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Sports Franchises' Credit Profiles Likely To Remain Relatively Stable Even as the Global Economy Faces a Recession

Rising inflation, gas prices, and shelter costs are dramatically increasing households' fixed costs and, in turn, reducing funds available for discretionary spending. Against this backdrop, central banks are increasing policy interest rates to control inflationary headwinds. The prognosis for discretionary consumer spending remains challenging, and the global economy could be headed for a recession. While the reverberations from tighter monetary policy and increased household fixed costs would be widespread in the event of a recession, we expect consumer demand for sports-related recreation to remain stronger than demand for other discretionary products and services; accordingly, our general expectation is that sports franchises' credit profiles are in a strong position to weather the storm caused by a recessionary environment. The contractual revenue streams from their broadcasting and sponsorship segments and the relatively stable attendance and ticket price trends during the Global Financial Crisis provide us comfort that revenues will be pressured only modestly. Furthermore, because the bulk of costs (in the form of player salaries) are linked to revenues, we expect that margins will remain relatively consistent. We expect that most sports franchises will be able to absorb any volatility in the context of their current rating categories.

This commentary is the first in a two-part series that will assess the impact of potential recessionary conditions and inflationary pressures on the sports finance sector's credit profile. This first commentary focuses on sports franchises and the second will focus on stadium financings.