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Cover Story – The Business of Sports

The Business of Sports

The economic reach of the Valley’s pro sports teams extends beyond the games

By Tom Gibbons

 

It’s a little past noon on a football Sunday, and there’s a wait at Jimmy Buffett’s Margaritaville restaurant in the Westgate City Center in Glendale, giving a visitor a few minutes to check out the seaside décor. Painted on the ceiling is a huge, fanciful nautical map that shows Los Angeles as an island, most of southern California under water and the shores of the Pacific lapping up against Glendale. Glendale would not be on the map, of course, if the eatery wasn’t located there.
And it’s likely there would be no map and no Margaritaville in Glendale if it weren’t for a couple of neighbors — the homes of the National Hockey League Phoenix Coyotes and the National Football League Arizona Cardinals.

business_sports

The presence of the pro sports franchises has allowed specialty retail and an entertainment district to pop up in what six years ago were dusty fields by the Loop 101 freeway.
The Phoenix area is home to four major professional sports teams, one of 13 markets with all four. In addition, the Valley is one of just two markets in which no major teams share a venue. All four sports buildings have been built since 1992, with taxpayers footing most of the bill to the tune of more than $700 million.

The Valley of the Sun’s sports building boom mirrors a national trend that began in the early 1990s. Over the years, the projects here and around the country have come under increasing criticism. The costs are easy to tally, but what of the benefits to anyone besides the private businessmen who own the teams and the millionaire athletes they employ?

“That’s the price of admission,’’ says Barry Broome, president and CEO of the Greater Phoenix Economic Council. “Without pro sports, you’re not a top tier city.’’

Ray Artigue, executive director of the MBA Sports Business program at Arizona State University’s W. P. Carey School of Business, believes the benefits to the state and local economy are numerous, such as exposure for the area, branding and the tourist dollars that are brought in by pro sports. One of the strongest examples of pro sports’ economic impact is the Westgate City Center.

“Would something like that exist in Glendale without the sports teams?’’ Artigue asks. “I don’t think it would.”

To be sure, some development would have surfaced anyway in Glendale; after all, it’s flat land with freeway access. In the fall of 2000, when the final leg to Loop 101 was completed on the city’s West Side, Glendale was determined to get the right kind of development, something other than residential or generic big box stores.

Enter Steve Ellman, a developer who owned a money-losing hockey franchise and was trying to build an arena and entertainment venue. Ellman had been fighting with city leaders in Scottsdale to OK a deal to front him money that would be recaptured through sales tax in order to build his arena on the site of a defunct shopping mall. Ellman had twice won voter approval for his project, but it was obvious the Scottsdale City Council was going to make him go through a third election.

Ellman, chairman and CEO of the Ellman Companies, approached Glendale and worked out a deal in which the city committed $180 million for the arena and Ellman promised to build a retail, entertainment and residential district — Westgate City Center.

“There was substantial risk,’’ says Glendale Mayor Elaine Scruggs.

The hockey arena and the planned entertainment district paid off quickly, making Glendale a player in the race to land the site for the Cardinals’ new stadium.

“We could have bid before, but we didn’t have the amenities they were looking for,’’ Scruggs says.

Glendale won out. Jobing.com Arena and the University of Phoenix Stadium made Westgate more attractive to other businesses, such as outdoor equipment giant Cabela’s and Margaritaville, which is one of only six Margaritavilles in the country.

“This is a one of kind. There probably won’t be another one in Arizona,” Scruggs says, adding that businesses such as Margaritaville help make Glendale a destination.

“We’re very proud to have been the first team out here and an anchor for all the development that followed,’’ says Jeff Holbrook, the Coyotes executive vice president and chief communications officer.

Retired chairman and CEO of Swift Transportation, Jerry Moyes, is now the principal owner of the Coyotes and was a key investor when the team decided to set up shop in Glendale. He is also a longtime West Valley resident.

The Cardinals are taking a page out of the Coyotes’ development play book. The Bidwill family, which owns the Cardinals, has a development project in the works called cbd 101, which is on 77 acres just south of the University of Phoenix Stadium. The plans include a 35-story tower with residential, office and hotel space.

“This would be a signature feature for Glendale,’’ says Michael Bidwill, president of the Cardinals (see full story on p. 10).

The National Basketball Association’s Phoenix Suns with US Airways, and Major League Baseball’s Diamondbacks with Chase Field, have a similar effect on Downtown Phoenix, slowly transforming the area from a ghost town after 5 p.m. into a 24/7 hot spot that city leaders envisioned.

