Fitch Rates NFL Ventures' G-4 Notes 'A '; Affirms Outstanding; Outlook Stable
In addition, Fitch has affirmed the following ratings:
NFL Ventures, L.P
--\\$375 million senior notes (G-4 Stadium Finance Program) at 'A+'
NFL
--\\$500 million senior unsecured notes (G-3 Stadium Finance Program) at 'A+'.
Football Trust
--\\$2.4 billion senior secured notes at 'A'.
Football Funding LLC
--\\$1.5 billion parity senior secured term loan at 'A'.
The Rating Outlook is Stable.
The 'A+' and 'A' ratings reflect the NFL's position as the most popular professional sports league in the U.S. The NFL has a strong and highly regarded economic model, which includes sizable multi-year television contracts, significant revenue sharing among member clubs, a proven track record of conservative financial policies, and its current collective bargaining agreement (CBA) with its players union which includes a 'hard' salary cap. Strong forecasted league-managed revenues, primarily national television contracts, provide the NFL's G-3, G-4 and league-wide borrowing program debt with solid projected debt service coverage ratios and low leverage.
In addition, the 'A+' rating on the senior unsecured notes recognizes the league's assessment rights over the member clubs (supported by their revenue streams, including television revenues), adequate legal provisions and covenants, and ample reserve levels.
The 'A' rating on the secured revolving loan facility and notes reflects, in addition to the aforementioned league attributes, the mechanics of the lock-box account for the purposes of collecting national television revenues, which are the primary source of revenues that service the debt, prior to any distributions to individual franchises. Additionally, since each club receives an equal share of revenues, no franchise's share of the national television revenues is affected by its on-field performance. The 'A' rating also reflects the team-specific nature of the obligations and the lack of a corporate (joint and several) obligation of the NFL; however, Fitch notes the NFL's oversight and policy of supporting distressed franchises as a key mitigating factor.
KEY RATING DRIVERS
Strong Underlying League Economics and Governance: The NFL structure promotes financial stability and competitive balance through a high percentage of revenue sharing and supplemental revenue sharing. The NFL maintains a robust and stable domestic fan attendance and viewership base. The collective bargaining agreement (CBA) extends through the 2020 season and includes a 'hard salary' cap aiming to provide underlying team cost certainty. In addition to the per club debt limit and other financial policies, the league has demonstrated willingness to step in and aid 'distressed' franchises. The NFL product continues to be among the most highly coveted sports programming and content; however, the sports sector is inherently vulnerable to discretionary spending from individuals and corporations.
Long History of Television Contracts: League television contracts run through 2022 with FOX (Twenty-First Century Fox, Inc.; rated 'BBB+' with a Stable Outlook by Fitch), CBS (CBS Corporation rated 'BBB' with a Stable Outlook), and NBC (NBCUniversal rated 'A-' with a Stable Outlook), and through 2021 with ESPN (Disney; rated 'A' with a Stable Outlook). The NFL also has an agreement in place with DirecTV to broadcast 'out-of-market' games on Sunday through 2022. NFL Network broadcast 13 games prior to 2014, 16 games in the 2014 season and will broadcast 16 games this season.
Solid Legal Covenants: Key structural provisions ensure timely debt service payments. The G-3 and G-4 program is supported by the Commissioner's 'taxing' power on the member clubs (supported by their revenue streams), thereby providing 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 participating clubs.
Low per Club Debt Limits, Refinancing Risks: Fitch views the league's per club debt limit of \\$250 million (recently increased from \\$200 million) as a conservative policy for its member clubs given the level of national television revenues per team, estimated to be around \\$144 million in 2015. Debt service is supported by large contractual revenue streams from investment grade counterparties. The bullet maturities associated with the league-wide notes and bank renewals associated with the revolving facility expose clubs to potentially higher interest costs. Low club and league leverage coupled with television contracts through 2022 provide an important mitigant to financial market risks. Fitch notes the G-3/G-4 senior unsecured notes are fully amortizing.
Positive League Growth and Fan Initiatives: The league continues to positively promote the game domestically and internationally, where two games were played in 2013, three in 2014 and three are planned at Wembley Stadium for the 2015 season. Growth in key league level sponsorship and advertising contracts further support the strength for NFL related content. Furthermore, through the NFL's long history of stadium programs from the club seat premium visiting team share (VTS) waiver program to the G-3 and G-4 stadium programs, the NFL and/or its affiliates have funded a portion of stadium costs to develop numerous initiatives around the in-game fan experience.
Peers: The NFL's G-3 and G-4 program have limited direct comparisons given the structure of the transaction, commissioner's assessment rights and overall high debt service coverage and low leverage. The NFL's current and projected leverage under the league-wide borrowing program at approximately 1.74x (\\$250 million in league allowed team debt to \\$144 million in national television contracts) is lower than compared to MLB's Club Trust Securitization leverage and materially lower than the NBA's league-wide borrowing facility. The NFL's salary cap on player expenses has similar characteristics of the NHL but different than the NBA and MLB where player salaries have some restrictions but owners can elect to go above predetermined levels by paying a 'tax'.
