Media & Entertainment Law

City of Glendale Approves Reinsdorf Group?s Ownership Bid for Coyotes ? But Proposed Financing Scheme Creates Possibility of Legal Challenge

By Rick Karcher, Michael McCann, Geoffrey Rapp, Greg Skidmore, and Howard Wasserman

On Tuesday, the Glendale City Council approved a preliminary memorandum of understanding authored by the potential ownership group known as Glendale Hockey, LLC for the purchase of the Coyotes? assets from the National Hockey League. The group, headlined by sports magnate Jerry Reinsdorf, is supposedly viewed as the preferred ownership group to purchase the financially beleaguered franchise that the league bought out of bankruptcy in the latter part 2009. While the City Council ratified the Glendale Hockey, LLC memorandum of understanding, it rejected the proposed document submitted by Ice Edge Holdings, LLC, effectively ending the group?s ownership bid. The City Council?s approval of Glendale Hockey, LLC?s proposed memorandum clears the way for the group to negotiate with the NHL in hopes of purchasing the team.

A reading of the Reinsdorf group?s memorandum of understanding shows that Glendale Hockey, LLC plans on financing its bid through the sale of bonds and other revenue out of a newly created community-facilities district. This proposed district centers around Jobing.com Arena and the mixed use real estate development that surrounds the ice arena. The group also plans on raising funds through charging for parking, something that the previous ownership group had never done. However, this proposed method of fundraising has caught the attention of a local Arizona conservative watchdog, the Goldwater Institute. This is the same group that is considering challenging the constitutionality of a recently approved Arizona state tax that would assist in subsidizing the construction of the new Chicago Cubs spring training stadium.

The Goldwater Institute seems to believe that the Glendale Hockey, LLC bid places too much financial stress on the Glendale taxpayers and fails to put enough financial risk on the ownership group. Under the proposed financing scheme, the Goldwater Institute argues that the Reinsdorf ownership group ?really seems to have insulated [itself] completely from any financial liability?? and that the brunt of the proposal?s monetary burden is placed on the taxpayers. A reading of the memorandum illustrates this point: under the proposed agreement with the City, after five years Reinsdorf?s group can sell the team or force Glendale to cover the group?s loses if the team is operating at a significant loss. This puts the new ownership group in a position to abandon its financial obligations to the Coyotes after five years and basically leaves the Glendale taxpayers holding the ball.

Recent Arizona court decisions state that a beneficiary of a governmental gift must provide back some sort of comparable benefit that is clear and reasonable. It is difficult to construe Glendale Hockey, LLC?s currently written proposed memorandum of understanding as exhibiting a reasonable benefit to the taxpayers. What exactly is Glendale Hockey, LLC offering in exchange for public support? Perhaps the ownership group would argue that the benefit is keeping the Coyotes in Glendale. However it is unclear whether such an argument qualifies as benefit that meets the necessary threshold to entitle Glendale Hockey, LLC to receive such support. Until further demonstrated, this lack of a clear and reasonable benefit may lead to another lawsuit in the near future; more litigation for a hockey club that has seen its fair share of courtroom action over the last year.

You can read more about the Goldwater Institute, by clicking here.

Full post as published by Sports Law Blog on April 15, 2010 (boomark / email).