NFL teams $9 billion in debt

[BillsWatch]

http://www.usatoday.com/sports/football/nf...gs-primer_N.htm

 

In past 20 years, the NFL has benefited tremendously as the only major sports league without a work stoppage. Now would not be the time, especially considering the debt load some owners are carrying with new stadiums. Sports Business Journal recently reported that the NFL carries a combined $9 billion in debt — more than any other league, but economically palatable given the cash flow. Stop playing the games, though, and it's a different story. And both sides stand to suffer tremendous losses.

 

I knew it was high especially with all of the owners who borrowed to buy teams but this seems too high especially with all the money blackmailed out of communities. Perhaps they are counting the future guaranteed salaries and bonuses?

[Dwight Drane]

This was discussed a few weeks ago, yet nobody thought it meant anything.

 

As I said in that post....MARGIN CALL!

 

The US is pretty much bankrupt. The debt market is locked on so many levels. The Fed stepped in like good socialists would, but instead of lending the money out to consumers and companies, the banks need that cash as a life preserver. The net effect on everyone has been that nobody can borrow against an asset that has the slightest question about it.

 

Really, what is an NFL team worth if all the fans are suddenly out of jobs and have no excess cash to spend? In the back rooms, while a lender was willing to give out $300 million on a franchise figured to be worth $1.1 billion...they are looking at that franchise much more conservatively and may only value it at half the price in terms of lending new money.

 

Ralph is in good shape. This economic setback is probably good for keeping the Bills in Buffalo, as less and less people have the means to move a team. Look at the property values here....we don't really rise in a national boom, and we don't really fall in a crash. Go Bills! 2012 and beyond!

[Steely Dan]

I believe that's on paper. The league real numbers are probably not bad at all. The way numbers can be manipulated anything can show a loss.

[Dwight Drane]

I believe that's on paper. The league real numbers are probably not bad at all. The way numbers can be manipulated anything can show a loss.

 

 

You can't play games with debt on your own book. Now the lender to the NFL can play games with the outstanding loan value.

 

If you divide the $9 billion up, it's around $300 million per team. The average team is valued near $1 billion or so. You're looking at debt to value of about 30%.

 

Now say market conditions change....and advertising $$$s dry up, the US is in an extended recession and ticket sales lag, plus the bank no longer has unlimited funds to lend out to parties looking for cash. All of a sudden, Mr Citibank CEO tells the Giants....No More Cash! There is nobody willing to buy bonds at a reasonable rate, and Citibank's pockets are empty. Just that fact alone takes a chunk out of every NFL franchise value, as they are a growth business, or at least they have been. Now all things considered, the owners of these teams have to decide if they are going to bankroll improvements on their own, or if they are just going to ride out the near term storm and hope for greener pastures.

 

Worst case scenario......a year from now, nothing has improved and NFL values start having an ax taken to them. Projected revenues are down 20% and the banks now value a $1 billion franchise at $600 million. All of a sudden, the bank is no longer comfortable to lend $300 million against a $600 million non-guaranteed asset. Revolving credit lines are closed down to teams that have a heavy debt burden. Some teams may be forced to sell.

 

That is why the warning came out from the league. If you are in a position to shore up your balance sheet, do it now because we don't want 3 owners trying to sell their teams at this time next year because they need cash. That would look disasterous for the NFL, and their house of cards then comes crumbling down.

[stuckincincy]

Worst case scenario......a year from now, nothing has improved and NFL values start having an ax taken to them. Projected revenues are down 20% and the banks now value a $1 billion franchise at $600 million. All of a sudden, the bank is no longer comfortable to lend $300 million against a $600 million non-guaranteed asset. Revolving credit lines are closed down to teams that have a heavy debt burden. Some teams may be forced to sell.

 

That is why the warning came out from the league. If you are in a position to shore up your balance sheet, do it now because we don't want 3 owners trying to sell their teams at this time next year because they need cash. That would look disasterous for the NFL, and their house of cards then comes crumbling down.

 

I wonder where that would put counties that bought into the owner's extortions.

 

Hamilton County, OH's citizens voted that a 1/2% additional sales tax be imposed upon them (I wasn't living in the county at the time - the B'gals could have left town as far as I was concerned).

 

They then issued bonds to be paid back by the sales tax revenue. $400 million or so - I forget. As sales tax revenue declined the past few years, they have re-financed at least once AFAIK.

[Dwight Drane]

I wonder where that would put counties that bought into the owner's extortions.

 

Hamilton County, OH's citizens voted that a 1/2% additional sales tax be imposed upon them (I wasn't living in the county at the time - the B'gals could have left town as far as I was concerned).

 

They then issued bonds to be paid back by the sales tax revenue. $400 million or so - I forget. As sales tax revenue declined the past few years, they have re-financed at least once AFAIK.

