The Financial Impact of Fan Disinterest: Analyzing the Arizona NHL Team's Billion Dollar Debt

  Tempe residents will cast ballots this May on whether to approve a $2 billion development deal with NHL Coyotes, but an opposition group, Tempe 1st, has intensified its public campaign against it. At an at times dramatic news conference held by them Monday night, members of Tempe 1st provided reasons why they oppose props 301, 302, and 303 on May's special election ballot. Fan Disinterest The Phoenix Coyotes have chosen Arizona State's 5,000-seat Mullett Arena as their home venue this season - making them one of the NHL's smallest stadiums and leaving their future uncertain here. The Coyotes currently lease space in collegiate arena, which the city is upgrading and remodeling, for a short-term period. As part of that contract with arena management company to cover operating expenses. But due to low attendance figures in recent years, that contract requires them to average at least 12,000 attendees for coverage by arena management company. This month, the city threatened to lock the Coyotes out of Gila River Arena mid-season for their owner Alex Meruelo's failure to pay $1.3 million in state and local taxes and operating costs associated with Gila River Arena - an extremely significant figure when applied to professional sports franchises. That is because the Coyotes aren't just losing fans; they aren't generating much in revenue either from other events. Even during their most profitable periods, the franchise never managed to generate over $4 million in non-hockey revenues and when factoring in arena maintenance costs. But their financial woes go beyond a lack of revenue: they also need a permanent home in Phoenix area. From 1996 until 2009, the Phoenix Coyotes shared America West Arena with NBA's Phoenix Suns. When owner Jerry Moyes took them into bankruptcy in 2009, NHL officials stepped in to support new ownership by signing a long-term lease agreement and signed long-term lease extension documents with new management. Finally, city leaders approved plans for building an arena/entertainment district proposal and in 2014 changed them from Phoenix Coyotes to Arizona Coyotes. As it turned out, the new owners weren't eager to pay rent that would cover all operating expenses - an unlikely scenario given Xavier Gutierrez, their financial adviser has an established pattern of not paying bills and daring creditors to sue him. Pro sports teams tend to keep their finances secretive for good reason: They want maximum leverage when negotiating with players' unions and minimal profits that are taxed - thus it comes as no surprise that many fans may not know of the true financial state of their local teams. Attendance The NHL is eager to see Atlanta, Tampa and Phoenix teams become profitable. After all, expanding to these markets represents part of its plan to spread hockey throughout America; placing good hockey nearby can only serve to further enlarge hockey markets like these - one reason they fought so hard to keep Arizona's Coyotes. Attract AttendanceThe NHL employs numerous levers to increase club value; one such lever is attendance. Attendance drives ticket sales and thus contributes significantly to hockey economy - this is why poor attendance figures for Coyotes is of such concern to league executives. Even an outstanding team may struggle to sell tickets when its local fan base does not show much enthusiasm for attending games, like the Coyotes who draw approximately half as many attendees per game as an average NHL club does in ticket sales. Recently, Coyotes owner Steve Ellman has attempted to revive the franchise through various gimmicks. These range from hiring former stars such as Phil Kessel and Wayne Gretzky as consultants, to creating a "Ring of Honor" with players who never actually played for Arizona; unfortunately these efforts have had little impact and long-suffering fans remain disinterested. Forbes Financial News reports that due to this lack of interest, the Arizona Coyotes are currently considered the least valuable team in the NHL. But that low valuation doesn't reflect solely poor financial performance but also arena constraints. The Arizona Coyotes have made headlines this season by playing their home games at ASU's 5,000-seat Mullett Arena - much smaller than traditional NHL arenas - which limits revenue opportunities and their television ratings have taken a dramatic dive, becoming second lowest local cable ratings among NHL clubs during this season. ASU and Tempe have been working on a permanent solution to give the Coyotes a larger venue, but voters in 2020 must be convinced of their ability to meet this deadline for 2022-23 season or else they could end up on the move yet again. Revenue NHL franchises generate significant revenues through ticket sales and suite rentals as well as television rights deals, team-owned venues, and other business ventures. 2021-22 was an exceptionally strong year for revenue generation - up 9% year over year due to new media rights deals as well as an uptick in sponsorship revenue which helped offset the $1 billion player escrow debt that is due this year. Additionally, the Coyotes are generating additional revenue by selling assets such as their former arena in downtown Phoenix and using that money to pay for a new stadium in Tempe that will seat approximately 16,000 fans and host other events; additionally, this project includes hotels and shops which will help expand Phoenix's tax base. This season, the Coyotes will play their games at Arizona State University's 5,000-seat Mullett Arena while they await word on their bid to build a new hockey arena and entertainment district in Tempe. A successful project could ensure long-term success of both league and city if approved; otherwise relocation would likely result. Even though they have an unfavorable image among fans, the Coyotes are still bringing in enough revenue to ensure their team stays afloat. Last season alone, they earned almost $5 million, an impressive figure considering they compete in NHL's lowest division. The team has attracted top prospects such as Dylan Strome, Kirby Dach and Dominik Kubalik while keeping its key veterans. Of particular note was Jesse Puljujarvi's addition, an elite defenseman whose play has already proven effective during his first two seasons with the Coyotes; as he becomes more comfortable playing NHL hockey he should only continue to improve. Recent moves, including trading for Carolina Hurricanes defender Shayne Gostisbehere, have helped the Coyotes compete more effectively in the Western Conference and resulted in a slight increase in grade - though more work remains to be done before making playoffs. Profit Since 2002 when they joined the NHL, the Coyotes were consistently losing money at rates far exceeding ticket revenues, leading to a massive deficit that was covered by league financing despite public denials from them. Owner Jerry Moyes filed bankruptcy proceedings in May 2009 in an effort to sell his franchise to Canadian billionaire Jim Balsillie; however, an Arizona judge found that bankruptcy cannot be used as a means of circumventing relocation rules of the league. The NHL has stripped Moyes of virtually all his ownership authority, though he remains owner in title. The league has long supported keeping the Coyotes in Arizona as it believes this major hockey market draws fans and generates revenue for all league clubs. As part of their efforts to secure a new arena for their team, Tempe is hosting a special election next month on three proposals that would create an entertainment district and give its owner a tax break. An oppositional grassroots group known as Tempe 1st has launched an aggressive campaign against this plan; holding an at times theatrical news conference on Monday dressed like billionaires while explaining their opposition. This season, despite injuries to star players such as goaltender Connor McDavid and forwards Alex DeBrincat and Kirby Dach, Edmonton has shown steady progression despite these absences. They boast a solid young defense that features rookie Jesse Puljujarvi and veteran Shayne Gostisbehere; plus their captain Gabriel Landeskog who remains capable of carrying their squad forward. Coyotes financial issues will likely not be resolved even with an outstanding season; ticket sales and TV ratings must significantly increase for turnaround. To increase fan engagement, ScoreVision, which uses real-time scoring data to engage the crowds is being implemented across leagues such as NHL, NBA and Major League Baseball as a way of showing on-field action.