The Diamondbacks play 81 games a season downtown and the Suns play 41, plus playoffs.

“There are also the Mercury and the Rattlers,’’ ASU’s Artigue says, referring to the women’s pro basketball team and the Arena Football League franchise.

Pro sports events also provide a place for deals to get done.

“The Suns have pretty much become a must-go place for business deals,’’ Broome says.

The Suns have the AOT club for anyone who buys a floor-level seat. The 510 floor-level seats are all sold out at prices ranging from $400 to $1,700 a seat.

Suns President and Chief Operating Officer Rick Welts says the fans often wanted to meet other floor-level ticket-holders and discuss business. The AOT Club was created to give them a chance to meet and greet before and after the game.

“We have created the best business-to-business social network in the Valley, without question,’’ Welts says. “That’s the single most frequent comment I get from those people.”

The pro teams also bring in tourist dollars.

The Diamondbacks, for instance, drew 16 percent of their parties from outside of Maricopa County, according to a 2001 Maricopa County Stadium Commission study.

Then there’s the mega event of all — the Super Bowl.

“You’re looking at $400 million to $500 million in economic impact from one week,’’ Artigue says. “Of course, that’s an extreme example.”

And the teams give back to the community. The Diamondbacks, for example, gave $3 million through their foundation.

The teams are privately held and do not release financial information; however, it’s generally believed the Coyotes have been consistently unprofitable. With the smallest venue, the team also has the smallest attendance of the major Arizona pro teams, but its following is a devoted one. For many transplants from colder climates, a Coyotes game is a taste of home.

“Hockey is a game that sort of becomes ingrained in you,’’ says Holbrook, who came here from Buffalo, N.Y. “Hockey has really loyal fans.”

The Suns have been break-even or profitable. The Cardinals were believed profitable except for their last few years playing in Sun Devil Stadium in Tempe, when they drew around half the league average.

Arizona Business Magazine March 2008The Diamondbacks, who were brought to Phoenix by the Suns’ legendary former owner Jerry Colangelo, were winners on the field in their early years, taking the 2001 World Series, but they ran up massive finasncial losses. In 2004, after a series of clashes with the Diamondbacks’ four majority owners, Colangelo was ousted from the CEO chair. Under current managing general partner Ken Kendrick and general partner and CEO Jeff Moorad, the Diamondbacks have been profitable for the past three years, the executives say. Last year, the Diamondbacks were winners on the field as well. They led the National League in victories with 90 and went to the league championship series.

Moorad stressed that the team’s ownership sees running the baseball team as sort of a stewardship.

“Ownership hasn’t taken a penny out of this team,’’ he says, prompting Kendrick to add with a laugh, “Of course, for the first seven years, there wasn’t anything to take.’’

 

AZ Business Magazine March 2008 | Next: The Ground Game

Mi Casa, Su Casa

Protecting Your Mexican Real Estate Investment

Mi Casa, Su Casa

Protecting your Mexican
real estate investment

By David M. Brown

Contrary to what you may have heard, Americans, or any non-Mexican nationals, can purchase property fee simple (or direct deed) in Mexico except when the property is in the restricted zone: 32 miles from the shoreline or 62.5 miles from the border.

mi_casaHowever, buyers can acquire coastal and border-area properties in the restricted zone by establishing a Mexican Bank Trust, or fideicomiso. The bank, as trustee, charges an annual service fee and holds the legal title to the property for up to 50 years. For less than $1,000, the potential buyers register for a permit to establish the trust at the Secretariat de Relaciones Exteriores. The permit issued, a notario prepares the deed or “escritura.” After acquisition taxes and filing fees are paid, the deed is recorded.

Unlike the English common-law based American system, Mexican law is a civil law system and therefore heavily codified. However, it is specific regarding fee-simple ownership. The Foreign Investment Law of Mexico (FIL), established in 1971 and amended twice since, explains what properties must be in a “fideicomiso” and what properties are nonresidential and therefore can be purchased by foreigners in a Mexican corporation, explains Mitch Creekmore, director of business development for the Mexico Division of Stewart Title Guaranty Company in Houston.

As beneficiary of the 50-year fideicomiso, the buyer can basically do what he or she wants: Improve it, lease it, sell it, mortgage it, will it. Your estate becomes the beneficiary, and you or the estate can indefinitely extend the trust in 50-year periods. Buyers of a property already in a fideicomiso can begin a new 50-year cycle.

