Stadium Debt Nears “Junk Bond” Status

September 21, 2010

According to the Muni Bond Watch blog at the Wall Street Journal the current economic downturn appears to be taking a toll on the ratings of municipal bonds issued to finance stadium and arena construction around the country.  BondView, a company that tracks municipal bonds, recently reported that 78% of the 4,408 stadium bonds traded in the last month carried a rating of two stars or below.  The blog post describes a AAA baseball team and the government agency that operates a minor league hockey arena as unable to service the debt issued to build new sports facilities.

An explosion in sports facility construction took place in the last 10 years.  Many of these bonds were issued to finance the construction of minor league facilities.   Consumer spending has declined during the “Great Recession,” and this decline in consumer spending appears to have hit some sectors of the professional sports market hard.  The possibility of default by borrowers in this market threatens play in existing leagues (a stadium in foreclosure may or may not be allowed to remain open for games) and increases the cost of constructing new facilities in the future.

Hat tip to Skip at the Sports Economist.


Man Utd Owner in Financial Trouble?

June 8, 2010

In the build up to the World Cup, soccer (football) news seems to be churning out of the fourth estate every minute.  The news which caught my eye today was this report from the BBC (linked through ESPN’s soccernet) indicating that the Glazer family, owners of Premier League club Manchester United and the National Football League’s (NFL) Tampa Bay Bucs.  The Glazer’s, who have taken quite a beating in England from Man Utd supporters were dealt another publicity nightmare today when it was found by the BBC that the Glazer’s are $1.6 billion in debt.  While it was known that the Glazer’s owed a great deal of money, this new figure is more than half a billion dollars greater than previously estimated figures.

There is indication in the BBC report and ESPN article that the Glazer’s are in trouble, but the Glazer’s have pointed out that Man Utd is worth $1.8 billion in the newest Forbes rankings, and that their total assets total over $2.3 billion.  It is notable that of the $1.6 billion debt, the largest portion of it is one billion dollars which is owed because of the Glazer’s $1.4 billion purchase of Manchester United in 2005 (currently they only owe $95 million on the Tampa Bay Bucs who are valued at $1.09 billion).  The Glazer’s continue to reiterate that they will not be selling Manchester United.  My feelings are that if someone offered enough money, they would possibly entertain an offer to sell the club.  Yet considering the gradual progress they have made in chipping away at the debt on Man Utd and the Tampa Bay Bucs, it is possible that the Glazer’s have bigger long term plans in regards to their professional sport franchises.

Some Premier League Finances Revealed

May 7, 2010

While the UK elections are the top news coming from the UK, there are two rather interesting notes about the finances of two football clubs who have been in trouble this season.  First, the Administrator for Portsmouth revealed the extent of the club’s debt, as well as the details of offers made to creditors, and accusations made by creditors that there was 30 million pounds of missing money.  It was pointed out that while this accusation was most likely false, the club is officially 139 million pounds in debt, and that some creditors were offered a mere 20p in the pound to settle the debts.  While charities, small businesses, and other football clubs who are owed money by Portsmouth will be repaid in full, it seems that many larger businesses as well as previous investors and owners of Portsmouth stand to lose millions of pounds from having been involved in the investing in the club.

In other news, West Ham co-owner David Sullivan has opened up to ESPN’s soccernet and claimed that West Ham was within days of going into administration earlier this year, and only an emergency influx of cash from Sullivan and another co-owner in the amount of 20 million pounds kept the club from going into administration.  Sullivan further noted that the club will need to raise another four million pounds this summer when they will not be playing any matches to remain financially stable.  Sullivan came out public with this information after several UK publications started questioning the financial situation of West Ham, partly as he felt the need to claim that some of the wages reported by the newspapers were not entirely true.

Most shocking of the wages: 83,000 pounds a week for Kieron Dyer, especially considering he has yet to play a full season since his transfer to West Ham.  In comparison, Manchester United’s Wayne Rooney, widely regarded one of the best in the game is said to make 90,000 pounds a week.

On a final note, Sullivan claimed that the club would continue to “trim the excess” during the coming summer months, but he still predicted that a Premier League club is bound to disappear from existence.

New UEFA Proposals for Interference in Soccer

August 28, 2009

UEFA has long been proposing measured clearly aimed at curbing the recent European prominence of English soccer clubs. Proposals limiting the number of overseas players and limiting foreign ownership have been mooted in the past, although thankfully both are unworkable given EU common market regulations. The latest proposal is that soccer clubs should not be allowed to be the beneficiaries of generous benefactors such as Roman Abramovich, Jack Walker or the Middle Eastern owners of Manchester City.

Michel Platini has generally been the source of these measures, and appears to be fairly well known for his anti-English sentiment – so much so that he felt obliged to defend himself recently on this count.

Platini notes that “It’s mainly the owners that asked us to do something – Roman Abramovich, (AC Milan’s) Silvio Berlusconi, (Inter Milan’s) Massimo Moratti. They do not want to fork out from their pockets any more.” Manchester United apparently also welcome the idea, although where they’d hide that £500m debt I’m not entirely sure. Of course the big teams welcome it – it would grant them protection from the likes of Manchester City and other upstarts threatening the established order. Italian clubs are bound to be onside given the precarious nature of their finances, and their poor performance in Europe in the last decade relative to their glorious 1990s.

Platini’s suggestion is that clubs can get outside funding to buy players, but that any debt must be repaid within two years. Otherwise clubs must buy players from revenues generated. Which of course means that clubs generating great revenues (those already successful) will continue to attract the best players, and the uncompetitive nature of European soccer leagues will persist.

My two-penneth on the matter is that squad sizes (rosters) should be limited in order to foster competition. Of course this introduces distortion into the market, like imposing some restriction on the inventory companies can hold, but it seems more likely to address the current dominance of top clubs in European soccer leagues.

Argentinian Soccer Halted by Debt

August 5, 2009

The start of the Argentinian soccer season has been delayed indefinitely because clubs in the top two divisions are unable to pay the wages of their players, and are saddled by huge debts, the BBC reports.

The article suggests that Argentinian clubs rely heavily on selling their best players to wealthy European clubs, but the recession appears to have reduced the transfer volume, placing Argentinian clubs in a difficult situation.

It seems like quite a poor business model to be reliant on one-off huge pay outs from outside in the form of transfer payments – but on the other hand, most soccer clubs are run badly not least because the probability of bail out is particularly high.

The strange thing though is that in Europe, the recession hardly seems to have reduced transfer activity: Real Madrid of Spain have just parted with another £30m for Xavi Alonso of Liverpool, to take their spending to over £200m for the summer, while Manchester City of England have similarly spent in excess of £100m all told, including around £25m on a certain Argentinian going by the name of Carlos Tevez. Sadly for Argentina, Tevez transferred just a couple of miles across town from neighbours Manchester United, and none of that money will make its way back to Argentina.

Perhaps though, apart from the mega rich clubs still splashing their money, the rest of the European footballing elite have tightened their purse strings, and scouting flights down to South America were one of the cut backs…