(Disclosure: Rose Law Group represents the Phoenix Suns.)
By City of Phoenix
While the city owns the building, the Phoenix Arena Development Limited Partnership (PADLP) oversees the day-to-day operation of the Arena. The PADLP is an affiliate of the Suns. The contract between the city (“landlord”) and the PADLP (“operator”) could expires as early as 2022. This contract has been in place since 1992 when the Arena was built under a partnership between the city and the Suns. The operating agreement has remained in place since 1992.
This contract includes a legal requirement that addresses building obsolescence. On July 1, 2019, the Suns can invoke this obsolescence clause. If they do, the city and the Suns must select arbitrators who will then conduct a hearing, take testimony and decide whether the building – after nearly 30 years – has become obsolete. The arbitrators must consider three factors in determining obsolescence: (1) the building’s physical deterioration; (2) its functional obsolescence; and (3) its revenue-generating capacity. The arbitrators will calculate the dollar amount necessary for the city to renovate the building so that it is no longer obsolete by this standard. The city must then enter into a binding agreement with the Suns to make all necessary improvements by 2023 solely at the city’s expense. If the city refuses, the Suns may terminate their lease 10 years early, by July 2022.