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What’s going on with the Arizona Coyotes’ arena situation?

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New developments add more uncertainty, not less, to Arizona’s plans for an East Valley move.

NFL: University of Phoenix Stadium Aerials Mark J. Rebilas-USA TODAY Sports

Arena speculation and the Arizona Coyotes go together like hockey and frozen water. And there is nobody better at keeping Arizona fans appraised of arena developments than Craig Morgan of Arizona Sports (or more likely to have accurate information).

So naturally, it was Morgan who had the most recent scoop: a private ownership group is exploring the prospect of constructing an arena just south of the Scottsdale Pavilions, near Salt River Fields at Talking Stick. They are also looking for an anchor tenant, and the Arizona Coyotes are near the top of the list.

The reception from the Coyotes, however, could only charitably be described as “chilly”:

When reached Wednesday evening, Coyotes president and CEO Anthony LeBlanc had this to say: “Throughout this process we have had a number of groups solicit our involvement. This particular group and site are not one with which the Coyotes are working.”

It is no secret that the Arizona Coyotes are looking for an arena in the East Valley. And here is a group that seems willing to provide them one.

So why aren’t we hearing more news about the arena development? There’s one possible answer that is consistent with what we know so far about the arena search, as well as basic economic and legal principles surrounding large and complex real estate developments.

Why Radio Silence?

It’s actually not terribly surprising that a private ownership group might be tight-lipped about its plans for a new arena. In fact, it is a relatively uncontroversial tenet of real estate and property law that a large project by a private developer needs to be kept completely secret until the last possible moment.

The reason is what’s known as the holdout problem. Unsurprisingly, an arena requires a lot of land. And if a development (like Westgate) is planned around the arena, then even more land is required. Not every landowner wants to leave their property, especially if it has sentimental or otherwise intangible value. So, as property owners in a given area learn about a private company’s need for a large tract of land, the cost of securing every parcel of land increases dramatically, as individuals can “hold out” knowing that the larger developer needs the entire tract to move forward.

For a public entity like a city or county, acquiring the land is relatively easy. All governments have the ability to take land at fair market value for public purposes through a process called “eminent domain.” While the contours of what can and cannot be taken vary from state to state, the general principle is that since government entities are accountable to taxpayers via elections, courts generally don’t heavily scrutinize the rationale behind the use of eminent domain power.

This should not come as much of a surprise to Coyotes fans, who became abundantly familiar with the Arizona Constitution’s “Gift Clause” during NHL ownership. Yet even that provision of the state constitution doesn’t look too heavily at the reason the government wants to work with private entities; its chief concern is whether the taxpayers are getting fair market value for their dollars.

What’s the Problem Here?

So eminent domain makes the holdout problem less of a challenge. But private entities can’t exercise eminent domain power. And one of the few things that governments cannot do under eminent domain is take property from one private holder and immediately give it to another private holder.

That means private companies have to get creative. The best way to prevent the holdout problem is to make sure that individual property owners don’t know that the same company is trying to acquire all of the land in an area. And there are plenty of ways for companies to legally do that.

But all of them hinge on word not getting out. So IceArizona has an enormous financial incentive to keep the areas it is interested in a closely guarded secret until every piece of land is bought. That would explain why so little news has come out of the Coyotes camp, and why IceArizona’s rumored involvement with Arizona State University has never been confirmed.

In World War II parlance, loose lips sink ships. Loose lips also sink arena developments too, so IceArizona is keeping their mouth shut.

What About Pima?

As Craig Morgan makes clear from his report, the Salt River Community does not have many of the issues that have plagued other places like Phoenix and Glendale during this process.

A location on Salt River Pima-Maricopa Indian land could remove many of the perceived barriers to building an arena in other locations, including bonding issues, tax districts and political or public backlash. As one source noted: “We are not asking for any cash” from the community or the public.

The end result is that developers can be more candid about their plans, either because they have the land, or because acquiring it is not a problem. All of their focus, therefore, can be on pitching the site to potential tenants, especially the Coyotes and Suns.

Making a public play for the Coyotes accomplishes several objectives for the Scottsdale Pavilions group. First, it increases pressure among the fanbase to run with what seems like an appealing option; even if the move to the East Valley is not well-received by everybody, the prospect of not sitting through years of city council meetings undoubtedly is.

Additionally, public knowledge of the development could further chill the prospects of any public financing of an arena elsewhere. Opponents of a bond issuance by the City of Tempe, or the Arizona Board of Regents, or the City of Scottsdale, for example, could point to the existence of the Scottsdale Pavilions project as a reason not to commit to public financing. If someone is willing to build an arena with no costs to taxpayers, why should a government spend a dime on IceArizona?

It’s a valid argument, and one that IceArizona might understandably want to shoot down by publicly denying interest, because it would decrease any leverage they might have in negotiating a partnership or a tenant agreement with the Scottsdale Pavilions team.

Final Thoughts

This news may be the first rumbles of an avalanche of developments on the arena front. The longer IceArizona waits, the further along the Scottsdale Pavilions project gets, and the more likely an unauthorized leak of information essentially forces IceArizona’s hand on a decision.

But for now, IceArizona’s near total silence is a careful calculation designed to minimize IceArizona’s expenses and maximize its leverage. It certainly isn’t stress relieving for Coyotes fans, but it is definitely in IceArizona’s best interest to keep its plans under wraps until they are 100% ready to proceed.