Lost Arcos

Officials suppress documents that say how much developers would profit from a hockey arena and commercial complex that's seeking at least $350 million in public subsidies

Professional sports teams, however, are notorious for understating profits. Last December, Forbes magazine estimated that the Coyotes had a net operating income of $700,000 for the 1997-98 season.

When asked about the Forbes assessment, Coyotes owner Richard Burke laughed and said, "They didn't ask me."

Burke says he hopes the team will "break even" once it moves into the new arena.

Most of the businesses have left the 30-year-old Los Arcos Mall.
Paolo Vescia
Most of the businesses have left the 30-year-old Los Arcos Mall.
Phoenix Coyotes president Shawn Hunter says he gave the city a financial analysis of the proposed arena. City officials say they can't find the crucial document.
Barry Gossage Photography
Phoenix Coyotes president Shawn Hunter says he gave the city a financial analysis of the proposed arena. City officials say they can't find the crucial document.

Simply breaking even is not something Burke is accustomed to. Burke is a shrewd businessman who made a fortune founding and operating United Healthcare, one of the nation's first and largest HMOs.

While Burke no longer runs United Healthcare, he owns stock in the company valued at about $35 million. In recent years, he's turned his attention to First Cash Financial Services Incorporated, a Texas-based operator of more than 110 pawnshops and check-cashing stores nationwide that charge interest rates of up to 300 percent. Burke is the majority shareholder in the company, controlling stock valued at more than $15 million.

The 55-year-old Burke owns a 25,000-square-foot mansion in Minnesota worth more than $5 million. The property taxes on that estate are nearly $100,000 a year, records show. He also paid cash in 1997 for a $2 million home in Paradise Valley.

Burke has been seeking a public subsidy for his hockey team since he purchased the Winnipeg Jets in 1995 for $68 million. The Minnesota Legislature turned down his request for approximately $20 million in assistance before Burke skated to Phoenix and became a tenant at America West Arena.

There, Burke was confronted by another shrewd businessman in Jerry Colangelo, who controls the city-owned facility. After a brief honeymoon, the men had a falling out over 4,200 limited-view seats for hockey and a dearth of sponsorship and luxury suite revenue available to the Coyotes.

Last year, Burke convinced Scottsdale to take advantage of a state law (set to expire on November 3) that allows developers to recapture half of the state sales tax generated in a redevelopment project that has an arena component.

In May, voters in Scottsdale, Fountain Hills and Guadalupe created the Los Arcos Multipurpose Facilities District, and on November 2 those same voters will be asked to allow the district to collect half of the state sales taxes generated at the project for 10 years. The district will give the money to developers to reimburse a portion of their costs.

A yes vote would also require Scottsdale to give developers an amount equal to the sales-tax collections.

If voters approve the tax Tuesday, Burke and his partners stand to benefit from a public subsidy of at least $352 million.

Burke won't just profit from sales generated in the new development, he also stands to see the value of his hockey franchise soar.

Arenas are crucial to the profitability of National Hockey League teams. The Coyotes currently are worth about $80 million, based on about $41 million in annual revenue, according to the analysis by Forbes magazine.

Burke says revenue would jump to the mid-$50 million range the first year of operation in the new arena. According to Forbes, NHL teams generating similar revenue are worth about $125 million.

Don Hinchey of the Denver-based Bonham Group, which specializes in sports marketing, says the Coyotes' increase in value "will be significant, simply because of the fact that they will control the revenues that flow into the arena."

The Ellman Companies' Bob Kaufman believes he's being candid with voters.

"We are an open book," Kaufman says during an interview at the nearly abandoned Los Arcos Mall, where developers and the Coyotes have their campaign headquarters.

Kaufman says he and the Coyotes have been forthcoming in answering questions about the development.

"We have provided dozens and dozens and dozens of answers to questions concerning the financing of the project," he says.

Yet many questions persist.

Here's the game plan, which all hinges on voters agreeing first to divert at least $352 million in taxes from state and city coffers and shunt it into a project that promoters say will "revitalize" south Scottsdale.

The exact amount of money taxpayers will contribute is unknown. "We know what the private side is going to be," Kaufman says. "We've built in some flexibility on the public side for those numbers to fluctuate."

In exchange for the use of taxpayer funds, Kaufman says his company and the Coyotes would invest up to $125 million in equity in the project and line up another $400 million or so in short-term construction loans to build the arena, retail shops, parking garage and supporting infrastructure.

Once the project is built, developers would tap public funds to reduce their debt. (Imagine someone suddenly reducing your home mortgage by one-third and asking nothing in return for the favor.)

No sales taxes would be collected until the arena and adjacent businesses open their doors.

Developers project that Scottsdale's matching contribution and the state sales tax diversion would total $195 million after 10 years.

But the Ellman Companies and Coyotes have no intention of waiting 10 years for the public contribution. They want the public money the minute construction is completed. They would get it through the sale of bonds.

Kaufman says developers want the Facilities District and Scottsdale to sell about $151 million in revenue bonds the day the project is completed, and give them the proceeds.

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