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After work with Hulsizer, Goldwater still plans court challenge on sale of Coyotes

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After working with Matthew Hulsizer over the past 48 hours to try and get a better understanding of his deal with the City of Glendale, the Goldwater Institute still believes the lease to be illegal and will challenge it in court if a sale of the Phoenix Coyotes ever closes.

Glendale has pledged to sell $116 million in bonds and then purchase parking rights at Jobing.com Arena from Hulsizer to the tune of $100 million. Goldwater says this is a form of corporate welfare and contravenes Arizona constitutional law.

Political pressure has been placed on Goldwater this week with Senator John McCain speaking out in favour of the deal.

McCain says he bases his opinion on the deal because former Arizona attorney general Grant Woods says it is legal. Woods has been a paid consultant in this transfer, working first for the Ice Edge Holdings group when they were attempting to buy the team. Ice Edge is purportedly part of Hulsizer's group.

Goldwater CEO Darcy Olsen told Hulsizer on Friday the institute still believes the lease to be illegal.

Talks between Hulsizer and Goldwater broke off on Friday. The NHL reportedly has a buyer for the bonds Glendale needs to sell to front Hulsizer the money for the purchase but those buyers are demanding a high interest rate due to the threat of a lawsuit.

 

Goldwater sent the following email to the Free Press late Friday afternoon.

 

Good afternoon,

 

We have updated our FAQ list today with three questions to answer some of the regular queries we see in the comment sections under your stories. So we just wanted to be sure you had seen the answers as background for future reporting. You can see the three new questions below and the full FAQ at http://goldwaterinstitute.org/article/5849#FAQ3.

 

These particular answers were written by our senior economist, Steve Slivinski, who collaborated with Byron Schlomach in our office. Steve has his masters in economics from George Mason University and Byron has his Ph.D. in economics from Texas A & M.

 

Thanks in advance & have a great weekend!

Q: Do sports teams really drive economic growth?

A: When economists take a look at the experience of numerous cities across the nation over the past 50 years, they discover that the presence of sports teams, stadiums, and arenas – particularly when subsidized by local governments – don't drive growth in employment or personal income. As an extensive 2008 review of the peer-reviewed economic studies published over the past 20 years concludes: "No matter what cities or geographical areas are examined, no matter what estimators are used, no matter what model specifications are used, and no matter what variables are used, articles published in peer reviewed economic journals contain almost no evidence that professional sports franchises and facilities have a measurable economic impact on the economy."

One of the main reasons sports teams and the facilities in which they play are not drivers of economic growth is because they don't create new economic activity. Instead, they displace other forms of economic activity. For example, imagine you were going to spend money on a night out. You could spend it on an expensive dinner or you could spend it on tickets to a sporting event. But because you have a limited amount of money to spend, you wouldn't spend it on both. This substitution of one type of spending for another is exactly what you see happening when you analyze the experience of cities with sports teams. Consumers spending more of their discretionary income on sports-related goods is offset by those same consumers spending less on other things. Thus, no net new economic activity results.

Another point economists make is that most of the profit generated by sports teams go to the players, owners, and shareholders of the team. Those individuals tend not to live in the area in which the team plays. Instead, the money is "exported" to be spent or invested elsewhere. This reduces or eliminates the "ripple effect" that sports teams have on the local economy.

Q: But the local economy will be hurt in some form if the Coyotes leave, right?

A: Mayor Scruggs has on numerous occasions been quoted or paraphrased in the press as saying the city will lose $500 million in "economic impact." The source of this estimate has yet to be produced by the City of Glendale or anyone associated with the Coyotes deal.

Another cited estimate comes from a study done by the ESI Corporation that seems to indicate that Maricopa County would be harmed by the departure of the Coyotes. That study has not been publicly released to allow a look at how that estimate was derived. However, city officials and reporters continue to repeat its conclusion.

The most detailed description of the ESI study's conclusion appears in a briefing document provided to the Glendale City Council dated December 14, 2010. That document reports that the "annual regional economic impact of Coyotes and Jobing.com arena" amounts to 750 jobs in Maricopa County and $20 million in wages. Glendale officials and Coyotes supporters sometimes use this as an example of what the city and county would lose permanently if the Coyotes leave town. Another estimate reported by the Phoenix Business Journal puts the potential loss at 527 jobs – mostly part-time, service-related jobs at the arena.

It's unclear whether Mayor Scruggs is simply multiplying the $20 million figure from the ESI study by 30 – the number of years the Coyotes have agreed to stay in Glendale. That would at least provide some kind of rationale for the $500 million figure. However, it would not satisfy her claim that the estimated economic harm would only touch the city; the ESI estimate is a countywide estimate. The principals involved in the deal could clear up much of the doubt by simply releasing any analysis on which Scruggs bases her claim.

Those claims need to be contrasted with the numerous studies by sports economists that have concluded that the presence of sports teams has no significant positive impact on personal income growth or employment growth in the localities and time periods studied, which usually survey 30 or more metropolitan areas and time frames that reach back as far as the late 1950s. Those studies can either find no significant influence on level of these variables (particularly income) and no influence on the rate of growth of these variables.

In the short term, of course, the departure of the team could lead to some immediate job loss and that is regrettable.

But just as the departure of the Coyotes from Phoenix to Glendale freed up capital for other businesses to open and create new jobs for residents, it's important to keep in mind the alternatives. For instance, a minor league team could be brought to the arena and the eventual opening of the new Tohono O'odham casino could attract some of the entertainment dollars that would have otherwise been spent on hockey and provide a cushion to the potential job losses.

Q: What might happen to Jobing.com Arena if the team leaves? Will it "go dark" forever?

A: There are a number of events that can replace some, if not all, of the activity during the 41 nights a year that the Coyotes play at Jobing.com Arena.

One alternative is to find another anchor tenant. Another alternative would be to attract more non-sports events such as concerts and shows. For instance, the estimates provided to the Glendale city government by their own consultants have assumed that "family events/shows" will jump from one in 2010-11 to twenty four by 2013-14. They also assume that attendance at "major events/shows" will grow by 33%, from 75,000 to 100,000. The city itself apparently believes they can find more opportunities like these so events can take place at the arena year-round. They should be encouraged to pursue these opportunities.

It's also important to realize that arenas have survived in other cities without the presence of an anchor tenant. The Sprint Center in Kansas City, Missouri, opened in October 2007. It was built by the city at a cost of $276 million for the purpose of attracting either an NHL or NBA franchise. No team ever materialized. Yet today the arena turns a profit on the strength of its attendance levels – ranked recently as the second best in the nation – driven by concerts and other events. In 2010, the Center delivered $2.1 million in profit to the city.

 

 

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