Dinero is spoken here
Don’t worry about financing either. Although most purchases of Mexican real estate by Americans have traditionally been cash deals, through home equity loans on a primary residence, or through private lenders, a growing number of developers are becoming involved in financing. In addition, third-party lenders in the United States are available, often accepting as little as 20 percent down on a purchase.

One of these lenders is the International Mortgage and Investment Group, based in Phoenix with offices in Austin and New York. Led by Timothy K. Kelley and Kevin Hardin, the IMI Group is helping to solve the former challenges of securing financing for property in Mexico. “In the past year and a half, there have been entities that have lent private-equity money to individuals buying homes,” says Hardin, the company’s CEO and a certified mortgage banker and certified mortgage consultant who has placed more than $10 billion in mortgages into the secondary market.

“Right now our biggest initiative is to educate people on either side of the transaction,” adds Kelley, a native Phoenician who learned about the Mexican industry by living and working in Mexico City for 10 years before returning to Arizona.

In addition, the men are working to establish a sound secondary market for selling Mexican-based mortgages. By providing a dependable means by which existing mortgages can be sold, more capital will be freed for new buyers, creating what Hardin calls a “free-flowing market.”

The IMI Group is also leading a nationwide effort to create an International Mortgage Lenders Association to represent individuals and entities involved in or related to the business of lending money to Americans buying property in Mexico. The men are working with stakeholders such as the Arizona Mexico Commission, the National Law Center for Inter-American Free Trade and financial-industry players such as GMAC-RFC, Stewart Title, Collateral International and M&I Bank.

Both men agree that the process for financing property in Mexico is much more accessible than it was even a few years ago. “It’s identical to the U.S. mortgage process, much like a Fannie Mae structure, in U.S. dollars, with a U.S. company, a U.S. escrow agent, and with a high level of confidence.” Similarly, title insurance policies are almost identical to those issued for American properties.

Get good counsel
Most importantly, when buying property in Mexico, have the right information and the right counseling, specifically with professionals who have experience on cross-border matters.

“More and more, the practice of law in Mexico is resembling the practice of law in the United States,” explains Benjamin Aguilera, an attorney with the Phoenix office of Greenberg Traurig. The reason for this, of course, is that so much of the capital is from the United States, though a U.S. attorney must still be familiar with the proper documentation in order to comply both systems.

Aguilera underscores: “There is no single glove that will fit every transaction.” Different states, for instance, may have different laws. “Despite the proximity, the ease of traveling, the appeal and allure of doing business in Mexico, it is a different country with very stringent laws and its own judicial system.”

AZ Business MagazineHe offers a few caveats: “Don’t eschew common sense in your south-of-the-border transaction. Don’t do in Mexico what you wouldn’t do here.” Furthermore, just being able to habla espanol isn’t enough. “It involves being knowledgeable of the interrelation of the two legal systems, the protocol for doing business, the nuances of the spoken and body languages and the financial effects on both sides of the border,” he says.

www.gtlaw.com
www.gotosonora.com

 

 

 

Arizona Business Magazine Aug/Sept 2006

AZ Business Magazine Aug-Sept 2006 | Previous: Urban Living | Next: Baby Steps

Shirley-Cover

Cover Story: State of the Navajo Nation

A president and the window to his Nation’s Future

By Peter O’Dowd

Somewhere on the Navajo Reservation, most often along Highway 264 between Arizona and New Mexico, a man holds his arm outstretched with a green flag fluttering from his fist. Instead of a thumb, the normal currency for hitchhikers in every other corner of America, the dollar bill is the fare he pays to do business off the reservation.nations_future

The scene escalates on the first of the month, on paydays, on weekends. On the busiest afternoons, a steady line of automobiles snakes from the center of quiet Window Rock, the Navajo capital, to Gallup’s commerce-laden main street. To some who worry about the state of the Navajo economy, the daily exodus is summarized by that single bill jutting from the hitchhiker’s hand—just one more dollar, among millions, sucked from the reservation.

Unemployment on the reservation is staggering, with estimates ranging from 35 to more than 60 percent. Miles of federal red tape has tangled generations of would-be entrepreneurs. Given one word to describe the Navajo business climate, those in the administration don’t shy away from pejoratives. Weak, they say. Hemorrhaging and tragic. Left unchanged, Patrick Sandoval, chief of staff to Navajo Nation President Joe Shirley Jr., believes the tribe will be bankrupt in 20 years. “Devastation,” he says, “if it’s not sooner than that.”

