More professional sports arena madness

Glendale, AZ has agreed to pay the NHL $25 million to keep the Coyotes there for one more year. Commenting on the city council's decision, Mayor Elaine Scruggs stated: "This is a payment for a service. This is not a subsidy. We are keeping our community arena open for business. We are keeping that arena generating revenue." Mayor Scruggs' comments just further emphasize why politicians are politicians and not businesspeople. The goal of a business is not to maximize revenue, but to maximize profit. Positive profits indicate that the use of the resources created more value than had the resources not been used in that manner. Negative profits (losses) indicate the resources were more valuable before being used up in the project. Positive revenues tell us nothing. Given all the discussion about the team leaving, I suspect that while the team generates positive revenues for the arena, I am quite certain it earns negative profits (particularly when accounting for the $25 million "payment for service").

As an aside: I am not clear how the Coyotes' use of the area is a service for the city. The customer in this transaction to use the arena is the Coyotes franchise; the producer is the arena owner (the city). Customers don't provide services for producers. Producers provide services for consumers. So, the mayor is wrong; it is a subsidy, and it certainly cannot be a payment for service.