May 23 - Fitch Ratings has affirmed the following ratings for the National
Football League (NFL) and affiliates:
$1.1 billion senior unsecured notes at 'A+' (G-3 Stadium Finance Program).
$2.1 billion senior secured notes at 'A'.
Football Funding LLC
$600 million parity senior secured term loan at 'A'.
The Rating Outlook is Stable.
KEY RATING DRIVERS
Strong Underlying League Economics: Debt Service supported by large contractual
revenue streams from investment grade counterparties and a new 10-year
collective bargaining agreement (CBA). The CBA includes a 'hard salary' cap
aiming to provide underlying team cost certainty. The NFL structure promotes
financial stability and competitive balance through a high percentage of revenue
sharing and supplemental revenue sharing. Furthermore, the NFL's strength is
evidenced by the popularity of the sport, which maintains a robust and stable
domestic fan attendance and viewership base.
League Oversight and Governance: League's demonstrated willingness to step in
and aid 'distressed' franchises. Fitch views overall debt limit as a
conservative debt policy for its member clubs despite the league's increase to
$200 million from $150 million in allowable club debt.
Solid Legal Covenants: Structural provisions ensure timely debt service. The G-3
program is the Commissioner's 'taxing' power on all league revenues which
provides a diverse pledge. The borrowing facility and notes benefit from the
league account that collects national television contracts and services debt
prior to distributions to clubs.
Long History of Television Contracts: Renewed television contracts run through
2022 with FOX Broadcasting Company (News Corp.; rated 'BBB' with a Stable
Outlook by Fitch), CBS (rated 'BBB' with a Stable Outlook) and NBC (rated 'BBB'
with a Stable Outlook) and through 2021 with ESPN (Disney; rated 'A' with a
Stable Outlook). The NFL also has a long-term agreement in place with DirecTV
(DIRECTV Holdings, LLC rated 'BBB-' with a Stable Outlook) to broadcast
'out-of-market' games on Sunday. The NFL Network has broadcast eight games
annually over the past few seasons and will broadcast 13 games this season.
Refinancing Risks Expose Teams to Potentially Higher Costs: The bullet
maturities associated with the notes and bank renewals associated with the
revolving facility expose clubs to potentially higher interest costs.
Competition from Other Sports and Entertainment: The NFL continues to be some of
the most highly coveted sports programming and content. However, there is
inherent vulnerability of sports to discretionary spending from individuals and
corporations on tickets, luxury suites and sponsorships and advertising.
WHAT COULD TRIGGER A RATING ACTION:
A significant decline in fan or corporate interest and support for NFL related
Further increases to the league imposed debt limit that result in higher
leverage or loan-to-value ratios inconsistent with historical levels and the
current rating level.
The 'A+' rated unsecured notes are a direct and general obligation of the NFL
and are backed by the commissioner's assessment rights over the league's source
revenues. This includes the following:
--National television contracts;
--Net revenues and royalty distributions from NFL Ventures, L.P. and its
The subsidiaries include:
--NFL Enterprises LLC which oversees satellite broadcasting, Internet, NFL
Network and other new media ventures;
--NFL Productions LLC, which produces film and video programming and administers
related licensing activities;
--NFL Properties LLC which licenses the League's and Member Clubs' names,
nicknames, logos, etc., and any other NFL-affiliated for-profit entity; and
--Portions of base ticket revenues that are pooled and distributed to the Member
The 'A' rated secured senior secured notes and senior secured loan are secured
by each participating club's pro-rata share of national television contract
revenues, membership franchise rights in the NFL, and partnership interests in
NFL Ventures, L.P.
On May 22, NFL owners voted to increase the debt limit per club to $200 million
from $150 million. Fitch has cited potential increases in club debt levels as a
risk to the rating in the past. That said, the increase in the club debt level
is mitigated by robust increases in the recently extended media contracts,
tremendous growth in team valuations since the mid 1990's, and continued prudent
financial management and oversight by the NFL.