President Shirley has monuments to climb before delivering his constituents from financial purgatory. One of his latest challenges came last December when Navajos witnessed the shuttering of the Mojave Generating Station, a tangible symptom of economic malaise that sent a financial ripple through thousands of pocketbooks.

Still, there are signs of progress. For the first time in history, Navajos have approved gaming on the reservation. Plans are solidified to construct a major power plant that will deliver hundreds of tribal jobs. Dozens of economic development projects like these percolate through an arduous permitting process even as Shirley fights for a plan that would infuse the community with $500 million. But can business culture overcome the cycle of dependency that some call a way of life here? And in the midst of a presidential campaign, will politics unravel the entire process?

Dealings at the border
“I view the Navajo Nation growing like a giant oak tree,” says Shirley, in office since his election in 2002. “You don’t really see the tree growing, but you know its there. It’s a monstrosity; you can’t help but feel its presence.”

At any given time, Shirley’s administration can point to, and feel, a collection of monstrosities, whether it’s the nation’s double-digit unemployment rate, the complexity of its business leasing regulations or the bleeding of native dollars off the reservation. At last count, $2.75 billion circulated through the reservation from government funding, mom-and-pop shops and the countless ventures that support an economy. “Of that two and three-quarter billion,” explains Sandoval, “we estimate about 85 percent of it leaves the Navajo Nation…If we were a country suffering from those same types of economic imports and exports, we would close the border and say we’re going to end up committing suicide if we don’t do something.”

The problem is, as many will tell you, doing anything on the reservation can be complicated. The Navajo economy receives the majority of its dollars—Sandoval predicts up to 85 percent—from the Bureau of Indian Affairs and Indian Health Services. This dependency has perpetuated since the reservation was established in 1868, and an appendage of that relationship remains with the BIA’s business site leasing process. Critics say its existence is the most formidable barrier to Navajo economic development.

Because the federal government holds 17 million acres of Navajo land in trust, applications for business development must pass a series of stringent requirements: archeological clearance, appraisals, environmental assessments and legal surveys. Speaking before the Navajo Nation Council in 1996, Sen. John McCain said, “It takes three to five years to get the governmental approvals necessary to open a dry-cleaning shop in Window Rock. The same approvals can be obtained in Flagstaff in just three days.”

Allan Begay, Navajo executive director for the Division of Economic Development, says finding a single pottery shard on the premises can spark lengthy archeological investigations. To business hopefuls with limited resources, delays can be agonizing. “There has been an outcry from those with the entrepreneurial spirit against the bureaucracy that prevents them from getting from point A to point B,” Begay says.

There is reason to be hopeful, however. The Secretary of Interior approved in July regulations that will streamline the business-lease process. Omar Bradley, acting director of the BIA’s Navajo region, says in most cases the Navajo government will be able to sidestep the BIA altogether.

The bureau also continues to support and fund a program engineered to spur economic enterprises with loans from private lenders. Bradley says the BIA has requested a five-fold increase in the debt ceiling available to entrepreneurs. “Navajo really is at a crossroads,” Bradley says. “The implementation of the business-site leasing regs will give them an opportunity to step out and start grabbing a firm commitment on which way they want to go.”

While the business leasing issue hasn’t gone away, University of Colorado Law Professor Charles Wilkinson, who specializes in American Indian issues, says bureaucracy will continue to improve. “The business-lease approval situation is a vestige of the old-style, wet-blanket presence of the BIA,” he says. “It’s just a bureaucracy that grew over the years and much more than most bureaucracies. It was stultifying.”

Its past grip, however, has developed into today’s symbol of the hitchhiker en route to Gallup, Flagstaff or Farmington—communities that gleam with wealth when juxtaposed with their Navajo neighbors. Dan Brown, mayor of Page, says his local economy is buffeted by Navajos who not only shop, but also live in town. “Of the city’s population, approximately 30 percent of those are Native Americans, mainly Navajo.” he says. “I have a greater Native American population in Page than in the surrounding chapter.”

Of course, the anatomy of any economy is comprised of many parts. Even if proper permits are secured, can investors ever feel secure doing business in an environment where 95 percent of Navajo Supreme Court decisions have gone in favor of the government? And what of sovereign immunity—a tribal reality that protects the government from suit under federal common law? “How do you expect the world to do business with you if you enter into a contract and say, ‘I can sue you if you breach the contract; however, you cannot sue me if I breach it.’ Yet that is largely the position taken here,” a 2003 Navajo development report states.

