NBA securing $175M for clubs
By DANIEL KAPLAN and JOHN LOMBARDO
Published February 16, 2009 : Page 01

The NBA is set to borrow $175 million Feb. 26, marking one of the first league financings since the implosion of the credit markets last fall.

The money, which will be available to 15 teams, supplements an existing $1.7 billion leaguewide credit facility that uses the NBA’s media contracts as collateral to secure loans for the clubs. The NBA surveyed its teams, and 15 responded they would like to tap into the new borrowing.

While the league said it is pleased to borrow in an extremely illiquid credit market, the deal came at a cost, with interest rates up to 8.27 percent, hammering home the notion that the era of cheap money in sports is over. The 15 teams can use the money for any purpose, but covering operating losses may be high on the list.

“In this economic environment, it’s tremendous that the league can place such a facility,” said Alex Martins, chief operating officer of the Orlando Magic, which plans to borrow from the new debt. “It certainly helps us bridge the time period between now and when we move into our new events center in 2010. We’ve been operating at a $15 [million] to $20 million [annual] loss over the past half-dozen years, so it helps us.”

New NBA Debt
Amount 	        Rate            Term
$100 million 	8.27 percent 	Seven years
$75 million 	7.45 percent 	Five years
Source: NBA

Each of the 15 teams can borrow a maximum of $11.66 million from the debt proceeds.

The private-placement deal was arranged by JPMorgan Chase and Bank of America. In a private placement, non-banking lenders such as pension funds and insurers extend the cash, commonly at fixed rates for five- to seven-year terms and at rates higher than what banks offer for floating-rate loans.

Harvey Benjamin, the NBA’s executive counsel for business and finance, said it’s important not to compare the rates with what the NBA had been paying before the credit market collapse — about 200 to 300 interest points less for similar debt, sources said — but rather, what borrowers of similar standing are paying in today’s environment. In that light, he said, the 8.27 percent the NBA will pay on $100 million of the debt, and the 7.45 percent on the remaining $75 million, is favorable.

“It shows how the NBA is viewed by the credit markets,” he said.

Rob Tilliss, a former JPMorgan Chase sports banker who runs his own sports boutique, Inner Circle Sports, agreed that given the market conditions, the NBA’s rates are hardly extreme.

“That is an outstanding execution,” he said.

The NBA was not looking to borrow at this time, Benjamin said, but JPMorgan and Bank of America came to the league several weeks ago to say there was an opportunity to do so. The league, after polling its teams and finding a need, agreed to the deal in part because of the lack of borrowing opportunities since the fall. Benjamin would not reveal which teams plan to borrow from the placement.

Tilliss said that over the last few weeks there has been a slight opening in the credit market for investment-grade borrowers like the NBA.

The NBA deal comes in the context of a changing landscape for the leaguewide credit facilities. Once cheap sources of loans, the banks that manage the loan pools have soured on them and have been unwilling to renew at the old terms. The NFL and MLB were both unable to renew their deals late last year and termed out. That means the debt automatically converted into a fixed-rate loan and triggered amortization and slightly higher rates.

Benjamin declined to say if the NBA would term out of its credit facility in May when some of it matures, but he conceded that the league is in discussions with its banks to develop alternatives.

Of the NBA’s $1.7 billion facility, $1 billion is from short-term loans that renew annually. This would be the segment that would term out if the league were to go in that direction. The remainder, like the pending deal, consists of private placements.

The new private placement is rated BBB-plus by Fitch Ratings, the NBA said.

Posted by JohnWallace44:

If nobody signs any big deals this offseason, then that will take the payrolls of these teams way down. Knicks are a great example of that.

I think the owners will self correct quickly. In the NFL, and MLB with bigger rosters and more long term deals, you wonder what will happen.

How does Detroit continue to support a terrible football team?

that will lead to a lockout when the current CBA expires in 2011.

Posted by crzymdups:

im pretty sure the market will be glacial this summer. i don't think we should worry too much about someone stealing dlee or nate from us. though, we should worry about ever being able to unload jefferies or curry - that's not going to happen.

Posted by Pharzeone:

LOL, the Knicks can afford to have a $21 million player stay home. What's a matter, Dolan told Stern no. Dolan got money to burn while most of the league is broke. Those owner meetings must be real fun.

Posted by djsunyc:

Posted by 4949:

Posted by Pharzeone:

LOL, the Knicks can afford to have a $21 million player stay home. What's a matter, Dolan told Stern no. Dolan got money to burn while most of the league is broke. Those owner meetings must be real fun.

