The National Basketball Association is seeking to extend its $1.2 billion league-wide borrowing program out two more years than originally structured, to October 2023, according to a Fitch ratings note on the transaction. The planned extension comes as franchises experienced a 16% drop in their revenue from tickets, suites and other team-generated revenue, compared to the 2018-19 season. League-managed revenues, such as merchandise and sponsorships, dipped just 2%, as the valuable national media contracts were fulfilled by broadcasters, according to the note.
The disclosures came because the league needs an independent debt rating to gain better prices from institutional investors in the debt and credit markets. Fitch gives the NBA a rating of A-. That rating is the lowest within the organization’s “high credit quality” rating tier, which is followed by “good credit,” rated BBB down to B. Debt below that level—rated CCC down to D—is often considered “junk.”
“From a broader perspective, the ratings reflect the underlying core economic model of the NBA, which includes moderate levels of revenue sharing and a collective bargaining agreement (CBA) that fosters competitive balance through its soft salary cap,” Fitch said in its note. “The league’s solid viewership and attendance trends (prior to stoppage of play) and robust international growth indicate a strengthening position among professional sports leagues.”
NBA revenue wasn’t disclosed in the note. However, total losses likely amount to at least $300 million—and possibly much more—based on a rough estimate of ESPN and Investopedia data on national TV contract values and attendance and ticket prices for the 2018-19 season.
In response to the pandemic, the NBA raised the league-wide borrowing ability from $650 million to $1.2 billion in March. Currently, 22 NBA franchises have borrowed from the league to fund operations, according to the Fitch note. The league plans to sell its revised, extended debt facility to institutional investors in a private transaction around Nov. 24.