Finance
NBA’s $900 million assist
League to give $30 million to each of its teams to protect their finances as new season approaches
As it did at the start of the COVID-19 crisis, the NBA is making the first move, this time using the private placement market to raise money to help teams through the tough times.getty images
The NBA will give each of its 30 teams a cash distribution of $30 million, for a total of $900 million, to bolster finances and protect against any potential liquidity issues caused by the pandemic.
The $900 million to be given to teams comes from notes issued by the league in the private placement market that typically includes large insurance companies and other institutional investors.
According to multiple sources, each team is expected to receive the $30 million this month as the NBA heads toward its Dec. 22 tipoff of the 2020-21 season. Teams can spend the money for any need within their organization, with the league paying back the notes from “general collective league sources,” according to one source with knowledge of the structure. The source declined to elaborate.
The NBA issued two tranches of debt, $450 million each, and it was through three- and four-year notes. The league priced in late November and is closing in December, but undisclosed are the interest rates tied to the notes.
The move not only signals the financial strength of the NBA in securing the $900 million in the private placement market, but sources said it demonstrates the league’s proactive strategy in providing its teams a cash infusion to guard against financial uncertainty as they begin the upcoming season with games that, at least for the early months, will be played in empty or limited-capacity arenas. A number of teams have announced a no-fans policy for at least the start of the season, with local rules dictating whether teams will start the season with minimal fans in attendance.
“Like any corporation, you’re going to have a letter of credit or bank facility outstanding for rainy-day needs or strategic investment needs, things like that,” said Chad Lewis, senior director at Fitch Ratings. “Earlier this year, they obviously expanded that when COVID hit, and now they’ve decided … to go out and access the private placement from a diversification standpoint. They have full discretion over how they would disburse the funds. Not all the teams will be facing difficulties, but they obviously want to have a strong balance sheet … to aid distressed teams, kind of this core league role in governance and all of that. Really strengthen their balance sheet for the unknown.”
While the NBA routinely gives cash distributions to teams, this is the first time it has turned to the private placement market to fund cash outlays.
The private placement transaction comes after the league this past spring increased its revolving credit facility to $1.2 billion from $650 million.
The $900 million private placement is a separate transaction and is not part of the revolving credit facility.
“It is to help teams with cash flow and liquidity issues, if they have any, especially if they are playing in front of no fans,” said one source.
The NBA’s revenue dropped 10% to $8.3 billion for the 2019-20 season due to the pandemic, according to ESPN. The league reportedly had a $1.5 billion shortfall in overall revenue due to the pandemic as the shutdown eliminated the key ticketing revenue stream.
About 40% of NBA revenue comes from its gate, and NBA teams are bracing for more losses as teams begin the upcoming truncated 72-game season playing in empty or reduced capacity arenas due to the pandemic.
Since the start of the outbreak, when the NBA was the first to postpone its season, the league has worked to give teams new opportunities to generate revenue, most recently loosening rules in the casino and hard liquor categories to provide added selling opportunities. It’s also created new inventory such as baseline apron signage.
Staff writer Chris Smith contributed to this report.
