steps which indicate they're not even going to consider that. We'll see if they waver from that approach.

Those would be correct assumptions, since the lease for Jobing.com arena does not expire until 2033.

Any 'out clause' has always been a sticking point in past negotiations.

Thanks guys.

 

[madhi19]

Nothing has changed from yesterday. It's still all about what Glendale is willing to give up. We now know that RSE wants 120M from them. Until we find out in what manner they'd like to collect that money, we don't really know anything about this situation at all. If it's 6M per year for 20 years than this thing will close. If it's 16M per year for the first five years and 4M per year for the subsequent ten years, than this all means nothing. If it's 5M in year one, 10M in years two through five and 7.5M for the ten years following, then maybe there is a deal to be struck somehow.

Who knows?

It can't be 6 million a year you forget that they actually have to manage the damn arena. Say it cost them 4 million that mean they need 10 million. But assume Beacon numbers of 6 million is closer to the real cost plus say 500k in profit for the manager that mean they need 11.5 million. This deal is DOA and the NHL know it since freaking day one.

 

[Killion]

isnt Fortress the company that got its clock cleaned during the vancouver olympics?

Im not sure if its the same Fortress Investment Group GS, but it seems strange there'd be more than one huh? Could be your right. Those guys are a HedgeFund based in NYC who had lent a company called Millineum Development hundreds of millions to re-develop Vancouvers SE False Creek area & build the 2010 Athletes Village, the units then sold as Condo's. Full-on retail, the whole 9 yards. 1000's of units featuring "green" architecture & materials... that leaked like sieves. Unliveable. Millenium was shaky/shady, way behind schedule, Fortress with holding funds, Millenium goes bust, Fortress puts a lien on everything, the City of Vancouver in private session behind closed doors having to approve a loan to themselves for hundreds of millions to pay off Fortresses loans to Millenium, finding more money & another developer to finish the project. Just a total nightmare.

 

[JimAnchower]

If you are very generous and assume the team in Phoenix is actually worth the same as the Atlanta Thrashers were in Atlanta, you get a value of $110 million. That's roughly what the St Louis Blues were sold for recently as well. It's probably overestimating the true worth of the Phoenix Coyotes, but let's go with it.

The NHL will have an $85 million loan on the team.
Fortress will have a $120 million loan on the team.

The combined debt load on the team will be $205 million, roguhly 186% of the "real" franchise value of $110 million.

Why would the league allow this to happen? That has disaster written all over it.

Plus, whatever amount Gosbee is borrowing for his $45 million.

 

[Mungman]

Those would be correct assumptions, since the lease for Jobing.com arena does not expire until 2033.

Any 'out clause' has always been a sticking point in past negotiations.

What lease? There is no lease on the arena, that is why the RFP for arena management currently exists

 

[JimAnchower]

Im not sure if its the same Fortress Investment Group GS. Those guys are a HedgeFund based in NYC who had lent a company called Millineum Development hundreds of millions to re-develop Vancouvers SE False Creek area & build the 2010 Athletes Village, the units then sold as Condo's. Full-on retail, the whole 9 yards. 1000's of units featuring "green" architecture & materials... that leaked like sieves. Unliveable. Millenium was shaky/shady, way behind schedule, Fortress with holding funds, Millenium goes bust, Fortress puts a lien on everything, the City of Vancouver in private session behind closed doors having to approve a loan to themselves for hundreds of millions to pay off Fortresses loans to Millenium, finding more money & another developer to finish the project. Just a total nightmare.

They are the same group. Apparently, Wikipedia has an article on Fortress Investment Group. The link to the company website at Wikipedia is to the same homepage that is in the Forbes article.

http://en.wikipedia.org/wiki/Fortress_Investment_Group

http://www.fortress.com/Default.aspx

 

[Killion]

They are the same...

Huh. So its one & the same then. Thanks for the clarification.

 

[rkhum]

SO a quick re-cap: Coyotes have been sold, they are staying put, this is over?

 

[Brodie]

SO a quick re-cap: Coyotes have been sold, they are staying put, this is over?

nope

 

[JimAnchower]

SO a quick re-cap: Coyotes have been sold, they are staying put, this is over?

