The NHL Board of Governors approved Alex Meruelo’s bid to purchase a majority stake in the Arizona Coyotes from former owner Andrew Barroway, just two years after Barroway bought out his partners in what Forbes’ Mike Ozanian called “the riskiest deal in recent memory” (he took sole ownership of a franchise with $250 million of debt, coming off a season where it lost $27 million). Commissioner Gary Bettman said that Meruelo is “committed to trying to get a new arena in the right location and making it work” [in the Phoenix area], but acknowledged that “the club is not viable long-term in Glendale.” While Bettman wouldn’t explicitly state the term, without a new arena relocation is likely. Houston, Kansas City and Quebec City are among the locales frequently cited as potential destinations for NHL expansion/relocation.
Howie Long-Short: Ozanian reported that Meruelo bought in at a +/- $300 million enterprise valuation – significantly less than the $400 million to $450 million “headline price” that’s being floated. Of course, $300 million makes much more sense. As Forbes noted, the club is “running pre-tax cash losses of +/- $50 million a year” and maintains debt obligations north of $300 million; there simply couldn’t have been enough buyers willing to invest the working capital and cash needed to cover capital calls to drive the price that high. One potential buyer told JohnWallStreet that the prospect of losing one-hundred million dollars over the next couple of years was enough for him to take a pass.
Barroway bought a 51% stake in the Coyotes in January ’15 at a $305 million valuation. Few understood why he bought out the franchise’s minority shareholders in July ’17 (at a $240 million valuation) – he already had a controlling stake and the team was hemorrhaging cash – but despite public comments claiming that he was “doubling down on his investment” and committed to getting a new arena in the Valley, what Barroway was really doing was paying a control premium to accelerate his exit. He knew the club couldn’t be profitable in Glendale, that he couldn’t meet the capital calls and that there was little political support for a new building in area (remember, Gila River Arena is just 15 years old); sole ownership made it easier for him to sell the team.
7 straight post-seasons on the golf course hasn’t helped, but the belief is that the arena’s location is at the root of the Yotes’ problems. Glendale is just 12 miles from downtown Phoenix, but with traffic it could easily take fans over an hour to commute to the game. As a result, they opt to stay home. The Coyotes were just one of eight NBA or NHL franchises to draw fewer than 15,000 fans each time out last season.
While Bettman has refused “to issue threats”, he did say that he “hopes” the Coyotes arena situation works itself out before relocation becomes a topic of discussion (there’s no long-term lease in place). The NHL prohibits new owners from immediately filing to move the team, so unless changes are made to the league’s bylaws the Coyotes are going to be in Glendale for the next 7 seasons. But several sources – including former Thrashers President Dr. Harvey Schiller – tell JohnWallStreet that they believe Bettman has promised Meruelo that the “owners will do whatever is necessary to help him turn the franchise around and make some money” – including allowing him to move the team sooner if he’s unable to get a new building in the Phoenix market. Schiller said, “no one would buy that franchise unless they were assured there was a way it would stop losing money.”
Fan Marino: Back on June 6th, we noted that if women’s hockey is going to be successful in North America, teams will need to be based in established hockey markets (think: original 6). If you use that same logic to determine the Coyotes future, Meruelo would be wise to move the team to Quebec City. While Dr. Schiller notes that “there have always been concerns about competition within the Toronto market, it’s always good to capture as many fans as you can in a major market” – and there is no better hockey market than Ontario, Canada (Quebec is strong too).
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