With few fans in the stands and fewer games on TV since COVID-19 roiled sports in mid-March, the NFL, Golden State Warriors and Atlanta Braves are among the dozens of major league organizations borrowing millions—even billions—of dollars to manage their finances.
“The pandemic hit like an asteroid from outer space,” said attorney Irwin A. Kishner, executive chairman of Herrick, Feinstein LLP, and co-chair of its Sports Law Group, which specializes in team financing, acquisitions and media rights. “Much of [what] we were doing shifted. One of the profound things was helping our clients access capital to shore up the balance sheet and provide a level of liquidity [when] nobody really understood at the time if it was going to be [for] three months, six months or 18 months.”
The total picture of how deeply in hock pro sports have gone may never be known, given that financial deals occur between mostly privately held teams and low-profile lenders like major banks and insurance companies. One thing that is clear: As soon as the pandemic hit, demand for loans from teams jumped—as did the less favorable terms offered by banks.
“Teams and leagues were hearing some banks saying ‘we can support you’ and others saying ‘we can’t’ or ‘we can, but only if the pricing is way higher than it’s ever been.’ There was a lot of divergence in the market,” explained Bill Mulvihill, head of U.S. Bank’s Sports and Entertainment Group. That meant that in the bank loan market, where teams go to borrow for less than 10 years, rates about doubled from just over 1% plus LIBOR (an ever-shifting interest rate major banks charge one another) to over 2% plus LIBOR, starting with the mid-March suspension of pro sports. The length of time banks would lend money to teams shortened too, from an average of five years to about one year, Mulvihill told Sportico.
The market for loans longer than 10 years also saw some pricing upheaval, as some lenders sat on the sidelines. In that market, prices are based on U.S. Treasury rates for insurance company buyers, who aim to sit on the loan until completion.
Through the spring and summer, lenders have mostly gotten over the initial shock and have started extending improved—but not pre-pandemic level—terms. “Pricing is a little bit higher than before COVID, but certainly lower than where it was,” said Mulvihill. A “typical” bank loan market deal now runs about three years at 1.5% plus LIBOR, with higher rates for still-scarce longer-term loans. In a nod to interest rate worries, many deals now include a LIBOR floor, an interest rate that won’t go lower even if LIBOR falls or interest rates go negative, as seen in some lending markets in Europe. Still, deals are flowing. “The market is very robust right now,” Mulvihill added.
Prior to the pandemic, teams were investing excess cash in technology ventures focused on improving player performance and fan experience, according to Kishner. “We were experiencing a bull market in the sports arena,” he said. “There was a real sense of optimism, and many of our clients were expanding their brands or expanding their reach.”
Since then, it’s all been about cash flow for this year and next. While there are ample rumors of teams taking league loans or seeking outside financing, only a few are known for sure. In late August, the NFL boosted its long-term borrowing by almost 43%, selling $3 billion in senior secured notes and loans that provided additional cash flow to at least 15 franchises. The NFL had already raised its per-team debt ceiling in May to $500 million, from $350 million.
Earlier this month the NBA’s Warriors secured a $278 million deal made up of two parts, according to an industry newsletter: a $218 million, 10-year deal at 4.15% interest rate and a $60 million, eight-year piece at 3.55% plus LIBOR. The rates that Golden State is paying aren’t seen as outliers; sports teams often face higher borrowing costs because league rules prohibit using the team as collateral for a loan. In March the Warriors also refinanced a high-rise development next to Chase Center with its two project partners. The $600 million loan for the buildings paid off the original mortgage and delivered $202.3 million in cash back to the team and its co-owners Uber and Alexandria Real Estate Equities, according to a corporate bond review by Fitch Ratings. The Warriors own 45 percent of the development.
In Major League Baseball, the Braves had amassed debt of $718 million by the end of June, up $159 million from the start of the year, according to a disclosure to the Securities and Exchange Commission. In August the team negotiated an easing of loan covenants to as late as March 2022 on its stadium debt and operating credit facilities, moves that would give it greater cash flow flexibility. Even the New York Yankees have already reworked their 2020 finances in some form, according to a ratings note for another pinstripe deal coming to market, a $973 million refinancing of Stadium debt.
“The financial markets have recognized the long-term value of sports is still there and that there’s a short-term issue of missing games and playing games without fans that’s causing a cash crunch,” added Mulvihill.
Less clear is if teams have also been resorting to capital calls, which is when the majority partner calls on minority stake owners to contribute cash for the team operations or risk getting their equity diluted if they refuse. One option that teams will probably entertain in order to maintain cash flow will be to offer season ticket holders incentives to roll money they’ve already paid into next season’s tickets or, like the Detroit Pistons did recently, offer a bonus for paying early.
While the financing efforts appear to be working so far, one sign of deeper problems will be if owners begin trying to sell all or part of their stakes, said Kishner. “You see teams laying off staff and the question is, how much stress can they take before it gets critical?” he said. “How much of a rainy day fund do these teams have before they are forced to do something they don’t want to do?”