Dec 6 - Fitch believes recent positive tones around meetings between the
National Hockey League (NHL) and the NHL Players' Association create some
optimism that the current hockey season may be salvaged. However, should the
lockout go on and result in a significantly shortened (or canceled) season, we
would expect substantial consequences for the NHL's brand and some arenas.
In our view, cancellation would affect some arenas more directly than others.
Some have heightened exposure to their NHL franchise if it produces a
significant share of arena generated revenues. Others have more financial
flexibility. Despite the already canceled games, arenas like the Pepsi Center,
Staples Center, and some private arenas that also have a National Basketball
Association franchise as an anchor tenant or host a significant number of other
events are more likely to retain revenue certainty to support operations.
Over the near term, most arenas are expected to maintain a significant level of
contractually obligated revenue in the form of multiyear suites and club seats,
sponsorship and advertising, and other contracts. However, renewals of these
revenue agreements may be adversely affected by a canceled season. The pressure
on renewal rates stemming from local economic conditions and, in some cases,
recent on-ice performance could be exacerbated by labor uncertainty.
Over the long term, recovery from a canceled season may challenge many entities.
The NHL's brand will likely be negatively affected, resulting in difficult
renewals on the league's television contracts and distribution. Revenues from
ticket sales and sponsorships would also likely slump, as fans and companies
become disillusioned by the second season cancellation in 10 years.
The NHL's 2004-2005 season was officially canceled on Feb 16, 2005. Revenues
returned the next season, in part, supported by a strong economy. With the
current financial backdrop, such a strong and prompt resumption of revenue could
be difficult for many arenas, franchises, and the NHL.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market
commentary page. The original article, which may include hyperlinks to companies
and current ratings, can be accessed at www.fitchratings.com. All opinions
expressed are those of Fitch Ratings.