After much buzz, the Arizona Coyotes, the Valley’s National Hockey League (NHL) team, is heading to Salt Lake City.  Technically, the name “Coyotes” has been deactivated and will remain the potential province of a possible expansion team for the Phoenix metro area, but home games will be based in Salt Lake City starting next season. While fans are understandably distraught over the relocation, the economic loss due to the team’s departure from the Valley is likely to be negligible at no more than 0.004% of the Phoenix Metro Gross Domestic Product or $4 for every $100,000 spent, based on estimates by the Grand Canyon Institute.

Arizona Coyotes former owner Alex Meruelo will make out well regardless of whether he lands an expansion team or not. 

Owning a sports team can be a lucrative business. A group led by David Rubenstein recently purchased the Baltimore Orioles for $1.725 billion. The prior owner had purchased the team in 1993 for $173 million. That represents a 7.7% annual return on the initial investment in addition to any net income return on the investment.

In the Coyotes’ case, the franchise chronically struggled financially and even went through bankruptcy with the NHL owning the team for many years. Alex Meruelo’s group purchased a 95% interest in the Coyotes in 2019 for $300 million. The prior controlling owner sold out at a considerable loss (and still holds 5%). The Coyotes were a financial mess with $300 million in debt (that matched the purchase price) and projected losses at the time of sale of $50 million annually. Kevin Phelps, the city manager of Glendale, reports that in his first meeting with the new owner, Meruelo told him “We’re not going to pay you one more dollar to use that arena,” presumably in an effort to play hardball and negotiate a better deal. Instead, Phelps, after years of issues with bill payments from the Coyotes, severed their lease in Glendale. Multiple vendors made complaints about the financial practices of the Coyotes under Meruelo’s ownership that were documented by The Athletic in 2021.

Last May, Tempe voters turned down a deal the city of Tempe proposed for a new arena for the Coyotes (GCI questioned the economic returns for the city). In the meantime, Meruelo failed to land another prospective arena location in the Valley, so he sold the team to the NHL for $1 billion, who in turn will sell the team to Utah Jazz owner Ryan Smith for $1.2 billion. Meruelo, if he were to get a new arena built in the next five years, would then flip the $1 billion to garner an expansion franchise.

Turning $300 million into $1 billion in 5 years represents a stunning 27% annual return on investment, nearly 4 times that of the Orioles. Meruelo makes out quite well for a franchise that Forbes has evaluated as worth only $500 million, the lowest in the NHL, and returning a modest $19 million annually in operating income.

Devoted Coyotes fans are upset to see their team depart, but how much will losing the Coyotes impact the Phoenix metro economy? Very little. 

Numerous economic studies have found negligible impacts from sports team departures. One study that looked specifically at team departures and relocations found no impact on the city losing a team. Ironically, that study left out NHL relocations because “the league is a distant fourth place in terms of economic impact and if a professional sports team relocation did have an impact on the city they left, it would almost certainly be captured by the NFL, MLB, or NBA” (p.11).

The Grand Canyon Institute estimates the loss of the Coyotes to decrease the metro Phoenix GDP by about 0.004% or $4 for every $100,000 in economic activity. That is not a typo.  In practice, most people’s entertainment budgets are relatively fixed, so if the Coyotes depart, almost all attendees will find other uses for their dollars within the Phoenix metro area. 

Presume 1,500 fans per game are die-hard Coyotes-only spenders (even though they might be rooting for the opponent as their motivation for attendance). This estimate is premised on the Coyotes playing in a much larger arena than Mullet Arena were they to stay in (or return to) the Valley.  Of these 1,500, some simply spend less on entertainment without the Coyotes in town, others do not come to Phoenix (if from out of the area), and finally some will now take a trip to Salt Lake City or another city to watch the renamed Coyotes play.  Assume 500 of the 1,500 fans are ones that only come to the game and do not spend money outside the arena. Say 800 fans are Arizona day-trippers who spend an additional $25 per person outside the arena (similar to what the economic consultant for the Coyotes postulated on a per person basis, p. B-15), and 200 are overnight visitors who came to the Valley precisely to see the Coyotes (or more likely the team they are playing) and would not have come otherwise. They stay two nights in a hotel and spend on average $400 per person outside the arena (higher per person than what the Coyotes consultant assumed, p. B-15). Under these assumptions, the foregone contribution to metro Phoenix GDP is about $17 million annually (assuming 43 games) in an overall economy of about $400 billion.

Based on forthcoming research from sports economists Baumann, Matheson and Stephenson that looked at the impact of sporting events in Houston on hotel occupancy for the Astros, Rockets and Texans (no hockey team in Houston), the Rockets (the arena most comparable) had a small, but statistically insignificant, impact on hotel room occupancy, suggesting that the 200 overnight visitors could actually be far less. Consequently, this is probably a high-end estimate. They find professional baseball, football, and major concerts pull in more overnight visitors than NBA basketball and presumably NHL hockey (excluding playoffs).

What about the concern that many Canadian snowbirds might abandon the Phoenix metro area, if there is no NHL team? Canadian snowbirds primarily hail from Western Canada, which includes four NHL teams: the Calgary Flames, Edmonton Oilers, Vancouver Canucks and Winnipeg Jets. If the NHL experience was critical, one would expect, much like other teams with national followings (e.g., Red Sox nation), to see a surge in attendance when these teams came to play the Coyotes. Yet from the 2016-2017 season to the 2018-2019 season (before COVID and leaving Glendale), attendance at Coyotes games hosting Western Canadian teams was just under 13,000. The home games before and after these games averaged just over 13,000.

So while Coyotes fans will wait for what the future holds, the economic consequences are quite modest.

The full derivation is below.

Note: Economic models measure total sales, i.e. Gross Output, while GDP includes only the value added. If you go out to dinner, the total bill is gross output, while GDP would remove the cost of ingredients to avoid double counting. The $400 billion is an estimate for Metro Phoenix GDP, since the last published number was for 2022.