eBusiness Weekly
Last year was tough for the NBA. The COVID-19 pandemic halted the season in mid-March, resulting in a 16-week league-wide shutdown. Adam Silver and his team set up a bubble in Orlando to fulfill TV broadcast obligations, but their financial results were still not immune to the impact of COVID-19.
Over 170 regular-season games were canceled, not a single t-shirt, soft drink, beer, or hot dog was sold throughout the playoffs, and the Orlando bubble alone cost the league nearly US$200 million to operate.
In total, the NBA missed revenue projections by about US$1.5 billion last year, returning to levels last seen in 2016-2017.
NBA Annual Revenue
2016-17: US$7.37 billion
2017-18: US$8.01 billion
2018-19: US$8.76 billion
2019-20: US$7.92 billion
The result? NBA teams are now taking on an additional US$193.2 million of debt.
According to Sportico, the NBA sold $193.2 million in senior secured notes earlier this week through four separate, uneven tranches of debt — US$60 million, US$93.5 million, US$20.8 million, and US$18.9 million.
It’s believed that the four separate tranches represent amounts being taken by four individual franchises, but given team names aren’t disclosed, that isn’t certain.
Here’s how it works: The NBA uses a subsidiary called “Hardwood Funding LLC” to issue the debt, backed by billions of dollars in national media revenues. So, for example, before funds are distributed to individual teams in the NBA’s revenue-sharing plan, the funds must first flow through to meet debt obligations.
Teams are allowed to take debt advances up to US$275 million, and with this issuance, the NBA’s total debt level has now jumped from US$4,5 billion in 2019 to US$6,7 billion today.
Even more interesting? The NBA isn’t the only major US professional sports league that added billions of dollars of debt last year.
Total Debt Levels By League
NFL Total Debt: US$10 billion
MLB Total Debt: US$8.3 billion
NBA Total Debt: US$6.7 billion
Although, this doesn’t tell the whole story. The NFL and MLB have much larger media contracts backing the debt, so the outcome is much different on a debt-to-annual TV revenue basis.
NFL Debt-To-Annual Revenue: About 1.5x
MLB Debt-To-Annual Revenue: About 2x
NBA Debt-To-Annual Revenue: About 3x
To be fair, these debt levels are quite small in comparison. It doesn’t appear there is anything to be alarmed about, especially when you consider that arenas are already packed for the playoffs and will continue to be next season.
Not to mention the average NBA team now makes a profit of around US$70 million annually, up from just US$6 million in 2011. Nonetheless, it’s still certainly interesting. — Huddle Up (Online Newsletter)
