Recent buzz has centered on the Arizona Coyotes, the Valley’s National Hockey League (NHL) team,  heading to Salt Lake City. The economic loss of 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 no more than $4 for every $100,000 spent.

Arizona Coyotes owner Alex Meruelo appears likely to make out well regardless of the outcome. 

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, it’s a franchise that has chronically struggled financially and even went through bankruptcy with the NHL owning the team for many years. Alex Meruelo’s group purchased the Coyotes in 2019 for $300 million. The prior controlling owner sold out at a considerable loss. The Coyotes were a financial mess with $300 million in debt (that matched the purchase price) and projected losses 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. 

Last May, Tempe voters turned down a deal the city of Tempe proposed for a new arena for the Coyotes (a deal I questioned the economic returns for the city). In the meantime, Mereulo has failed to land another prospective arena location in the Valley, so has been rumored to be selling 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. Mereulo, 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 is poised to make out quite well for a franchise that Forbes has evaluated as worth only  $500 million, the lowest in the NHL, and returning $19 million annually in operating income.

Devoted Coyotes fans are distraught at the prospect of losing their team.

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 loss of the Coyotes will likely diminish the metro Phoenix GDP by no more than 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. Most out of town attenders, did not come to attend a Coyotes game, and will find alternative choices.

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 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 (likely renamed) Coyotes play.  Assumes 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 $16 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 less than 100. Consequently, this is probably a high-end estimate.

 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.