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Coyotes Trouble: A Brief History of What Went Wrong

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It seems that the Phoenix Coyotes are in a state of flux. There is a lot of stuff going on here but I'll try and keep it simple. I want to highlight a few points that are being under reported in the "OMG Hockey fails in the sunbelt!!!!" coverage.

A few years ago the primary owner of the Coyotes Steve Ellman thought all his problems would be solved by a new building. So he came up with the idea of the state of the art building where he could develop the real estate around the arena. He had a lot of trouble finding someone to build him his big shiney ATM of a building. Finally, the City of Glendale agreed to pay for a portion of costs associated with the building.

After the arena was finished Steve Ellman sold control of the team to Jerry Moyes, a trucking magnate. In the end the Coyotes were highly leverage (i.e. they borrowed a lot of money with the team as collateral) and the financial situation completely unraveled this season.

What were the big causes:

  1. The Real Estate Debt: The Coyetes were tied into the real estate development around the arena--and they ended up owing millions--not because of hockey operations problems--but because of real estate market going south.
  2. The Lease: Because the City of Glendale contributed to the construction of the new building the terms of the Coyotes lease was not nearly as favorable as is the case in many other NHL cities.
  3. The Location: The new arena proved not to be the fan magnet it was intended to be. Glendale is almost 20 miles from downtown and many people complain that it is too far to drive and there is no enough stuff to do out there before or after games.

Take those three problems and throw in a losing record with weak attendance and what you get is a team not generating sufficient revenues to cover the coast of all their loans. What you get is an owner who can't cover his bills and he can't get out of his lease.

The NHL starting advacing them money last season and effectively can take control of the team. The owner appears to have been cooking up his own side deal with Jim Balsilie and filed for bankruptcy this week. But the Balsilie offer contains a stipulation that the team be moved to Southern Ontario--which is not something the bankruptcy judge is really in a position to rule on.

What happens next is rather unclear. There's is talk that Bulls owner Jerry Reinsdort might be interested. The NHL could just fold the franchise. The bankruptcy judge might sell it to the highest bidder. If anyone tells you they know exactly how this will play out don't believe them.