For those who think the Andrew Barroway acquisition of 51 percent of the Arizona Coyotes means relocation, don’t take that to the bank or Las Vegas.
When NHL commissioner Gary Bettman told the media before the season opener this past Thursday night that relocation was so “far off the mark,” the ramifications of Barroway’s interest were not confined solely to the hockey rink. Rather, his presence, though real, could be viewed as cosmetic.
After all, here’s a potential player who previously tried to acquire the New York Islanders and the New Jersey Devils. While both attempts were unsuccessful, Barroway exhibited an aggressive personality and continued a determined push to own an NHL team.
Now, he seems to have fallen into an ideal situation, perhaps by accident.
For the transactions, Barroway agreed to pay $152 million to IceArizona, the current owner, to gain that 51 percent stake. The money represents a sizable infusion of cash to deal with internal tax issues and free money for arena and hockey operations.
The tax consequence
That’s because the two principal Coyotes’owner, George Gosbee and Anthony LeBlanc, are Canadian and the consequences of foreign ownership in an American enterprise are dramatic. That falls into the scenario of tax consequence and Gosbee and LeBlanc were hit hard by the United States tax structure
Though the tax pattern is complex and complicated, foreigners doing business as an American company could be liable for income tax between 15 percent and 35 percent. Plus, other tax considerations includes obligations for estate tax and gift tax.
“The deal with (Barroway) was to clean up some tax issues,” LeBlanc said this past Friday on a conference call with reporters. “It was important to resolve the tax issue.”
With those marginal comments, LeBlanc conceded the emphasis for the Barroway acquisition was economic and had little to do with the stability or instability of the Arizona franchise. Both LeBlanc and Bettman were adamant about the Coyotes’ future in the desert and said emphatically the Coyotes are not relocating.
That reality was echoed by Gosbee one day later.
Meeting with the media prior to the Coyotes’ home game with the Los Angeles Kings this past Saturday, Gosbee indicated the deal with Barroway was strictly an economic one. After months of negotiations to acquire the Coyotes from the NHL and finally securing the franchise last August, there was no way IceArizona, headed by Gosbee, Le Blanc and their partners, would not give up so quickly on the team. When IceArizona acquired the Coyotes from the NHL, there was a key, out-clause written into the agreement. If losses exceed $50 million within the first five years of operation, IceArizona could sell the team. If that happens, the likelihood remains of relocation.
Influence of economic losses
In their first season of operation, losses in the Gosbee-LeBlanc regime were listed at $24 million by the New York Post.
Yet, the deal to bring Barroway on board was to ease the tax burden on Gosbee, Le Blanc and their Canadian partners.
“It’s about American ownership,” Gosbee acknowledged. “We needed a restructure of the bottom line and our tax attorney shuffled a few things.”
Gosbee emphasized the agreement with Barroway to acquire the 51 percent is “a partnership.” Once the transaction is approved by the league, Barroway will be the Coyotes’ governor and the corporate face of the franchise. Gosbee and LeBlanc will continue to run business side and attempt to boost attendance.
When the doors of Gila River Arena opened its door for the home opener last Thursday night against Winnipeg, several changes were visible, including new concession stand items, expanded team shop, creation of a Coyotes’ video room and theater and new media interview room.
For Gosbee and LeBlanc to turn this previously morbid franchise into some kind of economic viability, the tax structure of the team had to change. Now with the American Barroway, at least on paper, controlling the team, LeBlanc and Gosbee have a reasonable chance to try and make the Arizona Coyotes a viable, economic enterprise.
Very informative and provides a sensible explanation. Well done. Thanks.