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Reinsdorf's Coyotes bid favoured by league

Chicago White Sox owner Jerry Reinsdorf signs autographs for fans before Game 1 of the World Series in Chicago on Oct. 22, 2005.


The city council of Glendale, Ariz., will likely vote tomorrow to approve arena-lease agreements from both groups vying for the Phoenix Coyotes, but the bid headed by Jerry Reinsdorf appears to be the NHL's choice.

However, since Reinsdorf's agreement calls for taxpayers and businesses in the suburban community to foot as much as $165-million (all currency U.S.) of the purchase price and the annual operating losses, plus gives the Chicago White Sox owner an escape clause after five years, there is no guarantee the lease proposal will survive even if council approves it. Carrie Ann Sitren, a lawyer for the Goldwater Institute, said recently the conservative watchdog group will be studying any lease agreement closely and will not hesitate to take the city to court if it feels Arizona laws against public subsidies for private corporations are being violated.

Glendale city officials released each lease proposal, known as a memorandum of understanding, last Friday. Council is expected to approve both deals tomorrow night at a formal vote. Then the NHL, which bought the Coyotes from the U.S. Bankruptcy Court last October for $140-million, will choose a buyer.

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Two sources close to the NHL's board of governors said Reinsdorf is the preferred buyer. While the NHL has already reached a purchase agreement with the group of businessmen known as Ice Edge Holdings LLC, according to its deal with Glendale, the purchase is conditional on a lease agreement and financing. The NHL is asking $160-million for the Coyotes to cover the money it has poured into the financially crippled franchise, but neither prospective buyer wants to pay that much.

While Ice Edge representatives have said their financing is conditional on a favourable lease agreement, they have long insisted at least one major commercial bank, thought to be Deutsche Bank, is ready to be the lead lender. However, the NHL does not allow a buyer to finance more than half of the value of a franchise and sources say a down payment of $70-million to $80-million is out of the reach of Ice Edge.

Ice Edge representatives complained that Reinsdorf's agreement is better than theirs, but Daryl Jones, the group's operating officer, said their proposal was "a step forward toward keeping the Coyotes in Glendale."

Bill Daly, the NHL's deputy commissioner, declined to comment.

Both lease proposals call for the creation of a special "community facilities district" (CFD) around the arena. But the Reinsdorf agreement calls for far more money to be raised through the CFD than the Ice Edge deal.

Glendale agreed to create the CFD, a taxing authority, within 120 days of a lease agreement. The authority is to sell bonds and collect other revenues from the district, likely sales tax and levies on businesses.

The proceeds from the bonds and other revenue will be used to make three annual payments to the NHL for a total of $65-million. In addition, the proceeds will be used to create an "operating loss reserve account" that will collect $25-million a year with a cap of $100-million and seven years. Parking charges at the arena will also go into the operating-loss account, and if any are left over after payments to the NHL and for team losses, the money will go to Glendale. Plus, the CFD will obtain a letter of credit as a backup to cover the Coyotes' losses.

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After the fifth year of the agreement, if the operating-loss account does not have enough money to pay for the Coyotes' losses, Glendale is on the hook. The city will have to make up the shortfall itself or allow Reinsdorf to sell the team to someone who could move it. The city may find a buyer, but Reinsdorf will be guaranteed no less than $103-million for the team.

In the Ice Edge deal, there will also be an operating loss reserve account. It will be funded from revenue from the CFD in the form of assessments on landowners in the district. But the owners can draw only $5-million a year from the account. The rest goes to the city.

Ice Edge plans to raise most of its revenue from parking charges and surcharges to tickets for hockey and non-hockey events.

Neither lease proposal is considered a final agreement, only a broad outline on what the parties have agreed upon. Once either or both have been approved, a formal lease agreement for arena has to be negotiated.

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About the Author
Hockey columnist

A native of Wainfleet, Ont., David Shoalts joined The Globe in 1984 after working at the Calgary Herald, Calgary Sun and Toronto Sun. He graduated in 1978 from Conestoga College and also attended the University of Waterloo. More

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