RATING SENSITIVITIES
Negative:
Higher Concussion Related Costs: Increased direct costs to the NFL from players electing to opt-out of the concussion settlement.
Lower Media Renewals: A significant decline in national television contact rights fees, which given the current trend is unlikely, could negatively impact the financial profile and metrics of the facility.
Changes to Fan Interests: A substantial change in individual and corporate spending on NFL related content.
Increased Leverage: An increase in allowable club debt that results in materially higher leverage.
Positive:
Reduced Leverage with Concussion Settlement Certainty: Further reduction in leverage combined with further clarity on NFL costs under the concussion settlement.
SUMMARY OF CREDIT
The NFL Ventures G-4 Program, adopted in December 2011, is the third financial program and initiative designed to facilitate the member clubs' stadium projects. The \\$620 million offering are fixed rated notes schedule to mature through 2042. Principal amortisation is front loaded with the debt outstanding declining to under \\$200 million by 2025.
Qualifying projects can receive loans up to \\$200 million during the construction period with the amount determined based on a match of the member clubs' financial contribution to the project. Eight projects were approved under the G-4 Program and include new facility construction in San Francisco (opened in 2014 season), Minnesota (expected 2016 season), Atlanta (expected 2017 season) and major renovation projects at Carolina, Cleveland, Green Bay, Miami and Philadelphia.
The 2014 NFL season continued recent trends of strong viewership and attendance level. Throughout the 2014 season, more than 202 million television viewers watched NFL games. Super Bowl XLIX, played on February 1, 2015, achieved a 47.5 household rating, had a total audience of 161.3 million viewers and set a record as the most-watched show (based on average audience) on record with an average audience of 114.4 million viewers. Game day attendance was generally stable across NFL facilities.
These trends are further observed through Fitch's coverage and ratings associated with individual stadium financings. A number of new facilities that have recently opened or in construction have seen strong personal seat license (PSL) or stadium builder license (SBL) and strong premium seating product sales and sponsorship and advertising sales. Existing facilities and facilities undergoing renovation projects have also experienced stable renewals in premium seating products and sponsorship and advertising agreements.
In addition to the NFL's television contracts that have been renewed at very favourable rates over the past few years, the NFL has renewed or is in the process of renewing a number of league level sponsorship and advertising contracts. Multi-year agreements currently exist with Visa, Barclays, Gatorade, Anheuer-Busch, PepsiCo, Verizon and Microsoft in addition to others.
Fitch continues to monitor developments with respect to the settlement proposal related to the various concussion lawsuits brought by more than 5,000 retired football players against the NFL. On June 25, 2014, the NFL and counsel for the retired player plaintiffs announced a revised settlement agreement in the NFL concussion litigation pending in the U.S. District Court for the Eastern District of Pennsylvania. In the revised agreement the NFL's obligations under the monetary award fund will not be capped at any specified amount. This means that once the compensation program is established, funds will be available to any retired player who develops a qualifying neurocognitive condition.
The district court granted final approval of the revised settlement agreement on April 22, 2015 and May 8, 2015. Certain objectors have filed appeals to the Third Circuit Court of Appeals challenging final approval. The NFL is not obligated to fund the settlement until all appeals have been finally resolved. In addition, 175 former players have filed requests to opt out of the settlement, meaning that they are not bound by its terms and are free to pursue litigation of their own. As of June 3, 2015, 57 actions have been filed on behalf of the 126 opt out litigants.
The new settlement does not provide 100% cost certainty for the NFL to cover all costs. However, actuarial estimates from both parties support the \\$765 million settlement amount as sufficient to cover anticipated claims, which provides Fitch with some basis for potential costs. Nevertheless, Fitch notes that over the long-term costs could be higher.
The 'A+' 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 (predecessor to G-4 program). Proceeds from senior secured notes (Football Trust) and senior secured term loan (Football Funding) are used by certain member clubs for capital and other corporate purposes. Twenty-one clubs participate in the Football Trust borrowing program and 22 clubs participate in the senior secured credit facility. The NFL is an unincorporated association of 32 member teams and was originally founded in 1920 with 18 franchises.
SECURITY
The 'A+' rated NFL Ventures, L.P. senior notes are equally ratable with the NFL's outstanding 'A+' rated unsecured notes.
The 'A+' rated NFL unsecured notes and NFL Ventures, L.P. senior notes are a direct and general obligation of the NFL and NFL Ventures, L.P., respectively, and are backed by the commissioner's assessment rights over the member clubs (supported by their revenue streams). National revenues include the following:
--National television contracts;
--Portions of base ticket revenues that are pooled and distributed to the Member Clubs.
--Net revenues and royalty distributions from NFL Ventures, L.P. and its subsidiaries.
The subsidiaries include the following:
--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.,
--Any other NFL-affiliated entity.
The 'A' rated senior secured notes and parity senior secured credit facility are secured by each participating club's assets including its pro-rata share of national television contract revenues, membership franchise rights in the NFL and partnership interests in NFL Ventures, L.P.
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