Pro Sports Taking Billions in Debt to Get Through Pandemic
Irwin Kishner, co-chair of Herrick's Sports Law Group, was quoted in Sportico regarding the actions that major league organizations are taking to access available capital to bolster their current balance sheets and provide sustainable liquidity.
“The pandemic hit like an asteroid from outer space,” said Kishner. “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 article notes that many financial deals occur between mostly privately held teams and low-profile lenders, therefore the total financial picture may never be known.
Kishner added, "[p]rior to the pandemic, teams were investing excess cash in technology ventures focused on improving player performance and fan experience." Further, “[w]e 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.”
The focus now has been on cash flow, which may include teams taking league loans or seeking outside financing, refinancing of debt, capital calls, offering bonuses for early purchases of tickets and negotiation of deals that would provide greater cash flow flexibility such as easing of loan covenants on stadium debt and operating credit facilities.
Noting that the financing efforts appear to be effective, 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?”