The Arizona State Land Department has cancelled a land auction scheduled for Thursday that the Arizona Coyotes' owner was counting on to reactivate his dormant NHL franchise.

In April, the NHL board of governors approved the establishment of a franchise in Utah, with Coyotes owner Alex Meruelo transferring his team's hockey assets -- from the roster and draft picks to the hockey operations department -- to Smith Entertainment Group while retaining the team's intellectual property.

As part of the sale, the NHL approved a plan that rendered the Arizona Coyotes franchise inactive, with a right to reactivate if Meruelo has fully constructed "a new, state-of-the-art facility appropriate for an NHL team within five years."

The Coyotes had targeted a 95-acre parcel of land in north Phoenix as a potential new home for an arena. Earlier this year, the ASLD board of appeals unanimously approved a $68.5 million appraisal of the land and set the auction date.

The Coyotes released images of what they intended to build on that land should they win the bid, including an arena, a practice facility, a theater and housing units. The Coyotes planned on starting construction in the second quarter of 2025 with an eye toward being ready for an NHL team in 2027.

Multiple sources told ESPN that the auction issue is related to the kind of hockey arena that Meruelo could build on the land.

The Coyotes said the land was already zoned for an indoor hockey arena, which was a relic from a previous attempt to build a youth hockey facility in the area. But that apparently does not cover the construction of a 17,000-seat NHL arena, the capacity of which could grow to 18,500 for other events.

"ASLD recently confirmed that the proposed arena will require a Special Use Permit," the land department wrote in its letter announcing the cancellation. "As a result, we are requesting that that the applicant file for and receive a Special Use Permit prior to the auction. The afford the applicant and ASLD certainty that the applicant can build what it intends to build for its anchor tenant."

The ASLD added: "It is not uncommon for ASLD to require applicant to secure zoning/use permits prior to auction."

The Coyotes released a statement Friday that slammed the cancellation and declared that they are "exploring all of our legal options given this shortsighted decision" by the ASLD.

"After over a year of planning and meeting every obligation required under Arizona law, the Arizona State Land Department unilaterally cancelled the auction that was scheduled to occur on June 27 for the site that has been identified as the future home of the Arizona Coyotes," the Coyotes said. "This unprecedented action by the State of Arizona seriously jeopardizes the future of NHL hockey returning to the desert."

The Coyotes claim they were expecting to win the auction.

"The organization has worked in good faith with the ASLD and has been on track to win the auction next week until the sudden reversal," the team said. "By cancelling the land auction, the state is forgoing millions, and potentially billions, of dollars that would have gone directly to K-12 education."

Scottsdale mayor David Ortega told the Arizona Republic on Friday that he had noted the land had "questionable zoning entitlement" ahead of the auction.

"Mr. Meruelo's fantasy hockey proposal was just a smoke screen as he exited after running the franchise under," Ortega told the paper.