Sports Deal May Face Tough Markets As Recession, Corporate Spending Cuts Loom

  • 30 Sep 2001
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Two deals for sports teams are getting ready to come off the bench, but they may be playing in front of a tough crowd. Bankers and analysts say a looming recession and an increasing reliance on corporate money may present challenges for teams looking to build stadiums or consolidate debt. Bankers specializing in sports finance said teams and sports groups may have to pay up to get deals done. A deal for the Detroit Tigers has been slogging through the market since July. It was repriced with a 3/8% increase and may have to go up another 1/8%, one banker noted.

On deck are deals for the Philadelphia Phillies, backing the construction of a new ballpark, and the Dallas-based Southwest Sports Group, which is aiming to recapitalize ice hockey's Dallas Stars, baseball's Texas Rangers and Southwest Sports Television, all owned by Tom Hicks. Bankers looking at the Tigers deal say the team's low attendance figures are an issue. Though those figures may have less to do with the economy than the fact that the Tigers are 25 games back in the American League Central. Pricing has already flexed on the deal from 11/ 2% to 17/ 8% and bankers suggest it should be at least LIBOR plus 2%.

Randy Campbell, managing director and head of sports group banking at Société Générale, said historically, individual consumer spending on sports has been affected less in a downturn than for other comparable sectors, such as gaming. "However, this downturn is different," Campbell said. "Sports have become much more reliant on the corporate market and this environment will remain soft. It still remains to be seen whether pricing will rise on loans or whether sports groups will have increased difficulty tapping the capital markets."

Eric Geil, an analyst with Standard & Poor's, said the reliance on corporate money comes in the form of naming rights and advertising. This money is generally considered discretionary spending by companies and is among the first things to go when times get tight.

FleetBoston Financial and Sumitomo Bank are working on the credit for the Phillies' new ballpark, which is expected to open in 2004. The cost of the new park is $346 million, of which $172 million is to be funded privately. A bank meeting has not yet been held, and it could not be determined whether pricing has been set. Sumitomo is also leading the Tigers deal. Jim Weinstein, the Sumitomo banker responsible for sports, did not return repeated calls.

A banker familiar with the J.P. Morgan, Bank of America-led deal for Southwest said a loan, "a touch under $200 million is being arranged." Hicks, the owner of Southwest Sports and chairman of private equity firm Hicks, Muse, Tate & Furst, is attempting to bring his cache of sports and entertainment holdings into a single group and the financing arrangements reflect this, explained the banker. Pricing could not be ascertained on the credit. The Rangers pay LIBOR plus 21/ 2% on the $60 million revolver, and the Stars' revolver carries a LIBOR plus 3% spread. Calls to finance officials at Southwest were referred to spokesman John Blake, who declined to comment specifically on the refinancing. Blake said, however, "it is too early to tell how an economic recession will affect the business. Tickets for the Stars are selling well and planned real estate deals are still going ahead," he noted. Officials at B of A and Robert Tilliss, managing director at J.P. Morgan, did not return calls.


  • 30 Sep 2001

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1 Bank of America Merrill Lynch (BAML) 7,026 25 11.95
2 Citi 6,449 21 10.96
3 BNP Paribas 5,093 18 8.66
4 Barclays 4,040 11 6.87
5 Lloyds Bank 3,615 14 6.15

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5 TD Securities Inc 241.54 1 3.74%