The crack of the bat ushered in a new baseball season last week, but the financial problems that several sports franchises (especially the New York Mets) are experiencing have been focusing attention off-the-field to the teams’ capitalization since well before Opening Day. Today, we examine some issues that secured lenders face when financing the acquisition or ongoing operations of, or restructuring loans to, franchises in the four major North American professional sports leagues—Major League Baseball (MLB), the National Football League (NFL), the National Basketball Association (NBA) and the National Hockey League (NHL).1

Background

Modern sports franchises often form just one part of multi-tiered ownership structures that are relatively complex for businesses of comparable size, and they and their associated ventures provide an array of potential collateral, including the franchises themselves, venues, regional sports networks, media rights, naming rights and many others. North American professional sports franchises typically are owned through operating companies (“franchise owners”) formed by ultimate individual or corporate owners (“ultimate owners”). Whereas a team financing 30 or 40 years ago may have been underwritten by a commercial bank’s private banking division on the strength of a wealthy individual owner’s personal guarantee, the leverage necessary to purchase and operate a professional franchise at today’s high values often surpasses the ability or appetite of any individual to guarantee such debt. Lender due diligence on the asset and related ownership structure is therefore a critical initial step when structuring a team financing.

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