No, no, and no .

This is the proposed deal for Gosbee to buy the team and hasn't been agreed due to an AMF between Gosbee and the COG not being completed. We don't know if they are staying put or not. And this may never be over.

 

[Acesolid]

SO a quick re-cap: Coyotes have been sold, they are staying put, this is over?

No no no, what happened is that details of how the Renaissance group is getting is financing to try to buy the team got out.

It doesn't really matter, since the problem is Renaissance finding a way to become arena manager. Or negotiate a lease if they don't get the arena managing gig.

 

[sipowicz]

New thread titles for the Coyotes ownership (sale) threads needed for the next 5 years, all may apply.

 

[madhi19]

No, no, and no .

This is the proposed deal for Gosbee to buy the team and hasn't been agreed due to an AMF between Gosbee and the COG not being completed. We don't know if they are staying put or not. And this may never be over.

This house of card will fall apart at the first wind or the moment Glendale says. "No more than 6 million." Hell it may already have happened with that leak.

 

[LPHabsFan]

Aren't we also assuming that the COG will want to have the NHL be the arena manager? Ignoring the issue of timing for when they will make a decision (June 25th), isn't it extremely likely that they will have better offers in terms of potential revenue from other arena management firms?

 

[Donwood]

Aren't we also assuming that the COG will want to have the NHL be the arena manager? Ignoring the issue of timing for when they will make a decision (June 25th), isn't it extremely likely that they will have better offers in terms of potential revenue from other arena management firms?

The NHL has been pathetic in running the arena, no way will Glendale want any part of the NHL running Jobbing

 

[Finlandia WOAT]

No, the city isn't going to dissolve its fire and police departments. But it is going to have trouble funding them. We've already seen that, when the mayor and city council had to refuse a request for additional fire department funding even though the fire chief explained that this would increase the time that citizens have to wait for FD services.

And this is the issue I have. If it comes down to moving funding for police or firemen or other budgetary concerns OR a professional hockey team, everyone will go with the police. But it isn't that cut and dry.

Again, this isn't a choice between hockey OR police men. You can have both, with one underfunded. It's a moderate enough that I will assume many different people will have many different opinions on it. And my original response was to a poster who said that everyone would pick police over hockey. It is painting with a broad brush.

I'm going to guess people in Glendale don't like being poked in the eye by sharp objects too.... can I infer that, or is it presumptuous of me, because I've never been there? The facts are that the Coyotes have poor attendance and even worse local TV ratings. I have nothing against the Coyotes or the people of Glendale, but you cannot ignore all the evidence and continue to imply that there is sufficient support in the continue to justify keeping the team there through public subsidies, when the evidence suggests that there is near total apathy in Glendale as regards the Coyotes.

The facts are that the Coyotes attendance was not dreadful until the ownership scandal started. They went from 80% at the lowest in 3 of 11 years (strung together with mostly 90%+ years) to 70% 3 years in a row.

Their attendance before this mess started was not out of the ordinary for other basement dwelling teams in such markets. Carolina/Anaheim before their Cup runs. Columbus. The Islanders. The Blackhawks before they were relevant again. The Kings before they were relevant again. The Panthers. They only hit dead last in the 2009 season.

The evidence suggests a strong correlation between attendance woes and the current ownership fiasco. Past precedence with other teams in a similar situation indicates this.

I disagree... there is a very strong correlation, especially in the NHL. They were still losing a lot of money even when they had better attendance, which most likely means their ticket prices weren't high enough. If there was a massive groundswell of support in the Phoenix area, they would have both better attendance and higher ticket prices. Indeed, one of their owners went bankrupt because the team simply wasn't viable.

Now you could argue, and I'd agree with you, that they might well be viable if so many mistakes hadn't been right from the beginning. But the reality on the ground is that they hemorrhage money because not enough people care to show up and pay ticket prices comparable to those of healthy NHL teams.

I agree there is a very strong correlation between attendance and profitability.

For the parameters of our discussion (ie the point of my OP that you quoted), we are focusing on attendance only.

Phoenix has never made money, either for attendance or ticket prices (or both!).