Howling Financial Woes
The Phoenix Coyotes betting scandal that has ensnared hockey legend and Coyotes minority owner Wayne Gretzky and his movie actress wife is just the latest in a series of financial shenanigans linked to the team's ownership.
The Coyotes' financial success has always been a huge gamble for the franchise's majority owners -- real estate developer Steve Ellman and trucking kingpin Jerry Moyes. While there's no indication that Ellman and Moyes are involved in the betting scandal, these guys have been operating on the edge of impropriety for years.
The amount of money they routinely deal with is far, far greater than the measly $1.7 million allegedly involved in the gambling ring. Yet it is the gambling scandal that has triggered an avalanche of bad publicity, not the questionable business dealings of Ellman and Moyes involving hundreds of millions of dollars.
Unlike your average sports bettor placing a $100 wager on the Super Bowl, Ellman and Moyes didn't use their own money when they wanted to place a stupendous bet on the financial success of the Coyotes.
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Instead, they tapped taxpayers.
The men persuaded an overmatched and naive Glendale City Council to front $180 million in 2001 to build the Coyotes a new, fancy hockey arena.
In exchange, they promised they would construct the sprawling Westgate shopping and housing development next door. A portion of the sales taxes generated by Westgate would be earmarked to help repay the city's $180 million bond used to finance construction of the arena.
Glendale has performed up to its end of the bargain -- building a first-class arena that opened in late 2003 and has since become the Valley's premier large-venue concert facility.
The Coyotes' majority owners, on the other hand, are not holding up theirs.
Construction of the Westgate development is two years behind schedule. And what is now being built is 300,000 square feet less than what the Coyotes promised Glendale.
Since no retail sales tax has been generated from Westgate, Glendale already has been forced to come up with about $5 million out of its financial reserves to cover shortfalls in the city's $8 million annual bond payment used to finance construction of the arena, city officials say.
Lurking behind the scenes are ominous signals of much deeper trouble ahead.
The 61-year-old Moyes was recently forced out as chairman and chief executive officer of Swift Transportation, a company he founded that grew into one of the nation's largest trucking operations. His precipitous fall from power came in the wake of an insider stock trading scandal in 2004 that led to enforcement action by the U.S. Securities and Exchange Commission.
Without admitting or denying wrongdoing, Moyes agreed last September to pay a $1.26 million fine to settle the case. He resigned as Swift CEO at the end of 2005.
The SEC action came after Moyes had dumped more than $240 million into the Coyotes, most of which was borrowed money. The team is in such dire financial straits that Moyes has had to repeatedly borrow money using his Swift stock as collateral to cover routine expenses such as payroll.
Moyes' heavy reliance on his Swift stock to prop up the Coyotes triggered a flurry of class-action, shareholder lawsuits in late 2004. The suits allege that Swift illegally inflated the value of the company's stock to protect Moyes from unknown lenders demanding that he put up cash to help secure the loans used to finance the team.
The lawsuits have been consolidated into one case that is now playing out in U.S. District Court in Phoenix. Swift, Moyes and other defendants are denying liability.
Ellman, meanwhile, has failed in his primary ownership responsibility, which was to develop Westgate as promised. From the looks of things, Ellman must have little available cash to invest in the flagging project that finally broke ground in September 2004.
Tension between Ellman and Moyes appears to be mounting (I couldn't reach either majority owner for comment). The two are in negotiations over restructuring their Coyotes ownership agreement, Glendale officials say.
Not only is the team failing to deliver the Westgate development as promised, the Coyotes didn't play a single game in the new arena during the 2004-05 season because of a labor dispute between NHL players and owners that stopped play. Back in action this season, the Coyotes have fallen to last place in their division, and fan attendance is lagging.
If the franchise were to collapse financially, Glendale would be left holding the bag on the $180 million in arena debt, and the massive Westgate development project could be stymied.
That was the dire outlook even before the betting scandal erupted last week.
The gambling ring allegedly involves $1.7 million in bets placed over several weeks leading up to the Super Bowl. Authorities in New Jersey, where the enterprise seems to be centered, say the ring was operated by Coyotes assistant coach Rich Tocchet, a New Jersey state trooper, and others.
