Leagues not yet hit by Wall Street's slide

By Tim Lemke THE WASHINGTON TIMES | Friday, September 19, 2008

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Wall Street is in a panic, and investors across the country are nervous, but the world of professional sports is holding up quite well for now.

While major sports leagues have not been immune to the country's financial struggles, most are finding that attendance and television ratings are strong and the market for sponsors has held up even as whole sectors of the economy have taken a hit.

"My sense is that it's not going to have much of an effect," said Wayne DeSarbo, director of the Center for Sports Business Research at Penn State. "Unless we see a full-blown recession or even worse, sports will hold up well."

But DeSarbo and others who follow the economy closely said the collapse of large banks like Lehman Brothers and Bear Stearns is nevertheless unsettling because it is becoming increasingly difficult to borrow money. Deals for stadium financing will be harder to get done, and anyone looking to purchase a team will find it harder to raise the necessary funds.

"It's much more difficult," said Sal Galatioto of New York-based Galatioto Sports Partners, an investment bank and advisory firm specializing in sports transactions. "Banks are less and less willing to lend. But can you get deals done? Yes, you can get them done."

Investment advisers said banks still will be willing to lend to sports leagues and teams because they historically have a low rate of default on loans. In an environment in which banks are tightening lending standards, the sports industry is considered one of the safest bets.

"Sports is still protected," said Andrew Kline, founder of Park Lane Services, an investment advisory firm in Los Angeles that has assisted on the sale of pro sports teams. "What it does is it changes your options. Yeah, I can't call up five or six banks and get money like I used to, but when I do call, they will listen."

The backbones of sports leagues' stability are their national TV contracts, which provide large, guaranteed revenue streams over the course of several years. The NFL, for instance, will earn nearly $3.7 billion each season through 2011 from deals with Fox, CBS, NBC and ESPN. Such guaranteed revenue makes sports leagues attractive to lenders.

"It gives them kind of a nice, strong baseline to withstand this," said Jeffrey Phillips, a managing director at financial adviser Stout Risius Ross who has specialized in sports transactions.

The tighter lending standards could, however, impact the number of people in a position to acquire a sports franchise. That, in turn could depress the amount of money a team would fetch in a sale.

Stewart Rahr, a Park Lane client and billionaire who is actively seeking to buy a sports team, said he has received a flurry of calls recently from other businessmen looking to bring him in as a partner on a bid because they have not been able to raise enough money on their own.

"I've been getting more calls in the last 90 days than I ever have before," said Rahr, the CEO of Kinray, a large pharmaceutical distributor.

Sports experts said if the country's economic problems persist, teams will start to see a decline in attendance, which would then impact the amount of money collected from sponsors, some of whom already are facing financial difficulties.

Rob Vogel, president of the Bonham Group, a Denver-based sports marketing and sponsorship firm, said the economy is forcing teams to work harder to give sponsors more value as companies are asked to justify every dollar spent.

"Anybody involved in the sports world is having to defend the money they're spending in terms of what kind of return on investment they're getting," Vogel said. "It's making people think differently about the issue. They're having to become more creative, more thoughtful."

The biggest impact on the sponsorship side may come in the area of naming rights, in which companies routinely have agreed to long-term deals worth as much as $20 million a year. In recent years, large banks, including PNC Bank, Citizens Bank and Bank of America, have paid handsomely for such sponsorships, but that trend is expected to cease with the troubles in the financial sector. Experts said the new wave of stadium sponsors may come from the technology or electronics sectors, while others said more energy companies could enter the fray.

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