Fitch: NBA's TV Renewal Highlights League Strength & Demand for Sports Content

NEW YORK--()--Recently announced TV partnerships will help bring down leverage and strengthen the credit profile of the National Basketball Association (NBA), according to Fitch Ratings.

On Oct. 6, the NBA announced expanded partnerships with both Turner Broadcasting System, Inc. and the Walt Disney Company. Under the new nine-year television rights agreements, ABC and ESPN (Disney rated 'A' with a Stable Outlook) and TNT (Turner subsidiary of Time Warner rated 'BBB+' with a Stable Outlook) will televise NBA games beginning with the 2016-17 season running through the 2024-25 season.

The new contract represents a roughly 3x increase in average annual rights fees inclusive of payments made to support NBA marketing initiatives for WNBA and the NBA Development League. The average annual rights fees associated with the NBA alone will increase to approximately $2.5 billion from $897 million annually over the current eight-year deal term.

Fitch had expected a sizeable increase given the current sports media content landscape, the NBA's strong and growing television viewership, robust game-day attendance and capacity levels and increasing international appeal.

Leverage under the NBA's facility declined to approximately 4.0x in 2013 from 4.5x in 2008. Currently, the NBA permits participating teams in the facilities to borrow up to $125 million. The new television contracts will significantly reduce leverage under the current per team borrowing levels. In 2008, the NBA elected to increase the per team borrowing levels to $125 million from $100 when the last round of national broadcast contracts were renewed.

On Oct. 1, the National Football League (NFL) announced a multi-year extension and expansion of their DirecTV relationship to carry NFL Sunday Ticket and its package of every Sunday afternoon out-of-market games. In 2013, the National Hockey League (NHL) signed a 12-year, $5.3 billion (Canadian) television rights deal representing the largest media rights deal in NHL history and a substantial increase from the prior contract. In 2012 Major League Baseball (MLB) extended their television contracts for seven years at a 100% increase over the prior contract.

Sports television content continues to be highly coveted by broadcast partners given the demonstrated viewership history, real-time viewing (sports content is typically not DVR'd like other content) and key demographic reach (sports content hits the key 18-45 male viewer that is not captured in many other areas). Additionally, sponsorship and advertising partners see the appeal and have a history of supporting the sports related content.

Mobile devices have an increasing role in how sports content is ultimately delivered. As such, Fitch views favorably the inclusion of various platforms associated with ESPN and Turner Sports. Under the agreement, a framework has been created to allow ESPN enhanced digital rights to provide NBA content for multiple ESPN platforms, including ESPN.com and WatchESPN. The parties have also established a framework for ESPN and the NBA to negotiate the launch of a new over-the-top offering in which the league would receive an equity interest. Fitch will monitor the details for the new offering as it evolves.

Under a new deal with the WNBA, games will continue to be televised on ABC and ESPN/ESPN2 through the 2025 season. ESPN also will have enhanced in-progress highlight rights for the WNBA on digital and linear platforms. Beginning with the 2016-17 season, for the first time, at least 20 NBA Development League games and NBA Summer League games will be seen on the ESPN television networks.

Turner Sports will have enhanced content/digital rights to NBA content for multiple TNT platforms including Bleacher Report; interactive online elements such as selected camera angles, statistic feeds and video to complement TNT's telecasts; and broadband and other content for digital platforms, including highlights and studio shows.

Fitch currently maintains a 'BBB+' rating and Stable Outlook for the NBA's approximately $757 million league-wide revolving facility (privately placed through its affiliate Basketball Funding, LLC) and $1.6 billion of the NBA's senior notes (various issues due through 2024) (privately placed through its affiliate Hardwood Funding, LLC).

Fitch will closely monitor the NBA's per team permitted borrowing plans. Should the NBA permit an incremental increase that materially reduces overall leverage, positive ratings migration may be warranted. To the extent that the NBA elects to increase the per team borrowing level in a manner that produces leverage ratios consistent with historical levels, Fitch will likely keep the 'BBB+' rating as is.

Additional information is available at 'www.fitchratings.com'.

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Contacts

Fitch Ratings
Chad Lewis, +1-212-908-0886
Senior Director
Fitch Ratings, Inc.
33 Whitehall Street, New York, NY 10004
or
Scott Zuchorski, +1-212-908-0659
Senior Director
or
Charles Askew, +1-212-908-0664
Associate Director
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Chad Lewis, +1-212-908-0886
Senior Director
Fitch Ratings, Inc.
33 Whitehall Street, New York, NY 10004
or
Scott Zuchorski, +1-212-908-0659
Senior Director
or
Charles Askew, +1-212-908-0664
Associate Director
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com