Page 50 - FON Spring Issue

FON MEMBER FEATURE
What impact has/will the global health pandemic have on the Professional Sports Landscape?
Obviously, the pandemic has been extraordinarily disruptive to the professional sports industry. Aside from the daunting task of first and foremost keeping players and team staff safe, the leagues and teams have had to combat unprecedented financial pressure. Given the lack of fans in stadiums and arenas, plus the number of cancelled games and concerts, there has been an incredible hit to short-term revenues, resulting in heavy losses and cash flow pressure for every league. However, we do believe this is a short-term issue. A positive outgrowth of the pandemic has been the accelerated creative initiatives for each league to drive revenues such as increasing sponsorship inventory on helmets, gambling initiatives, etc. which could see teams, overall, be more profitable organizations in 2022 and 2023, than at pre- pandemic levels. In fact, the challenge of the pandemic has forced team employees to become more creative and smarter operators. We believe that demand will be robust for content for both sports, concerts and all live entertainment post- pandemic.
How are some of the leagues handling the financial impact of the pandemic on its teams?
The leagues have gone to great lengths to provide financial flexibility and operating room for their member clubs. Just like the leagues, we believe that the pandemic will not have
a long-term negative impact on team valuations. We view it as a short-term speed bump and not that professional sports is hitting a wall. The leagues are structured in a way that they have set relatively strict debt limits that have created a situation of very low LTVs and considerable equity in each team, and as such additional financing is easily incurred and serviced. For example, the NHL has secured a financial arrangement with a consortium of banks to be able to advance monies to each team in the league at extremely low cost of funds. The NHL’s balanced approach affords certainty for the players with little to no disruption in salaries being paid, while providing added financial flexibility for the teams. By providing each team access to cash, the League is assisting its member teams with short term liquidity needs thereby eliminating a real need to sell equity in distress or at a below market valuation. The leagues are really stepping up to bridge this short-term financially disruptive period.
Why is private equity appealing to the leagues?
To date, outside of a few unique exceptions, such as Platinum Equity and the Detroit Pistons, private equity has been excluded from investing directly into a professional sports team. The leagues are not necessarily set up to accept private equity funds as owners. The leagues have very strict requirements and KYC policies that mandate that each and every direct and indirect owner in the fund be properly vetted from a background perspective. As you can imagine, navigating the onboarding process can be tedious, involved and complicated. That said, as a league, one of the primary goals is to promote the heath and strength of member
50 FON MAGAZINE / SPRING ISSUE 2021 / FONMagazine.com