What’s in a Name? Evaluating Brand Strength in a Sports Franchise’s Credit Rating

Sports franchises are increasing their revenues rapidly, driven by rising broadcasting contracts, sponsorships, ticket prices and merchandising. To fund further investment, teams are issuing debt within the franchise, in special-purpose entities at the stadium level or by securitizing broadcasting rights. Regardless of where debt is issued, in order to evaluate credit risk, DBRS Limited (DBRS Morningstar) forms a view on a franchise’s business risk by analyzing the magnitude and variance of revenues, earnings and cash flows as well as the slope of returns on invested capital.