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.

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.