Even spanking new professional football stadiums have lost some of their cash flow potential and stability, according to a conference call held by Fitch Ratings last week.

Some of the newest stadiums are sporting state of the art seating, field technology that keeps snow off of the field, and grass engineered to reduce rain flow during downpours. But even heated seats and fresh fried clams can't guarantee revenue streams, Fitch analysts said.

Yet stadiums are still popping up all over the country and a burden of the financing has been absorbed by the asset-backed community, mostly in CP conduits. The problem, said Fitch, is that many of these assets are underperforming, due in large to the weak economy.

Professional sports franchises are, by and large, still strong, as the individual franchises must operate within conservative guidelines set by the league or governing association. In most cases there is some sort of model discouraging individual franchise owners from making reckless decisions and acquiring too much debt. Some leagues also keep expenses under control through measures such as salary caps.

Smells like teen spirit

According to Fitch, the heyday for sports franchises of the early 1990s in gone. Just a few years back, a new stadium practically guaranteed a jackpot to the franchise. But the ever-sluggish economy and less willingness on the part of fans - both corporate and consumer - to pay for high-priced extras such as club seats or luxury boxes has taken a bite out of cash flows in the new stadiums.

Franchises opening new sport facilities in this environment are probably not building them for venture, but out of necessity, as they can no longer expect to instantly multiply their earnings.

Last year, three new professional football stadiums opened. The New England Patriots, which were the 2001 Super Bowl champs, began playing in Gillette Stadium. CMGI, a Massachusetts-based technology company, had owned the naming rights until its business faltered and it had to release its rights to another firm before the first game of the year.

The Seahawks franchise in Seattle and the Texans, a new franchise based in Houston, also opened new stadiums for the 2002-2003 season.

"The big boom associated with new construction is gone," said Daniel C. Champeau, a managing director at Fitch. "But I want to stress that while this call is somewhat negative, the industries still have strength, including the fact that expenses are in some ways fixed, as in player costs."

The evolution of sports, from local entertainment to big business, has driven billions of debt-financed sports projects in the U.S. municipal and project finance sectors over the past decade.

Since 1990, Fitch has assigned 38 separate public or private credit ratings representing approximately $6.0 billion in construction and refinancing activity. These 38 ratings comprise the home court, ice and field facilities of 48 franchises in the National Football League (NFL), Major League Baseball (MLB), the National Basketball Association (NBA) and the National Hockey League (NHL), some of which share the same facilities. Of this $6 billion, $3.5 billion came from 23 tax-backed stadium financings, while approximately $2.5 billion represented 15 stand-alone project financing or asset-backed arena financings. Sport facility ratings are largely in the single-A to double-A spectrum for tax-supported municipal bonds, and double-B to triple-B for project finance revenue bonds.

Copyright 2003 Thomson Media Inc. All Rights Reserved.

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