Fitch Rates NFL's Football Trust Notes 'A'; Outlook Stable

NEW YORK--()--Fitch Ratings has assigned an 'A' rating to the National Football League's $106.1 million senior secured notes due 2024 (add-on) issued through Football Trust. The Rating Outlook is Stable.

The 'A' ratings reflect the NFL's position as the most popular professional sports league in the U.S. The NFL has a 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.

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 collective bargaining agreement (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 by Fitch), CBS (CBS Corporation rated 'BBB' with a Stable Outlook), and NBC (NBCUniversal 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 13 games prior to 2014, 16 games in the 2014 season and will broadcast 16 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, estimated to be around $144 million in 2015. 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 and three are planned at Wembley Stadium for the 2015 season. 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 1.74x ($250 million in league allowed team debt to $144 million in national television contracts) 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.

Lower Media Renewals: A significant decline in national television contact 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 further clarity on NFL costs under the concussion settlement.

SUMMARY OF CREDIT

The senior secured notes issued under Football Trust are refinancing outstanding notes issued by Football Trust.

For additional information, please see 'Fitch Rates NFL Ventures' G-4 Notes 'A+', Affirms Outstanding; Stable Outlook' dated June 26, 2015 available at www.fitchratings.com.

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 on 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

Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=991677

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

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Contacts

Fitch Ratings
Primary Analyst:
Chad Lewis, +1-212-908-0886
Senior Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst:
Scott Zuchorski, +1-212-908-0659
Senior Director
or
Committee Chairperson:
Seth Lehman, +1-212-908-0755
Senior Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
New York
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Chad Lewis, +1-212-908-0886
Senior Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst:
Scott Zuchorski, +1-212-908-0659
Senior Director
or
Committee Chairperson:
Seth Lehman, +1-212-908-0755
Senior Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
New York
sandro.scenga@fitchratings.com