The NFL last week increased its team debt limit by 25 percent, or $50 million, to $250 million per club, only the second increase in 10 years in how much franchises can borrow.
Owners unanimously approved the increase at their spring meeting in San Francisco.
The move comes amid skyrocketing valuations across sports, fueled by the demand for live content and the immense wealth creation in certain economic sectors, particularly finance and energy. The Buffalo Bills last year sold for $1.4 billion, easily a record for an NFL team.
“The economics justifies doing this,” said Houston Texans owner Bob McNair, chairman of the NFL’s finance committee. “As a percentage of value of franchise, it is still a fairly low percentage.”
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Texans owner Bob McNair says the debt-limit move is justified.
Photo by: GETTY IMAGES
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The new NFL standard is the same as what exists in the NBA, which in November increased its team debt cap to that point from $175 million. MLB’s debt rule is tied to team cash flow; the NHL allows for about half the estimated value of a club.
There was no sense within the NFL it should have at least as high a debt cap as the NBA, McNair said. Nevertheless, when the NBA went to a quarter of a billion dollars, it didn’t escape notice that the NFL, with nearly double the leaguewide revenue of the NBA, restricted its teams’ borrowing more than its basketball counterpart.
“Historically, the NFL has taken a fairly conservative approach,” said sports finance consultant Mitchell Ziets. “Given the run-up in valuations … increasing the debt limit to $250 million is prudent.”
The NFL last increased the debt cap in 2012, when the sport went from $150 million to $200 million. Before that, the last increase was in 2005. In fact, in 2007, owners voted to lower the debt limit, ostensibly for risk management, but the league reversed course after protests from the NFL Players Association.
At that time, some teams used borrowings to fund payroll, and the union was worried that the debt slicing represented a back-door way to restrain pay.
Today, teams are flush with revenue from a more favorable labor pact and lucrative TV contracts, so debt is unnecessary for payroll.
The biggest effect of the higher debt limit is to allow new team owners to borrow more to pay for their clubs, thereby modestly reducing a sizable equity contribution.
The league also makes exceptions to the debt limit. The NFL, for example, granted a waiver to the Atlanta Falcons so that the club could borrow $850 million to finance its new stadium. Such debt waivers are almost always for new stadium construction or renovation projects.