Well, this is good for resigning Lee and Nate for four year, lower rate contracts. Nobody else is gonna give them huge contracts.

And **** stern. He didn't do a damn thing to help out the Knicks. He even ripped us on the Mobley loss.

lower rate contracts but the cap will be lower too...and then there'll be a strike.

Finally, let me share a juicy tip from a league source on the state of the salary cap. Basically, the situation will be worse than many people expect, and the luxury-tax level next season will be set even lower than what several teams are currently planning for. The implications will be huge as we head into next season.

Here's the more interesting part of what I was told: Next season's luxury tax might just be the tip of the iceberg. The salary cap (and thus the tax level) could drop massively in 2010; my source used the term "bloodbath."

This would have huge effects on the pursuit of big-game free agents, of course, but also on the luxury-tax level for that season … which could push many more teams over the line and lead to fire-sale-type trades.

All this would be a prelude to the labor negotiations for a new collective bargaining agreement in 2011. If money gets as tight as some project, things could get ugly.

Posted by djsunyc:

How a Lower Luxury Tax Could Kill 10 NBA Teams
Posted Feb 16th 2009 10:50AM by Tom Ziller (author feed)

On Sunday, we brought you a discussion of the coming deflation of the NBA's salary balloon. Revenues will likely decrease this season as several teams struggle to fill seats and sell the associated concessions and merchandise. While T.V. ratings have increased, the total gates seem to be off league-wide. Likewise, a handful of imploding (or slow-moving) arena projects have restricted bottom-line growth for some usually healthy clubs.

As such, the league's salary cap could very well decrease substantially next season. With it, the luxury tax threshold would be lowered. Unfortunately, a lot of teams already have a ton of salary doled out for 2009-10 and beyond. And if the line moves downward significantly, roughly 10 teams hoping to be under the tax could find themselves in a world of hurt.

You know how we do things: with pictures. Thanks to DraftExpress.com's salary database, we were able to lay out the current payroll structures for next year's NBA teams. Most pre-financial meltdown projections had the luxury tax around $72 million. There's no word how low it could go given the economic conditions; we'll guess $65 million for the sake of example.



Just on the surface, that decrease in the luxury tax threshold would put five teams not currently expected to be over the tax in harm's way. (In case you're not clear on why the tax is so harmful: teams must pay the league $1 for every dollar over the tax line they sit; this money is distributed to non-tax teams. By being one penny over the line, you lose about $3 million in pay-out cash right away ... plus that 100% tax penalty. It's brutal.)

But it's worse than that. Teams below the potential new tax line will probably sign free agents or draft picks. Philadelphia, for example, has no starter level point guard (except combo guard Lou Williams) signed for 2010. Portland and Detroit are expected to play in the market; already thin Atlanta has to deal with restricted free agents Marvin Williams and Josh Childress.

But perhaps this is all more troublesome for teams like Washington, Phoenix, Utah and Denver -- teams already expected to be over the tax. With the previously anticipated tax line, the Wizards (second worst team in the league) needed to cut $4-5 million off their 2009-10 payroll to slip under the tax threshold. Not necessarily easy, but not a pending apocolypse. If the threshold falls to $65 million, Washington suddenly has $11 million in salary to cut, and one year to do so.

And the team will win less than 20 games this season.

Phoenix is trying desperately to exile a 26-year-old all-NBA first-teamer to get under the line. Think about that. This isn't solely a product of Robert Sarver's fidgety ways, or some sort of bad juju in the Valley of the Sun. Multiple teams might be doing this by next February. San Antonio cannot pay the tax -- let alone a few million in tax. Could Tony Parker or an expiring Manu Ginobili hit the fire sale trade market? Denver has a ton of salary tied up in four players, one of which (Kenyon Martin) you couldn't sell for a second-round draft pick in this climate. Unless Stan Kroenke can take a big hit, the Nuggets may very well be forced to pawn off Nene, 'Melo or B-b-b-billups.

We're waiting for New Orleans to break up a team that came a game away from winning the No. 1 seed in the West last season because of the 2009-10 luxury tax, and that's incredibly sad. Multiple that by 10, and that's what we could very well get over the next season. If you hated all the Summer of '10 manuvering because the trades focuses on cap space instead of talent, imagine how you'll feel when a third of the league is making moves not for talent, not for cap space ... but to save their owners a few million bucks.

This will be ugly, friends.