Home -> Law Blog Directory -> Media & Entertainment Law Blogs -> Sports Biz

Media & Entertainment Law

: Sports Biz

Credit Crisis Hits NFL

By Mark

The auction rate bond crisis now sweeping through the municipal bond markets has stuck the NFL particularly hard, although it has also taken a toll on stadiums in baseball. At least five states and cities -- Louisiana, Indiana, New Jersey, Washington, D.C. and Cleveland -- have used tax-exempt auction-rate bonds to host teams in the NFL, NBA and MLB since 2005. Now, as a result of the turmoil in the municipal bond markets, the interest rates on those bonds is anywhere from triple to five times what it was six months ago.

The average fixed rate municipal bond yielded 4.28 percent over the last 12 months. With the collapse of the auction rate market, the $238 million in bonds sold by Louisiana to finance the reconstruction of the Superdome lacked buyers and, as a result, reverted to a default of 12 percent.

Similarly, rates on $123.8 million of bonds sold to help finance the new Giants and Jets stadium in New Jersey were yielding in a range between 11.5% to 22% as a result of at least one failed auction in March. Bonds for Lucas Oil Stadium in Indianapolis suffered a similar fate, jumping in February from 3.5% to 15%. In Cleveland, rates on over $100 million in bonds sold to finance Browns Stadium jumped to 12% from less than 4% in March.

As a result, state and local budgets will come under increasing strain as debt service payments explode. In most cases, the additional debt service will have to come out of taxpayer pockets as the lease to the tenant franchise call for fixed payments and stick the governments with the full burden of the additional debt service. Depending on how long this crisis lasts, essential services may have to be cut back, pointing once again to the folly of committing too many taxpayer resources to the construction of playground for super rich sports team owners who can well afford the stadiums on their own.

Full post as published by Sports Biz on March 30, 2008 (boomark / email).