Even as Shirley pushes for economic health, he and others realize some things will never change. There are those who see clinging to the status quo as dependency on decades of federal welfare; others simply call it the Navajo way of life—a cultural difference. “Do we even want to catch up?” Shirley posits. “Maybe we want to be who we are, the way that we are.”

A man with a plan
Shirley knows he’ll never recoup every cent siphoned away from the reservation, but he believes change can happen slowly—2 percent regained one year, 3 percent the next—so that decades from now doing business on Navajo land is not only attractive, but also a reality.

Early in his first term, Shirley proposed a $500 million financing plan that would have kindled scores of economic development projects: trauma centers, court houses and up to 10,000 jobs. The proposal failed to find support in the Navajo Legislature and ultimately died, but the president maintains its importance.

“Politics on Navajo land are fierce,” Shirley says from a cell phone between engagements scattered across the country. “That had a role in its failure, but the biggest hindrance was that this had never been done by any president or any legislature. There was talk about putting our children and grandchildren on hawk and I guess some thought it was a big risk.”

Some close to the president say if the bond package had passed, Joe Shirley would have had a “hell of a thing to hang up” on his reelection campaign. Meanwhile, with November’s election nearing, Shirley refuses to drop the issue, saying his administration still wants to take the risk. “We need to go out there and educate our populace to bring them to an understanding of what it means to talk economics,” says the president, who is pushing the federal government for a $500 million interest-free loan. If that doesn’t work, he’ll look beyond America’s borders.

“The Navajo nation is good for a loan,” Sandoval says. “We had banks from all over the world touting us, looking at our credit, saying ‘You can handle this.’ But the nation has never taken advantage of its credit rating.”

No one can put $500 million in the bank and expect the money to dispense itself. Sandoval says a capital infusion of that magnitude, which would nearly double the amount the nation now administers, requires skilled financial managers and better infrastructure. “You are essentially rebuilding a nation, but we were prepared to deal with that,” he says.

As the president continues his quest for half a billion dollars, other projects near fruition. Legislators secured the reservation’s first permanent casino after years of struggling to convey the value of gaming to its constituents. Those against the casinos believed it would interfere with their native culture, but after a major financial setback, Begay says feelings slowly shifted. “In the past years, people have known there is a chance of Mojave Generating Plant going under,” he adds. “People sensed there was much money to be lost.”

But can these new destinations compete with already established casinos? How big should they be? The administration is confident they have answers to these questions, especially as consultants begin locating suitable sites along Interstate 40 and near larger cities. Ultimately, Arizona could see four new Navajo casinos. “We want to turn that vacuum on to suck money out of other economies,” Sandoval says.

Equally ambitious is the Desert Rock Energy Project, a $2.5 billion venture—rife with long-term revenue potential—that Shirley calls the single largest economic development project on native lands. The coal plant, mine and transmission line will be one of the most significant taxpayers on the reservation. A latex glove facility, a Raytheon expansion and a handful of other proposals slowly add up, Shirley says. “In 20 years, we’ll be well on our way to a position of viability.”

Window to the future
From Professor Wilkinson’s perspective, excitement swirls over America’s tribal lands. The BIA is slowly lifting its lock on the reservations and shedding what he says was a long-held belief that American Indians were uncivilized and in need of a heavy hand to navigate through their incompetencies. “We are seeing a real revival in Indian country and certainly at Navajo,” he says. “Financial freedom is happening in spades. It’s not easy to take an area larger than West Virginia and make changes, but they are making changes and they are deep.”

Arizona Business Magazine Aug-Sept 2006Shirley fears economic progress will slow if he fails to regain office in the November elections, but Wilkinson suggests that no matter the result, the sight of Navajo politics at work, where candidates are elected and defeated, is the sign of good government. Navajos have stable policy he says, and “the staying power is unbelievable. They are not going to quit taking control over their homeland.”

So perhaps the hitchhiker, with his dollar fluttering toward New Mexico, will someday vanish from the reservation. Or perhaps he’ll keep his fist outstretched, reveling as all Americans do, in the choice to spend wherever he wants. But if President Joe Shirley has his way, every hitchhiker en route to Gallup, Flagstaff, Farmington or Page will someday have the choice to use that dollar on Navajo land. And in this corner of America, rich in everything but economic freedom, that would be the biggest victory of all.