 

I think some of these stadiums don't get done. Some states are going to panic when setting the '09 budget because there is going to be far much less cash available.

 

That's why I say, in a sick little way it is good for Bills' fans if the overall picture looks a little bleak. Buffalo is viewed as an alternative to India and China to do business in, especially in the service sector. If the dollar keeps getting hammered and resources get scarce, Buffalo may gain some traction. We have fresh water, an open waterway, plenty of cheap land to grow wheat/corn/etc. If the USA is forced to become more self-sufficient, we have a jump start on others and may "Luck" into some mild prosperity without the help of our "Leaders".

[The Dean]

Am i missing something? The NFL carries debt, OK. But, they aren't, on a balance sheet "in debt, that is, in the red, are they? THAT I do not believe for one second.

[Steely Dan]

You can't play games with debt on your own book. Now the lender to the NFL can play games with the outstanding loan value.

 

If you divide the $9 billion up, it's around $300 million per team. The average team is valued near $1 billion or so. You're looking at debt to value of about 30%.

 

Now say market conditions change....and advertising $$$s dry up, the US is in an extended recession and ticket sales lag, plus the bank no longer has unlimited funds to lend out to parties looking for cash. All of a sudden, Mr Citibank CEO tells the Giants....No More Cash! There is nobody willing to buy bonds at a reasonable rate, and Citibank's pockets are empty. Just that fact alone takes a chunk out of every NFL franchise value, as they are a growth business, or at least they have been. Now all things considered, the owners of these teams have to decide if they are going to bankroll improvements on their own, or if they are just going to ride out the near term storm and hope for greener pastures.

 

Worst case scenario......a year from now, nothing has improved and NFL values start having an ax taken to them. Projected revenues are down 20% and the banks now value a $1 billion franchise at $600 million. All of a sudden, the bank is no longer comfortable to lend $300 million against a $600 million non-guaranteed asset. Revolving credit lines are closed down to teams that have a heavy debt burden. Some teams may be forced to sell.

 

That is why the warning came out from the league. If you are in a position to shore up your balance sheet, do it now because we don't want 3 owners trying to sell their teams at this time next year because they need cash. That would look disasterous for the NFL, and their house of cards then comes crumbling down.

 

It's interesting how this pops up just before they are going to vote on continuing the collective bargaining agreement or not.

 

 

I think some of these stadiums don't get done. Some states are going to panic when setting the '09 budget because there is going to be far much less cash available.

 

That's why I say, in a sick little way it is good for Bills' fans if the overall picture looks a little bleak. Buffalo is viewed as an alternative to India and China to do business in, especially in the service sector. If the dollar keeps getting hammered and resources get scarce, Buffalo may gain some traction. We have fresh water, an open waterway, plenty of cheap land to grow wheat/corn/etc. If the USA is forced to become more self-sufficient, we have a jump start on others and may "Luck" into some mild prosperity without the help of our "Leaders".

 

If a Dem wins the Whitehouse look for the dollar to rebound. Pubs like a weak dollar because it helps sales abroad and Dems like a strong dollar because it lowers prices in America. If the dollar rebounds look for a lot of this nonsense to go away except during bargaining times.

[Dwight Drane]

Am i missing something? The NFL carries debt, OK. But, they aren't, on a balance sheet "in debt, that is, in the red, are they? THAT I do not believe for one second.

 

The debt is a constant thing. Say a club has $300 million in debt and has to pay 7% which is fair rate. That is $21 million in Interest. Now as a means of cash flow, they are going to get a tax break on that most likely, and at 35%, the club will now only take a hit of $13 million+ in actual dollars. That is where owners can get shady when reporting profits or losses to the public. They might report the $21 million as an expense before figuring out all the other goodies. They also can depreciate the stadium they are in if they own it. That is another way the owners can hide positive cashflow. A $400 million stadium probably gets $40 in depreciation knocked off. It effects the balance sheet for an owner, but in terms of real dollars, it is just another way to soak up profits so the tax man doesn't get it and you can cry poverty to the fans.

 

NFL Team X:

 

$50 million revenue

$150 million revenue sharing

$110 million player salaries

$10 million other costs of running team

$21 million interest

$40 million depreciation

 

Positive Cash Flow= $59 million

 

Report to IRS=$19 million

 

Owner tells public he made $12 million, the number after taxes

 

In reality, owner pockets $52 million

 

That is the business model and what most fans get cranky about, which they deserve to be.

 

 

The debt thing is a whole new ballgame. The NFL team is valued on what assets they own, and projected future revenues. In this case there was $300 million taken to build a $400 million stadium, but the lender needs to see a profitable business in that stadium in order to finance it, because an empty stadium is worthless if the team can't keep paying their debt. If the team pocketed $52 million this year, a quick and easy way to project how much value that adds to the franchise is to multiply by a fair value factor. In business 10x is a conservative number for a mature market, and 20x is for a market that still has room to grow. Let's say the NFL is in between, so 15x....which is 15x$52million=$780 million.

