Fitch Affirms National Football League Ratings; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the following ratings:

NFL Ventures, L.P

--$995 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

--$2.35 billion senior secured notes at 'A'.

Football Funding LLC

--$1.56 billion senior secured term loan at 'A'.

The Rating Outlook is Stable.

RATING RATIONALE

The 'A+' and 'A' ratings reflect the NFL's position as the most popular professional sports league in the U.S., the NFL's 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 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 further reflects 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 rating 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 through supplemental revenue sharing. The NFL maintains a robust and stable domestic fan attendance and viewership base. The 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), CBS (CBS Corporation rated 'BBB' with a Stable Outlook), and NBC (NBC Universal 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, 16 games each of the 2014 and 2015 seasons and will broadcast 18 games this season.

Solid Legal Covenants and Structural Protections: Key structural provisions ensure timely debt service payments. The borrowing facility and notes benefit from the league account that collects national television contracts and services debt prior to distributions to participating clubs. Additional indebtedness tests and covenants are viewed as adequate at the rating level.

Low Per Club Debt Limits, Refinancing Risks: Fitch views the league's per club debt limit of $250 million as a conservative policy for its member clubs given the level of national television revenues per team, of approximately $159 million in 2016. 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.

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, three in 2015 and four are planned for the 2016 season (three in the UK and one in Mexico). 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 development costs including numerous initiatives around the in-game fan experience.

Peers: The NFL's current and projected leverage under the league-wide borrowing program at approximately 1.57x ($250 million in league allowed team debt to $159 million in national television contracts in 2016) 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, which Fitch views as remote at this point.

Lower Media Renewals: A significant decline in national television contract 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: A material reduction in leverage combined with near-to-medium term cost certainty under the concussion settlement.

SUMMARY OF CREDIT

The 2015-2016 NFL season continued recent trends of strong viewership and attendance level culminating with Super Bowl 50 on Feb. 7 being the most viewed television show of all-time (viewers who watched at least six minutes of the telecast). Game day attendance was generally stable across NFL facilities with some facilities experiencing lower vacancy rates where on field performance was below average. 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 of premium seating products and sponsorship and advertising agreements.

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. In May 2015, the settlement was approved by the district court. A remaining, last option, is for the objectors to appeal to the Supreme Court (by Aug. 30). A decision by the Supreme Court as to whether it will take the case on appeal is expected in the fall. A very low percentage of 'opt outs' from the proposed settlement still have the option to file claims. If there is no appeal to Supreme Court, funding under the terms of the settlement will commence.

The initial funding estimate is approximately $305 million and the NFL retains a few options for funding the initial requirement including the use of excess funds in the revenue sharing account, currently around $150 million. Franchises will share the burden individually for the remaining initial funding level. Going forward, annual funding of the settlement agreement is expected to be around $1 million-$2 million per year per franchise for 10 years followed by reassessment from the actuarial to assess future funding levels, as outlined in the agreement.

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.

In addition to the NFL's television contracts that were renewed in 2011 at very favorable rates, the NFL renewed the Thursday Night Football (TNF) television package. The new agreement will be for the 2016 and 2017 season and will be a 'tri-cast' with games presented on NBC/CBS (games divided), the NFL Network and streamed on Twitter. The extension of the TNF package is further evidence of continued demand for NFL content and with the added addition of the Twitter relationship, the acknowledgment that live streaming sports content is becoming a key focus, given the demand for mobile access.

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 the 'A' 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-two 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 digital 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.

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

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362

Rating Criteria for Infrastructure and Project Finance (pub. 28 Sep 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=870967

Rating Criteria for U.S. Sports Facilities, Leagues, and Teams (pub. 09 Aug 2012)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685897

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1006124

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1006124

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160615006591/en/

Fitch Ratings
Primary Analyst
Chad Lewis
Senior Director
+1-212-908-0886
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Scott Zuchorski
Senior Director
+1-212-908-0659
or
Committee Chairperson
Yvette Dennis
Senior Director
+1-212-908-0668
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
[email protected]

Source: Fitch Ratings

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