Sports Recession Continues: NBA to borrow $175M for clubs

“You can’t stop it, you can only hope to contain it.” (c) Dan Patrick

As if one needed more proof as to whether or not the economic recession is effecting sports, the NBA announced that they will be borrowing $175M, in a private placement deal, to help “bailout” some of the teams in the league.  From the AJC,

…the NBA is set to borrow $175 million on Feb. 26, marking one of the first league financings since the crash of the credit markets last fall.

“In general, the NBA has a league-wide credit facility, just like the other leagues do. The league had already utilized the major portion of that,” Martins said. “The league went out to the 30 teams and asked if they were able to get another line of credit, would we be interested? We said, ‘Yes.’ “

The league surveyed its 30 teams, and 15 were interested in acquiring a loan. Each of the 15 teams can borrow a maximum of $11.7 million from the debt proceeds.

Fifteen out of thirty teams?  Yikes.  Granted, I don’t think there’s any team that is on the verge of filing bankruptcy, but you do have those teams like the Orlando Magic, which are operating at a $15 million dollar loss each season…so obviously, the reasons for the cash are certainly warranted.

As for the borrowing power of the NBA?  It seems to be fairly good considering the situation.  More on the deal from Sports Business Journal,

The private-placement deal was arranged by JPMorgan Chase and Bank of America. In a private placement, non-banking lenders such as pension funds and insurers extend the cash, commonly at fixed rates for five- to seven-year terms and at rates higher than what banks offer for floating-rate loans.

Harvey Benjamin, the NBA’s executive counsel for business and finance, said it’s important not to compare the rates with what the NBA had been paying before the credit market collapse — about 200 to 300 interest points less for similar debt, sources said — but rather, what borrowers of similar standing are paying in today’s environment. In that light, he said, the 8.27 percent the NBA will pay on $100 million of the debt, and the 7.45 percent on the remaining $75 million, is favorable.

While its certainly not surprising that NBA teams borrow money, it is telling that the league has already exhausted a large portion of the league wide credit facility.  It’s also telling, even though favorable when compared with other borrowers in today’s market, that the NBA is borrowing money at an interest rate above 8%.  As both articles point out, the era of cheap money in sports has certainly ended.

EDITORIAL ASIDE — Is it possible that the recession in the NBA could cause a power shift in the NBA itself?  With the trade deadline looming, and the economy in decline, it seems like smaller market teams are willing to make more trades to get big contracts off the books, essentially getting nothing in return (ala Tyson Chandler).  If we had some sort of prolonged recession could we see bigger deals in the NBA and in other sports?  Just a thought.

Atlanta Journal Constitution — 15 teams look to borrow from NBA to offset losses

Sports Business Journal — NBA securing $175M for clubs