Send the Coyotes North

by Reihan Salam

As part of a longer discussion of public subsidies for sports facilities, Aaron Gordon briefly references Glendale, Arizona, home of the newly-renamed Arizona Coyotes, one of the least popular teams in the National Hockey League. 

All the while, American cities, counties, and states continue to struggle. Glendale, Arizona, may actually sell City Hall so they can afford to keep subsidizing a hockey team that few people actually pay to see.

Back in 2011, shortly before the Atlanta Thrashers moved to Winnipeg, the University of Toronto’s Mowat Centre for Policy Innovation released a report on “the new economics of the NHL,” and why Canada can sustain a larger number and share of NHL franchises:

The market did not decide that Canada should only have six teams, or that Southern Ontario should only have one—the NHL did. The league has no interest in having supply meet demand, but rather benefits from ensuring that supply always remains below demand. For the NHL, this is an entirely rational strategy: artificial scarcity in the number of teams drives up their value. A team that runs into trouble in one city can be sold to a hopeful owner in another city. In contrast, a failed restaurant in Phoenix is not moved to Winnipeg; it just fails. Artificial scarcity also allows owners of even successful franchises to extract a payoff from local governments in order to move, or to stay put. All of North America’s big professional sports leagues are structured to play this game. Artificial scarcity allows owners to create bidding wars among local governments, with the city offering the most attractive subsidy package being granted a franchise. These subsidies generally take the form of building a stadium or arena with taxpayer dollars, and then allowing the team to play there at very low rent, or no rent at all.

Canadian governments have largely stayed out of this game. Local American governments, in contrast, rarely refuse to play. The most egregious recent case is that of the Phoenix Coyotes: as this report goes to press the city of Glendale, in the face of mounting criticism and the possibility of legal challenge under the Arizona constitution, is still trying to borrow more than US$100 million on behalf of the Coyotes, as part of a plan to give the team’s intended buyer a subsidy greater than the team purchase price. Were it not for these subsidies, along with revenue transfers from Canadian fans and taxpayers (the latter via the CBC TV contract), the Coyotes would not be in Phoenix. They would be in a city where fan demand is sufficient to allow them to earn enough money to cover their costs.

U.S. cities should take a page from their Canadian counterparts.