SBJ/Sept. 20-26, 2010/FinancePrint All
The New York Yankees and their affiliates carry nearly $2 billion of debt, according to sources who have reviewed loan documents in the market for Yankee Global Enterprises, the team’s parent company, and Legends Hospitality Management, the club’s concessionaire.
In addition, the team is responsible for $1.2 billion of tax-exempt stadium bonds that are sold through a public entity. Together, it means there is about $3.2 billion of debt obligations that flow through YGE, though about one-third of that total burden falls on the equity partners in YES Network and Legends.
The Yankees declined to comment.
To put $3.2 billion in context: Two years ago, the NFL disclosed that its 32 teams owed $9 billion, a number the league found alarming and is reducing. That said, the enterprise value of the companies composing YGE is roughly $5 billion, and cash flow at YES alone is expected to hit $208 million this year, sources said. YGE has been using the bulk of YES’s cash flow to reduce the regional sports channel’s debt, which is $1.448 billion, the sources said.
“It’s very manageable,” said a baseball source of the overall debt.
Neil Begley, a media and entertainment analyst at Moody’s Investors Service, which rates the stadium bonds, said ratio of debt to value for YGE was in line with other companies of its kind.
“It is a significant amount of debt for a sports enterprise, probably among the biggest there is,” he said. “But if they cleared 2009, I would be hard pressed to think they would have economic pressure more significant than that.”
What also stands out about the debt is how little of it, $97 million, actually resides at the team. MLB’s debt regulations are applicable to the league’s clubs, but not to the clubs’ affiliates. It also underscores how the Yankees have shifted revenue to affiliates like YES and Legends, limiting the already steep revenue-sharing and luxury-fee payments, about $100 million, the club pays to MLB.
The team also deducts about one-third of its $64 million annual stadium interest payment from its revenue-sharing commitment.
The Yankees and Dallas Cowboys formed Legends in 2008, with the clubs’ two stadiums still the principal assets. Nonetheless, that has been enough to generate more than $20 million of annual cash flow and support a $250 million valuation, the sources said.
The $125 million refinancing that Legends now has in the market is directed at expanding the business. It tacks on 25 percent to an initial $100 million loan.
Meanwhile, the $275 million that YGE is refinancing, which is for general corporate purposes, does not include new debt.
The interest rate on both deals is 350 to 375 interest points over the London Interbank Offered Rate, or LIBOR, a floating rate index that last week hovered at 0.29 percent.
The loans, which have not closed, are being led by Goldman Sachs, Wells Fargo and Galatioto Sports Partners.
MLB has created the first leaguewide credit facility for short-term lending, capping its clubs at $15 million apiece, according to multiple finance sources.
As of last week, about six clubs had used the credit facility, or loan pool, which closed last month and is the first of its kind across sports’ major leagues, the sources said. The pool uses collateral such as national sponsorship contracts to secure good rates.
The participating clubs could not be identified.
MLB has a much larger credit facility, in the high hundreds of millions of dollars, from which teams can borrow longer-term debt. But because of the 2008 credit crunch, that longer-term facility has amortized more quickly than originally expected, creating some seasonal cash needs among clubs, the sources said.
“The facility is meant solely to bridge the timing of revenue inflows, so the funding is meant to be repaid once ticket receipts, sponsorship payments and media distributions are received by a team,” said Rob Tilliss, a sports adviser who was aware of the deal but not involved with it.
One source said the loans would have to be repaid by the end of the year. Many distributions from leaguewide revenue streams arrive then.
MLB Chief Financial Officer Jonathan Mariner declined to comment, as did Bank of America, which is leading the new debt deal.
Seasonal funding is a long-running issue in sports. Revenue is commonly staggered throughout the year, but payroll is due during the season. Many teams have relied on the longer-term debt or individual loans at the local level to carry them through the end of a season.
In 2008 and 2009, the NBA, MLB and NFL, unable to refinance their long-term debt deals, termed out, meaning accelerated amortization clocks began to tick. The NFL and NBA have since refinanced, but MLB did not, leading to a steep reduction in its credit facility size from an amount that had been in excess of $1 billion, sources said.
Sports leagues since the credit crunch have emphasized debt reduction, but because of the drop in the long-term debt facility, MLB may have flexibility to incur more debt.
Some Phoenix-area cities and local business interests are trying to pump new life into the idea of special tax zones that earmark financing for sports complexes and other projects.
Those groups talking about reviving tax-increment financing still are trying to decide whether their proposal should help fund professional sports and retail venues, or be geared more toward high-wage jobs and industries needed to boost Arizona’s job market.
Tax-increment financing, also known as TIF, was shot down during the 2010 legislative session as a possible funding mechanism to help Westgate City Center and the Phoenix Coyotes in Glendale, Ariz., and to bankroll a new Cactus League stadium for the Chicago Cubs in Mesa, Ariz. But the idea will be proposed again when the legislature reconvenes in January, according to sources familiar with the discussions.
Arizona is the only state that lacks a statute allowing TIF mechanisms.
TIFs generally involve city governments bonding against or earmarking future tax revenue collected in a specific area for improvements or developments within that zone. The idea is that it will help provide financing for economic development projects that otherwise might not get done or could take years to complete.
The Arizona officials mapping a new TIF proposal are at a fork in the road. They could propose a tax zone plan focused on higher-wage jobs and industries such as manufacturing, aerospace and solar energy. That could include some kind of wage or project requirement to qualify for special tax financing.
Alternatively, a TIF plan could be used to help fund sports and entertainment complexes, including construction of new Cactus League ballparks; bolstering Westgate City Center, Jobing.com Arena and the Camelback Ranch spring training facility in Glendale; and boosting long-term plans by the Bidwill family, owners of the NFL Cardinals, to develop University of Phoenix Stadium parking lots into hotels, shops and office buildings.
Scott Butler, government relations director for the city of Mesa, said that the East Valley city is open to the TIF idea but doesn’t necessarily need such a plan for a new $84 million ballpark for the Cubs. Butler said TIFs could be used in addition to any Mesa financing for the Cubs.
Mesa voters will decide in November on financing plans for the Cubs’ planned new ballpark, including whether to raise the city’s hotel bed tax and use city construction money.
The city of Phoenix also might use a TIF or some other tax zone plan to help build new spring training stadiums for the Milwaukee Brewers and Oakland Athletics, Butler said. Both teams’ Cactus League leases expire soon, and they would like new or upgraded facilities.
The debate is also playing out in Glendale, which is looking for ways to improve the financial situations of the Coyotes and Westgate. The city is trying to work out a new arena lease with a prospective Coyotes buyer and wants to create a property tax zone to help the area. Glendale spokeswoman Julie Frisoni said the city has not been part of recent “formal meetings” about TIFs but that Glendale likes the idea of having more economic development mechanisms at its disposal.
Mike Sunnucks writes for the Phoenix Business Journal, an affiliated publication.