The NFL's national broadcast television contracts with CBS, Fox and, NBC extend
through the 2022 season. The NFL's cable contract with ESPN extends through the
2021 season. The contracts from 2014- 2021 are valued, on average, at $4.99
billion annually and represent a significant increase from prior contracts. This
relates to an increase in average rights fees during the 2014-2021 to $155.9
million from $99.6 million per club during the 2012-13 season.
The new agreements include a number of expanded features including the ability
to move games (from a time perspective and across AFC/NFC packages). The
increased rights fees clearly signal the strong continued demand for NFL
broadcasts and non-game content. In 2009, the NFL extended the
subscription-based DirecTV contract through 2014 to broadcast the out-of-market
television package 'NFL Sunday Ticket'. Furthermore, the NFL Network holds the
right to broadcast up to 18 games.
The strong growth in franchise valuations driven by the league's economic
framework and media contract growth is viewed positively. Fitch believes the
average franchise sale price is between $800 million - $1 billion, which results
in a conservative loan-to-value ratio of approximately 4:1-5:1. This modest
loan-to-value ratio helps to support a favorable credit environment for the
league and its clubs.
The 10-year CBA signed in 2011 continues a number of the economic and
competitive fundamentals from prior agreements. This includes the 'hard' salary
cap and free agency structures, key rating drivers for the NFL and NFL facility
ratings. The 10-year agreement is also viewed favorably as it eliminates any
labor instability for the next 10 seasons.
Fitch is currently monitoring the concussion epidemic facing a number of the
league's retired players. In the short term, there are currently a number of
pending lawsuits against the NFL which could award damages to retired players.
The timing and potential liability is currently unknown. To the extent damages
are awarded, Fitch will monitor the financial impacts, if any, to the NFL.
Longer term risks associated with concussions could potentially impact both the
quality of play as well as fan and corporate support. In Fitch's opinion, it is
far too early to measure any potential financial impact at this time.
Fitch importantly notes a number of recent changes implemented by the NFL's
competition committee to further protect players. A few of these changes include
moving kick-offs to the 35-yard line to limit the number of injuries from what
has historically been a high-injury element of the game. Other changes include
the elimination of preseason two-a-day practices and reduced padded workouts to
yesterday's recommendation by owners to require players to wear certain leg pads
(currently remains under discussion). Additionally, new increased game-day
medical staff and examination procedures during NFL games are aimed at
preventing increased serious injuries.
Furthermore, the new CBA includes $55 million including $22 million to
healthcare or other benefits for retired players as determined by the NFLPA; $11
million to medical research agreed to by the NFL and NFLPA, and $22 million to
charities as determined by the NFL. In Fitch's opinion, continued oversight to
protect current players while maintaining the integrity of the game and ensuring
retired players are provided long-term benefits are key underlying fundamentals
towards preserving the longevity and support for the game.
Despite positive television renewals, some franchises face challenges with
certain stadium related seating products such as luxury suites and club seats.
Some renewal pressure may be attributable to last summer's work stoppage prior
to the start of the season, typically the period for renewals to take place.
Other lower renewal rates may be due to local and regional economic conditions
or on-field performance.
Fitch is closely watching a number of NFL facilities as certain revenue
generating agreements expire. Historical price increases in these products will
likely face challenges, and in some circumstances declines in revenues or
increased suite vacancies. Potential lower renewal levels of key revenues at the
individual club level, should economic growth remain limited, could financially
constrain member clubs. Importantly, note holders in the NFL transaction are
mostly insulated from team risks given the pledge of national television
contracts prior to disbursements to the clubs.
The senior unsecured notes were used by the NFL to provide additional private
funding for the construction of new football stadiums through support of the
NFL's G-3 Stadium Finance Program. Fitch notes that there will likely be
additional league level funding for the G-4 program to fund a portion of the
stadium development costs for club's currently pursuing a new facility. The
secured term notes and secured loan have been used by participating NFL
franchises for general corporate purposes and to provide working capital. The
NFL is a not-for-profit unincorporated association of 32 member teams and was
originally founded in 1920 with 18 franchises.
Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
Applicable Criteria & Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (Aug. 16, 2011);
--'Rating Criteria for U.S. Sports Facilities' (Aug. 15, 2011).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for U.S. Sports Facilities