Glendale, Arizona, unties its future from professional hockey

Glendale, Arizona's marriage with the National Hockey League, which cost the city tens of millions of dollars and several rating downgrades, is coming to an end.

The city, which is in a much better fiscal position than it was a decade ago when it tied its fortunes to an unstable Arizona Coyotes franchise, has given the team walking papers, saying it can make better use of the city owned Gila River Arena without the anchor hockey team.

In August, the city announced that it would not renew the Coyotes' lease after the current season, leaving the team without a home arena or even office space lined up for the 2022-2023 season.

“The decision to not renew the operating agreement with the Coyotes was not made overnight or in a vacuum," Glendale City Manager Kevin Phelps said in a statement. "We carefully weighed input from key stakeholders, our expert economist, our arena management firm and our City Council.”

It’s a 180-degree turn from the city’s efforts a decade ago to keep the team in Glendale, spending tens of millions of dollars on subsidies after the franchise filed for bankruptcy.

Those expenses ate into the city's fund balances. Combined with the effects of the 2008 financial crisis and recession that hit the Phoenix region hard, they drove multiple rating downgrades.

S&P Global Ratings had Glendale’s general obligation bonds as low as BBB-plus in 2014; since 2019 the agency has rated Glendale GOs AA-minus, with a stable outlook.

Today’s higher ratings reflect improvements in the city’s management practices, including rebuilding reserves, and a strong rebound in the regional economy, said S&P analyst Daniel Golliday.

“They’ve been on a string of positive surpluses for years now,” he said.

“Financial management conditions have definitely improved,” Golliday said. “There are just more formalized policies in place.”

If nothing else, the city’s break with the Coyotes marks a symbolic turning point given how closely it had tied its fortunes to the professional hockey team.

The team's quarter-century history in Arizona has been marked by ownership turmoil, arena uncertainties and losses — of both hockey games and money.

After being moved from the hockey hotbed of Winnipeg, Canada, in 1996, the team relaunched as the Phoenix Coyotes in the downtown arena of the Phoenix Suns NBA team, a venue designed around a 92-foot-long basketball court that blocked the sightlines of thousands of seats when a 200-foot-long ice sheet was wedged in.

That uncomfortable arrangement sent the team — already on its second owner since moving to Arizona — to a new arena in Glendale in 2003, financed with $180 million of city debt.

The location on the northwest side of the metropolitan area, more than 15 miles from downtown Phoenix and even farther from its wealthy eastern suburbs, was blamed for poor attendance, though missing the playoffs in the first five Glendale seasons didn't help.

By 2009 the team had filed for bankruptcy and Glendale's leaders at the time doubled down on their efforts to keep the NHL team in the city-owned venue.

It was costly. The bankruptcy process put the franchise in the hands of the NHL itself, which required Glendale to pay $25 million a year for two years to keep the team in place while the league sought a permanent owner.

When a buyer was finally found in 2013, the city agreed to continue subsidies through an arena management deal requiring it to pay $15 million per year.

Two years later, the city canceled the contract, citing a conflict of interest by an attorney involved in negotiating its terms.

The year-to-year arena arrangement that followed was punctuated by another ownership change, in 2019, and reports that the franchise was seeking a deal for a new arena in a more central location.

This week, Glendale joined its arena management firm ASM Global in announcing plans to remodel the arena for a future without its NHL anchor, hiring global architectural and engineering firm HOK to lead the modernization of Gila River Arena.

Phelps says the project will position Glendale to attract high-profile national and international entertainment acts.

“We know that if we do it right, we can create a highly integrated venue that will make waves in the marketplace, exceeding performer and spectator expectations,” he said in the statement.

The city's announcement highlighted HOK's work on the downtown T-Mobile Center in downtown Kansas City, Missouri, which opened in 2007 without a sports team anchor and never landed one.

“Even without a professional sports franchise anchor tenant, the T-Mobile Center is thriving and attracting the biggest live entertainment and concerts in the world,” Chuck Steedman, an ASM Global vice president, said in the Glendale announcement.

The city expects to finance the renovations with excise tax bonds, the same type of financing it used to originally build the arena, Assistant City Manager Vicki Rios said in an email.

"The city plans to use a combination of refunding bonds to restructure the current debt and new bonds for the renovations, structured in a way which will maintain the current debt service payment but extend it over a longer period of time," she said. "Interest rates are still very favorable and the city will be able to take advantage of those rates to save money on the existing debt while also issuing the new debt at relatively low rates."

The financing plan is subject to city council approval and updated estimates on the cost of the renovations.

The city’s debt and liability burdens remain high compared to peers, rating analysts say.

“We’ve recognized they do have a very weak debt profile; but they have the economic base to support it,” Golliday said.

“They’ve been building a better track record of handling their debt burden,” he said.

Moody’s Investors Service has rated Glendale GOs A1 with a stable outlook since 2017 after rating them as low as A3 in 2013.

Fitch Ratings assigns Glendale its AA issuer default rating; it rates the city’s GOs AAA because of a statutory lien.

In May, the city issued $252.8 million of taxable certificates of participation to fund its Public Safety Retirement System liabilities.

As of June 30, Glendale had $528.9 million of outstanding governmental debt obligations, and $168 million of water and sewer revenue debt, according to its annual comprehensive financial report.

As for the Coyotes, the team has given no indication of where it will play next season.

Phelps insisted the decision not to renew the Coyotes’ lease is final, not a negotiating ploy, and relations slipped further in December, when the city threatened to bar the team from the arena in mid-season for overdue taxes and payments owed the city, which the team made only after the situation became public.

Coyotes ownership in September was the only respondent to a request for proposals the city of Tempe set out to develop a city owned 46-acre brownfield site. The team says it will build an arena and entertainment district there in time for the 2025-26 season.

"While the submittal is evaluated, and the city engages in intensive due diligence, Tempe representatives cannot discuss the matter," the city says on its website.

According to a recent report by the website PHNX Sports, the proposal is in trouble at the Tempe City Council level.

And Glendale is far from done with professional sports; it’s home to the Arizona Cardinals of the NFL and spring training for two Major League Baseball clubs: the Los Angeles Dodgers and Chicago White Sox.