The Federal Reserve last week raised interest rates 0.5%, the the seventh increase this year, and forecast that 2023 will bring further rate hikes and growing unemployment.
Yet there are generally few concerns among experts that those negative macro trends have begun to or will likely have a significant effect on the sports industry as it heads into 2023. Last week, Fitch Ratings issued its outlook for next year, forecasting a “mild recession” but arguing that teams, leagues and facilities will broadly maintain stable financial performance.
Henry Flynn, Fitch Ratings sports sector director, said he doesn’t anticipate a “severe effect,” noting only moderate concerns for potential increases in labor and stadium operating costs, declines in consumer spending or a softening of the sponsorship market. “We always monitor the renewal rates for our credits. If the regular sponsorship renewals are coming in at a decline, that could be a concern,” said Flynn. “But at the end of the day, a big driver is really media for the financial stability of the leagues. As long as your media is stable and locked in for a long term, then you’ll have financially healthy leagues.”
Future home of Intuit Dome: Labor and stadium costs are among those that could see an impact from the increase in interest rates.getty images
Steve Vogel, the managing director of U.S. Bank’s sports finance group, expects some operational challenges for teams but not a slowdown in sports investing. “Teams are going to be grinding out their local revenue dollars as consumers and corporates tighten their belts a bit,” said Vogel. “But I don’t think you’re going to see equity investors or debt investors shy away, by any stretch. I think you’re going to see a ton of capital projects moving forward; stadiums, arenas, ancillary real estate. The fact that rates are higher is just going to be an embedded cost in that.”
Vogel added that facility projects tend to address a specific need or provide long-term value generation, leading owners to generally look beyond near-term financial concerns like the rising cost of capital. As for existing debt, Flynn said few properties are exposed since most of the borrowing Fitch tracks is fixed-rate debt.
And there has been little indication that an economic slowdown will drive down values for sports or sports-related assets, which have historically proven to be resilient during recessionary periods. Sources were also quick to note that if the industry could weather the storm of recent years, then there should be little challenge navigating a moderate economic downturn.
“COVID was the worst thing that’s happened to the sports industry in modern times, and you didn’t see a rush for outside investment on a needed basis,” said Vogel. “I think ’23 is going to be kind of a soft landing, but ’20 and ’21 was sort of that litmus test for, ‘In a bad situation, what do the leagues need to do?’ And for the most part, they were able to handle everything organically.”
Chris Smith writes a monthly column on finance news and trends. He can be reached at crsmith@sportsbusinessjournal.com or on Twitter @ChrisSmith813.
