Glendale's Latest Arena Woes Are A Cautionary Tale For Other Cities

GLENDALE, AZ - APRIL 11:  John Moore #17 of the Arizona Coyotes skates with the puck during the NHL game against the Anaheim
GLENDALE, AZ - APRIL 11: John Moore #17 of the Arizona Coyotes skates with the puck during the NHL game against the Anaheim Ducks at Gila River Arena on April 11, 2015 in Glendale, Arizona. The Ducks defeated the Coyotes 2-1. (Photo by Christian Petersen/Getty Images)

The Glendale, Arizona, city council voted Wednesday evening to cancel its arena financing and management contract with the owner of the National Hockey League's Arizona Coyotes. The vote sets up a round of contentious legal fights over the future of the franchise that could reverberate well beyond the state and even bleed into the 2016 presidential election.

The 5-2 vote voids a contract the city signed in 2013 that pays the Coyotes $225 million in public money over 15 years to manage the city-owned Gila River Arena. A portion of that cost was supposed to be repaid to the city based on arena revenues, but shortfalls in those revenues mean Glendale could lose as much as $17 million over the first two years of the contract.

Glendale's nixing of the deal rests on a conflict-of-interest provision in state law that prohibits public employees who help negotiate city contracts from later working for another party to that contract. Former Glendale counsel Craig Tindall left the city government to work for the Coyotes in 2013, shortly after the approval of the arena deal between Glendale and IceArizona, a co-owner of the Coyotes. Though he primarily worked on a different, never-realized contract with a potential Coyotes owner, he also advised city council members on the current deal in the days leading up to the agreement, according to the Arizona Republic.

The franchise, which rejected the city council's requests to renegotiate the contract, doesn't think that argument will hold up in court. Coyotes attorney Nick Wood said before the vote that the team would file a $200 million lawsuit against the city. The team reiterated the threat after the vote.

"We are disappointed with the city's decision to violate its obligations under the agreement that was entered into and duly approved only two years ago," Coyotes co-owner and president Anthony LeBlanc said in a statement. "We will exhaust any and all legal remedies against the city of Glendale for this blatant violation of its contractual obligations to us."

Regardless of the outcome of the legal case, the city's move highlights the problems that can face cities, states and taxpayers that agree to pay for stadiums and arenas. Cincinnati, for example, had to sell off a public hospital amid budget problems in the years after spending more than $500 million in taxpayer money on new stadiums for the NFL's Bengals and MLB's Reds. Stadiums have caused similar, if not so sizable, headaches for cities like Milwaukee, Chicago and Philadelphia.

But for all the cautionary tales, many lawmakers continue to believe that the economic benefits of high-priced stadium deals will outweigh the costs and accompanying risks. Wisconsin Gov. Scott Walker (R) last week proposed spending $250 million in public funds for a new arena for the NBA's Milwaukee Bucks. The likely Republican presidential candidate has shown no signs of backing off even as conservatives have criticized him for perpetuating corporate welfare. Meanwhile, San Diego, St. Louis and Oakland are offering taxpayer money in efforts to keep their NFL franchises.

Glendale could tip public opinion a bit more in favor of the stadium skeptics. The city's situation "sticks out like a sore thumb" when it comes to bad arena deals, economists say. And it dates back years.

A previous owner of the Coyotes put the team into bankruptcy in 2009, forcing the NHL to take over the Coyotes' operations and the city to assume management costs the team was supposed to cover. The added millions of dollars in costs exacerbated the city's recession-caused budgetary shortfalls. In 2012, as it spent millions on the Coyotes' arena and management, Glendale cut public jobs and services and briefly considered putting up city-owned property, including its courthouse, as collateral against the venue. Analysts expected Glendale to lose millions of dollars annually on the stadium even under the best-case financial outlook.

The city then entered into the current contract amid concerns the Coyotes would relocate, effectively throwing good money after bad in hopes its fortunes would turn around.

They haven't. The arena and city are still in the red. Revenue shortfalls cost Glendale $8.1 million in 2014, and it expects to lose another $8.7 million this year. Those losses contributed to a $17.6 million budget gap in 2015, which the city narrowed with spending cuts and tax increases.

CORRECTION: This article has been edited to note that the conflict-of-interest provision Glendale relied on is a state law, not a city law.