clock menu more-arrow no yes mobile

Filed under:

Breaking Down the Arena Lease Agreement

Today the City of Glendale finally published the arena lease agreement of Arena with Renaissance Sports & Entertainment to be voted on this coming Tuesday. So what's in it?

Christian Petersen

After weeks of negotiation, backroom deals, angry withdrawals, and bizarre twists and turns, the City of Glendale finally released the arena management agreement with Renaissance Sports & Entertainment on their website today. If you have a lot of time on your hands and are eager to read through some legalese, here's a link to the arena agreement itself. For everyone else, here's a rudimentary breakdown of the major parts of the agreement.

Ticket Surcharges

This is easily the biggest point of contention between Glendale and RSE. The city budgeted $6.5M to operate the arena while RSE was seeking $15M. To try and bridge the gap between the two numbers, a variety of proposed revenue streams were included for the City. For hockey events, the surcharge increases depending on the average attendance number for the Coyotes the year prior. The breakdown is as follows:

- $3.00 per ticket if average attendance in the previous year is below 15,000,

- $3.25 per ticket if average attendance in the previous year is between 15,000 and 15,999,

- $3.50 per ticket if average attendance in the previous year is between 16,000 and 16,999,

- $3.75 per ticket if average attendance in the previous year is above 17,000.

Last season, the average attendance was 13,923, which would place this year's surcharge at $3.00 per ticket. RSE also provided the city with what it called "conservative revenue estimates" to try and give the City Council some idea of how much money they could expect to see from the various revenue streams. By their math, the City of Glendale could expect to recuperate roughly $1.5 million annually from hockey events.

Additionally, there is a $5.00 surcharge for non-hockey events. RSE's fact sheet also came up with a 15,000 average attendance for the 23 non-hockey events at Arena last year. This surcharge would generate $1.725 million for the City.

Other Revenue Streams

RSE has also agreed to other revenue streams for the City. These include:

- $10 per car parking fees after the first 2,000 vehicles for all hockey-events,

- 75% of parking fees for any pre-season, post-season, or All-Star Game,

- 75% of $15 per car parking fees for each non-hockey event,

- 20% of the revenue generated from naming rights,

- Annual rent from the Coyotes to the City at a rate of $500,000 per year, which increases to $650,000 from years six to thirteen, and $850,000 from years thirteen to fifteen,

- All revenue from City-sponsored events or community events,

- All income from naming rights for a theatre/small stage venue to be built in the bowl of the arena.

Unsurprisingly, RSE included projected amounts for all of these additional revenue streams based off of the attendance calculations I previously mentioned. RSE projects that these streams would generate roughly $7.3M for the City. That leaves a deficit between the City's budgeted amount and RSE's fixed rate of about $1.6M.

To address this shortfall, there is a "supplemental ticket surcharge' of $1.50 for all events that goes into an escrow account which can be used to cover budget deficits if revenues from the arena fail to generate $8.5 million for the City. Should the City not use this money, it reverts back to RSE. This $1.50 number is of great concern to the acting City Manager, and it's not a stretch to think that this is one of the hurdles that derailed the agreement on Tuesday night.

Terms of the Agreement

As expected, the arena management contract contains an "out clause" in Section 3.3. This also is likely a major point of contention. In addition to the five-year termination option that has been expected for a while now, the out clause also stipulates that the out clause may be triggered if RSE sustains losses in excess of $50 million. While this isn't terribly surprising, the fact that it is $50 million could be problematic, depending on who you believe as to the financial situation of the Coyotes. Regardless, the City has the right to audit the finances of RSE if a notice of termination is produced, which would in all likelihood trigger another legal fight.

The agreement lasts for fifteen years, with a five-year extension option that the City of Glendale may exercise in its sole discretion. The annual fee for each year is $15 million, with the exception of this year, which is pro-rated based on the final closing date.

The City of Glendale is ultimately responsible for any capital improvements to Arena as well, although the agreement in its current form does not budget any money for that purpose. It is likely that those numbers would be agreed upon at a later date.