The Glendale City Council placed the city's reputation as a big league hockey and entertainment mecca into the trust of arena-management firm AEG Facilities on Tuesday night.
The council voted 7-0 to approve a $28 million, five-year contract with the Los Angeles-based company to run Gila River Arena.
Glendale officials directed AEG Facilities executives to fill the venue at the Westgate Entertainment District with concerts and, more importantly, repair the city's battered relationship with the Arizona Coyotes.
Coyotes in Glendale
Coyotes President Anthony LeBlanc has said repeatedly for months that the hockey team's owners are exploring options to relocate to a new arena in Phoenix, Tempe or elsewhere in metropolitan Phoenix.
Deal comes with an out-clause
AEG Facilities' deal comes with an out-clause that allows the company to renegotiate the deal or to walk away from it if the Coyotes vacate Gila River Arena or if the arena's naming-rights agreement crumbles.
The team's current agreement with Glendale runs through the end of next season. The Coyotes' future beyond then remains uncertain.
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LeBlanc said the team's owners anticipate a future that represents a "solid win" for taxpayers, hockey fans, the team's partners and the team, but he has yet to provide details about the options they are pursuing.
Speaking to reporters before the council vote, AEG Facilities Chief Operating Officer Charles Steedman said he is acting under the presumption that the Coyotes will remain at the arena, where they have struggled to draw crowds.
"We've never looked at a scenario without the Coyotes," he said.
AEG Facilities and Coyotes executives have had preliminary discussions, Steedman said, describing the talks as friendly, forthright and honest.
The Coyotes currently manage the arena, but team executives chose not submit a bid when the city opened the job to other bidders last year.
75 percent for AEG Facilities, 25 percent for Glendale
The new deal splits the first $3 million in profit from the arena equally between AEG Facilities and the city. Beyond that, AEG Facilities will receive a 75 percent share, while Glendale will receive a 25 percent share.
The contract eliminates a complicated set of revenue reimbursements the city had with the Coyotes for naming rights, parking and other revenue sources. According to the new contract, all future revenue would be lumped together for the 75/25 split.
"We look forward to AEG bringing their professionalism and experience to this relationship," LeBlanc said in a written statement.
"We're excited to begin substantive conversations soon about our short-term needs for next season at Gila River Arena," he said. "At the same time, we are continuing discussions regarding a new arena in another Valley location."
During the press briefing, Steedman said the new operators will provide the best service possible to support the team, but the Coyotes' investors will make their own assessment.
He noted that AEG Facilities has extensive experience running pro hockey arenas across the country. Its parent company owns the NHL's Los Angeles Kings.
"We understand the needs of a hockey team," he said. "We understand what's important to a hockey team in the scheduling process. We understand what's important in getting practice ice time and getting day-of-game skates, and how to work with them in back-of-the-house areas."
Connected to 120 venues worldwide
AEG Facilities and its affiliated businesses own, operate or consult with more than 120 venues worldwide, including the Staples Center, which is the home arena for the Kings, Los Angeles Lakers and Los Angeles Clippers.
The entertainment-oriented company also developed L.A. Live, a bustling sports and entertainment district adjacent to the Staples Center. The company's entertainment division ranks as the world's second-largest concert-promotion company.
Gila River Arena is well positioned to attract a greater number of concerts and live entertainment acts than it has in recent years, Steedman said.
"This is a beautiful arena. It really is fantastically well designed and built," Steedman said during the press briefing at City Hall. "It really presents itself from the standpoint of, not only the fans, but the users, whether that's the tenant hockey team or whether that's a concert that's coming through."
Gila River Arena features easy access, ample seats in the lower bowl and plenty of retail areas — all important considerations for event promoters, Steedman said.
The venue has staged major acts including Elton John, the Rolling Stones, Bruce Springsteen, Motley Crue, Justin Timberlake, the Eagles, Taylor Swift, Justin Bieber, Tim McGraw and Faith Hill, among others.
Steedman said Tuesday that his company already helped line up Coldplay to perform at the arena on Aug. 23.
Gila River Arena is located strategically within the West, a region in which AEG Facilities already runs several other arenas, making Glendale an easy addition to most performers' tours.
Concern over rush to make contract
Retired Glendale fire chief and announced mayoral candidate Mark Burdick said he was concerned that the city posted the contract on its website only a day before the scheduled vote. He said rushing the process left typos in the contract and risks the public's trust.
Councilwoman Lauren Tolmachoff said she and other council members had seen draft copies of the contract since Friday and that she and others have asked questions of city administrators in private.
Mayor Jerry Weiers said he also had questions — some as recently as three hours before the start of the voting meeting — but they were answered in private.
Neither Tolmachoff nor Weiers said what questions they had nor what answers they received.
Councilman Bart Turner said he didn't think public negotiation would be productive.
Former City Councilman Gary Sherwood, a strong supporter of the Coyotes before he was recalled last year, said he too was concerned that the contract was being rushed.
He also questioned why the deal has no performance guarantee for AEG Facilities. Sherwood said he was hopeful that the new deal will work out, but he's afraid that the Coyotes will leave Glendale and business at Westgate will suffer.
Thirteen years after Glendale opened its arena, the venue has failed to produce enough revenue to offset its expense for the city. It may never do so.
"The arena was built to generate revenue, to be a catalyst. Not to be a stand-alone profit center," City Manager Kevin Phelps told The Arizona Republic before the vote.
The Coyotes and the arena have helped drive restaurant, bar and retail sales throughout Westgate. The arena also has spurred development and helped support thousands of jobs in the region near Loop 101 and Glendale Avenue.
Revenues at arena have come up short
Revenues generated at the city-owned arena have fallen millions of dollars short of the cost of the debt service every year since it opened in fiscal 2004, according to figures compiled by Assistant City Manager Tom Duensing.
Revenues have included rent from the Arizona Coyotes, additional guaranteed money from the team, and income from parking, naming rights and other sources. The revenue sources and amounts have varied according to agreements with various team owners.
The various Coyotes' owners have managed the hockey and concert facility since it opened, but the city only has paid the owners to do so since 2011. The city's losses have increased as a result.
Duensing prepared the summary of arena revenue, management fees and debt-service payments at the request of Councilwoman Tolmachoff. The Republic obtained it through a public-records request.
In no year since the arena opened in 2003 as the home for the Coyotes has the city garnered more from the venue than it has spent on the building, according to the analysis prepared for the city.
The most the city collected in arena revenue came during fiscal 2006. The city paid nothing to Arena Management Group to manage the facility and collected $3.55 million in arena-generated revenue. In the same year, the city also spent $8.23 million in debt service to repay the bonds used to build the facility.
The most the city spent was in fiscal 2011. Glendale paid $25 million to Arena Newco to manage the arena and collected $2.18 million in arena-generated revenue, for a net loss of about $22.8 million. Debt service was an additional $9.6 million.
For 2015, the city paid $15 million in management fees, earned about $5 million in arena revenue, and had just under $10 million in net losses. The debt service was about $8.5 million.
