Friday, February 20, 2009

NBA and its Teams not Spared in Continuing Economic Crisis - By: Jason Vismantas

Earlier this week, the Sports Business Journal shed light on the NBA’s plan to borrow a much needed $175 million. While this doesn’t seem like much, it comes as a supplement to an already existing $1.7 billion credit facility in place. Under the original loan, the NBA used its media contracts as collateral to secure the $1.7 billion, $1 billion of which was funded by JP Morgan and 12 other banks (no doubt banks receiving TARP money) through short term loans. Interestingly, the remaining $700 million of the original deal was privately funded by sources like pension funds and insurers, which will be the sources of the new $175 million.

Although this new deal was thought of as well executed on behalf of the NBA, the need for this new money has made some troubling issues apparent.

First, not only have the NBA and its teams gone through a good portion of the $1.7 billion already, but the new money will be primarily used to cover teams’ operating losses, something the NBA nor its lenders ever envisioned. Even more alarming, 15 teams, half the league, have indicated that they would like to receive a portion of the new funds. And, while some teams like the Orlando Magic have been open about sharing their economic woes and need for the new money, sources close to the NBA say that New Orleans, Sacramento, Memphis and New Jersey are teams that are in far more serious, but relatively unknown, financial trouble - even going as far as saying that the New Jersey Nets franchise is near broke. This knowledge begs the questions of whether the $1.7 billion had run out long ago and whether the new $175 million will even help.

In the grand scheme of things though, the most alarming part of all of this, especially for non-sports fans, is the eagerness that both JP Morgan and Bank of America exhibited in securing the financing. While professional sports have been relatively safe investments for institutional lenders over the last couple decades, it’s looking more and more like that will not be the case in the future. Shouldn’t these banks and even private institutions be taking on less risk now rather than more? Whatever the answer may be, the landscape of professional sports financing and operation is changing dramatically.