Published reports have linked Philadelphia organized crime figures to the endeavor. Tocchet has been charged with money laundering, promoting gambling and conspiracy. He is scheduled for arraignment on February 21 in New Jersey.
Despite his denials that he was aware of the betting ring, Gretzky remains at the center of the widening scandal. His wife, actress and onetime Playboy cover girl Janet Jones, is said by authorities to have placed about $75,000 in bets on professional football. New Jersey authorities have told reporters about alleged wiretapped phone conversations showing that Gretzky was aware of what was going on.
Gretzky, a revered figure in hockey known as the Great One, is the NHL's all-time leading scorer and has long been the sport's most important ambassador. His wife's involvement in the gambling scandal unleashed an international media firestorm that eclipsed the start of the Winter Olympics.
The NHL has stated that no bets on hockey apparently took place. But if it turns out that any of the NHL players allegedly involved placed wagers on his sport, the fallout from the betting ring would be devastating to a league that already is hurting.
In any case, the Coyotes franchise is clearly a house of cards built on massive debt. To make matters worse, the team's primary financier displayed a seeming lack of good business judgment in his final years at the helm of Swift Transportation.
At first glance, Moyes appears to be the classic American success story. He built Swift from a one-truck operation into a sprawling Phoenix-based company with more than 20,000 employees and $3 billion in annual revenue. Earlier this year, the Arizona Republic described Moyes as a billionaire who derived his wealth from his trucking empire.
But he also appears to be a billionaire who's deeply in debt.
If allegations contained in the class-action suit against Moyes and Swift are true, Moyes has pledged nearly all of his Swift stock holdings as collateral for loans. Moyes and trusts controlled by his family members owned about 34 percent of Swift's 94 million shares of outstanding stock in March 2004, worth about $600 million. More than 96 percent of the Moyes family shares, however, were pledged to secure loans with undisclosed lending institutions, the lawsuit alleges.
Many of these loans were used to cover the Coyotes' burgeoning losses.
Adding further doubt about Moyes' financial condition are some rather unusual actions for a man supposedly flush with cash.
The SEC alleged in its complaint that Moyes purchased 187,000 shares of Swift stock just before the company's May 24, 2004, announcement that it was projecting better-than-expected earnings.
Swift's stock soared 20 percent on the day of the announcement, giving Moyes a $622,000 paper profit.
The SEC alleged in its complaint that Moyes breached his fiduciary duty to Swift by using insider information to purchase 87,000 Swift shares on May 21 and 100,000 Swift shares on May 24.
I can't understand why Moyes would take such action to garner (for a reputed billionaire) a relatively small profit when it was virtually certain that regulators would discover what he had done.
In fact, after Moyes filed a disclosure with the SEC about the stock purchases, independent members of the board of directors instructed him to place an amount equal to the potential profits in escrow. The SEC subsequently began a formal inquiry.
The insider stock trading scandal was the beginning of the end for Moyes at Swift. He stepped down as president in November 2004 and agreed to "relinquish his position" as CEO in December 2005, according to a September 22 statement released by the SEC.
Moyes' financial and legal problems are far from over.
He not only faces unknown liability stemming from the class-action lawsuit pending in Phoenix alleging that he and others improperly propped up the price of Swift stock, he's dealing with another shareholder suit from his ownership in Central Freight Lines, a Waco, Texas, trucking company.
The Texas suit filed last month -- which includes among the plaintiffs brother Ronald Moyes -- alleges that Jerry Moyes and others "operated CFL in a manner designed to enhance their own or Jerry Moyes' wealth, to the detriment of CFL and its shareholders." No doubt Jerry Moyes will deny wrongdoing in this suit, too.
With his direct control over Swift Transportation now severed and at least two class-action lawsuits hanging over him, Moyes' ability to raise substantial cash to cover future Coyotes losses and finance development at Westgate is clearly in question.
From where I sit, it looks like Glendale had better get used to digging into its reserves to cover bond payments on the arena.
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