 

Now add the $400 million stadium to the $780 million in projected revenues, and this team is now worth $1.18 billion. Remember though, they still owe $300 million to the bank, so you have to factor that in as well.

 

This is all great, and everyone is dandy as long as the cash keeps coming in. What happens though if the US goes into a prolonged recession? What happens if people are tight on cash and not spending as much on tickets? Companies start losing money and have to cut costs of luxury items, like suites and extra advertising. The team still has to pay their players the same if not more going forward, they still owe $300 million in debt, but now with a rough road ahead projected, the team only looks like they will bring in $20 million next year. All of a sudden, 15x $20mil= $300 million...Yikes!!!

 

Once numbers like this start getting projected, and they may be in the back rooms of lenders right now, the bank isn't as confident loaning $300 million against a franchise worth $700 million, since $400 million of that is the stadium....which is almost worthless if the team can't make any money and shuts down. Because the revenues look to be dropping, the bank gets even more conservative and says that the $400 million stadium is now really only worth $200 million because they never fill to capacity. Now the Franchise is valued at $500 million.

 

Under the lending agreement, the bank may have proposed that the most they are willing to lend is up tp 50% of team value. Now all of a sudden with $300 million in debt and a value of $500 million, the team is borrowing at 60% of team value. UhOh!....Margin Call!......the bank demands $50 million from the owner of the club to get the ratio back under 50%, and reduce his outstanding debt to $250 million or else the owner will default and trigger either outrageous interest rates, or he may have to surrender the team if he can't come up with the cash.

 

The result:

 

A) Owner has extra cash from other ventures hanging around and believes enough in the long term of the NFL to pay down his debt

B) Owner doesn't have extra cash, believes enough in team to keep it at a penalty until he finds secondary investor or lender

C) Owner is scared he may go bust and puts the team up for sale....looking to net the $200 in equity he still has

 

 

This is what the League fears....option C. They want owners to pay down debt now if they can, so it doesn't get to the point where the team values are questioned by the lending banks. It would be a disaster for the image of the league to have 3 or 4 teams scrambling for financing. Banks won't care, since right now...nothing is considered Rock Solid as far as a loan goes, and I'm sure lenders have already started chopping values off of these teams as we speak. It is a world wide problem.....not an NFL problem.

 

 

Sorry for the longwindedness, and I know it's a bunch of numbers to digest.

 

Bottom line.....NFL doesn't want to ever deal from a position of weakness.

[The Dean]

The debt is a constant thing. Say a club has $300 million in debt and has to pay 7% which is fair rate. That is $21 million in Interest. Now as a means of cash flow, they are going to get a tax break on that most likely, and at 35%, the club will now only take a hit of $13 million+ in actual dollars. That is where owners can get shady when reporting profits or losses to the public. They might report the $21 million as an expense before figuring out all the other goodies. They also can depreciate the stadium they are in if they own it. That is another way the owners can hide positive cashflow. A $400 million stadium probably gets $40 in depreciation knocked off. It effects the balance sheet for an owner, but in terms of real dollars, it is just another way to soak up profits so the tax man doesn't get it and you can cry poverty to the fans...

 

 

Outstanding job!

 

Thanks for taking the time to do that.

[Dwight Drane]

Outstanding job!

 

Thanks for taking the time to do that.

 

Thanks...my pleasure.

 

The valuation game is what has everyone nervous right now. Nobody trusts that anyone else is going to be as creditworthy in the future. The NFL is so well run, that they are putting down the hammer to the teams before it becomes a public problem for them. As it is, it can't look good with Megastadiums on hold as municipalities can't borrow at a decent rate. It's going to be a hectic year for the economy in general.

 

It is in the league's best interest to avoid a work stoppage, because weaker owners may end up having some problems hanging on to their teams. When you look at the scenario I just painted, there may be a few cases of that anyway. Who is going to pay $500 for a Dolphins clubseat the year after 1-15 and when your home just went from $800,000 to foreclosed on in 18 months? How many car commercials are going to be running during a game when we have $6/gallon gasoline, and GM and Ford are on the brink of bankruptcy?

 

Good news is....less buyers with cash, less likely the Bills move anytime soon.

[Adam]

The owners have brought all of this on themselves. And I am talking about the Jerry Jones' Daniel Snyders, and the Robert Krafts' of the world. These chumps wanted to bleed the league for as much short term money as they could, and now the goose that laid the golden egg is almost dead. Tagliabue and co. also had a hand in this.

 

I may be in the minority, but I am pulling for a strike/lock out.....let these greedy rich guys get what is coming to them, and let the league be fixed for the Bills, Packers, and other small market teams. And let the failure known as NFL network fade into oblivion