ARENA BUSINESS IS NOBODY'S BUSINESS
In the six months since it opened, America West Arena has delighted the Valley like a shiny new toy. Sold-out Suns games, arena-football matches, concerts and other events have drawn throngs to the flashy, $87 million hall.
Most seem taken by the place. But taxpayers best not ask too many questions about how their new arena is being managed, or they will be told to mind their own business.
Consider the Luis Palau Crusade, one of the biggest evangelical crusades ever to come to the Valley. In late October, Palau, hailed by some as the next Billy Graham, preached to tens of thousands during a five-night run at the city's new downtown showpiece.
Palau fervor caught on everywhere. Billboards, television ads and an eight-page special section in the Arizona Republic touted the crusade, and it was almost impossible for anyone in the Valley to overlook Palau's presence.
The high profile was not accidental. The crusade's pitchmen included prominent business leaders, conspicuous among them Jerry Colangelo, president and CEO of the Phoenix Suns.
Colangelo donated money to the crusade (he won't say how much) and avidly endorsed Palau's message. "The Luis Palau Crusade is an opportunity for us in the Valley to address serious, serious problems where we raise our families," Colangelo said at the time.
Now consider that Colangelo and his Suns organization also command the day-to-day management of America West Arena, even though the City of Phoenix chipped in more than $35 million to help build it.
So, if Colangelo is an avid Palau supporter, and if Palau appeared at America West Arena before crowds that paid no admission fee, a question arises: Did the crusade pay for the use of the hall, or did Colangelo's generosity include giving Palau a sweetheart deal on the arena?
The answer is confidential.
Even though the arena is a public facility, partially built with city money, Colangelo and the Suns do not have to reveal how they are running the place.
Colangelo and a spokesman for Palau each say the crusade did pay about $10,000 a night--the going rate--to use the arena, covering the cost with donations.
"There are no sweetheart deals," Colangelo says testily. "They paid a market rate for the rental of this facility."
While there is no evidence to contradict that claim, the public will have to accept Colangelo's word. It turns out that there is no way to double-check what Colangelo and the Suns are doing with the city's new pride and joy.
Any member of the public who asks to see the contract between the Palau crusade and the arena will be told that the city does not have a copy. All the paperwork is in the files of Phoenix Arena Development Limited Partnership, a private company--99 percent of which is owned by Phoenix Suns Limited Partnership.
The general partner of Phoenix Suns Limited Partnership is JDM Sports, Inc., of which Colangelo is president.
Ask Colangelo to see the contract, and you will be told, essentially, that the public has no right to know how the arena is managed.
"It's really none of your business," Colangelo says.
The Suns insisted on control of the arena during the negotiations leading to its construction, says Denny Maus, director of the city's Community and Economic Development Department, which oversees the arena contract between the city and the Suns.
"We own the facility and the land, but the operation is the responsibility of the operating company," Maus says.
The city issued $35 million in bonds--to be paid off with hotel and rental-car taxes--to help pay for construction, and spent another $12 million or so in cash acquiring land for the arena, Maus says.
The Suns organization put up $52 million, more than half of the construction costs, he says, and were given full control. "It's not like we turned a facility over to them that we bore the full brunt of the construction costs on," Maus says.
Maus says the deal was a trade-off. The city wanted assurances that taxpayers would not get stuck subsidizing the arena.
Under the terms of the operating contract, all the money the arena takes in must be used in specified ways. First, the Suns must pay the debt service on money they borrowed to cover their share of the construction costs.
The Suns borrowed $44 million in bond money from Maricopa County Industrial Development Authority, secured by a letter of credit from Fuji Bank, Ltd. Another $5 million or so was borrowed from Restaura, Inc., a subsidiary of Dial Corporation that has exclusive rights to provide food and beverage services at the arena.
After making debt payments, the Suns must then pay operating and marketing expenses, set money aside in a fund for the arena's upkeep and pay the city an annual rent that begins at $500,000 a year and increases 3 percent per year. (The gross revenue on ticket sales alone for one Suns' sellout is in the neighborhood of $600,000.)
Only after meeting all those obligations, Maus says, can the Suns make a profit from the arena. Any remaining money is to be divided, 70 percent to the city and 30 percent to the Suns.
Maus says the terms are a great deal for the city. "This is probably one of the most favorable public-private arena deals that has been done with any NBA franchise in the country," he says.
In exchange, Maus says, the Suns wanted complete control of the arena's operations.
"It was their premise that 'if we're going to be fifth in line to receive revenues, we as an organization have to have control of the arena,'" Maus says.
Colangelo says the arena is a public facility only because "it was a convenient partnership to structure it in that sense," but that he does not think the public should be looking over his shoulder.
The city has the right to come in and look at the arena's books if it wants to, Colangelo says. Maus says the city will not do so unless "some discrepancy" in the arena's management surfaces. The city's major safeguard, Maus says, is an annual audit that will be conducted by an outside accountant.
The city, Maus says, is confident that there are enough safeguards in place to prevent the Suns from cutting sweetheart deals with anyone, even Colangelo's favorite evangelist. But the public will have to take that on faith.
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