Are lease revenue shortfalls a problem for the Arizona Coyotes?

Christian Petersen

The City of Glendale is going to miss its revenue targets outlined in the lease agreement with Renaissance Sports & Entertainment signed in August. Does that bode ill for the Arizona Coyotes?

With this morning's news from Caitlin McGlade of the Arizona Republic that the City of Glendale's revenue projections for the first year of the lease agreement signed in August between the City and Renaissance Sports & Entertainment (RSE) will not be met, the usual chorus of skeptics and opponents are chirping about the feasibility of the agreement, and of hockey in Arizona in general.

Yet a more detailed look at the report reveals a different picture, one that even has more than a few positive takeaways for hockey fans in Arizona.

To begin, the gap between projection and reality is a little less significant than initially indicated. The article leads off with this dose of bad news.

Glendale expected to recoup $6.8 million this year from sources that include ticket sales, parking receipts and naming rights for the arena.

But too few non-hockey events at the Arena and lackluster revenue from parking means the city likely will get just $4.4 million.

A shortfall of $2.4M from revenue estimates is certainly disappointing, but not entirely accurate. As the article goes on to state:

The agreement does include a partial safety net — an escrow account funded by an additional surcharge on tickets — that Glendale will dip into to make up some of the difference, but that will still leave the city with only about $5.3 million, according to estimates by Duensing.

So the escrow account brings the shortfall to about $1.5M. It's still problematic, but not quite as bad as the first few paragraphs of the article suggest.

Perhaps more important for Coyotes fans is where the shortfall stems from. The team averaged 13,775 fans this season, which was last in the league, but over 1,000 fans more than they averaged in the previous full season.

In fact, the Republic's article goes on to state that the performance of the hockey club at the ticket office was up to par with what the city expected.

The team had seven sellouts and even broke the single-game record for revenue three times.

That put Glendale on target for money coming from ticket surcharges at hockey games.

So the Coyotes did enough to meet their revenue targets. That should be encouraging to supporters of the team in Arizona.

The two areas that contributed most significantly to the revenue shortfall were the lack of non-hockey events booked by Global Spectrum and ongoing issues with parking spaces around Arena.

When RSE partnered with Global Spectrum to secure non-hockey related events for the arena, they were expected to at least keep pace with non-hockey event bookings from years past. That did not happen.
The council expected to collect revenue from 23 non-hockey events based on prior years, but the city will only collect revenue from eight this year under the new agreement.
Part of the problem Global Spectrum faced was the fact that the arena lease was finalized in August, there was considerably less time for them to book large events for the upcoming year.

Having more time to attract performers to Glendale should help account for the shortage of non-hockey events in subsequent years. In fact, the Republic's article alludes to this being the case:
Duensing said the city wouldn't change next year's budget based on this year's returns, predicting that Global Spectrum's first year at the arena would be the most difficult for bringing in a lot of events.
The arena already has five events booked for next fiscal year.
Global Spectrum still has a long way to go to get to 23 non-hockey events, but they are already ahead of where they were last season.

The other major issue, and perhaps the tougher of the two to deal with, is the parking situation. Because the Coyotes and the city do not control every single lot around the arena, Westgate City Center and the Arizona Cardinals could (and did) undercut the team by offering parking for less or even for no charge compared to the team lots.

Solving the parking problem will be a bigger challenge for the city and the team. The Cardinals have no intention of closing their lots to attendees, and Westgate would prefer not to alienate its non-hockey clientele by charging them for parking on game days.

Solutions to those two issues range from conventional (taxing parking lots not specifically controlled by the city) to unorthodox (closing Maryland Avenue to prevent people from parking in the Cardinals' lot). But betting on hockey fans voluntarily paying more for parking to support the team isn't exactly a long-term solution.

Seemingly the least disruptive thing to do would be to incorporate the cost of parking into the price of a ticket so that where fans park is of no concern. But the sticker shock of a dramatic price increase might hinder the attendance progress the team has been making in the past few years.

All in all, there's a silver lining to every rain cloud. In this case, the shortcomings of the arena lease agreement have more to do with the performance of other aspects of the RSE portfolio than the hockey team itself. While those challenges will need to be fixed, they do not suggest that the franchise is any worse off than expected thus far.
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