Case Study: Helping Sports and Entertainment Industry Organizations Cope with Distress

Members of our Restructuring Advisory team have worked with many clients in these types of organizations and have a keen understanding of specific issues that arise for clients in this industry. In addition to the two representative case studies below, you can also read some of our insights on what we expect to see as a result of the current disruption.

Case Study: Major League Baseball Franchise

Situation

• Despite posting a string of winning seasons and having a team that was competing for league championships, the organization was not posting profitable performance season after season.
• Ownership decided that they should undertake a comprehensive study of revenue shortfalls and opportunity.
• Although the team had a loyal fan base, it was not a large one, and its local television contract, for the organization’s area was undervalued.

Solution

• A complete analysis of sources of revenue and costs were examined.
• The analysis found that the facility the team played in was not aligned with changing consumer tastes, given the trend in Major League Baseball to building smaller, more intimate stadiums which were more inviting. This was determined to be the root cause of low attendance.
• The analysis also found that the local television contract, as it related to market size, was last in the league.
• There were other factors as well, but these two were at the root of the organization’s poor financial performance.

Result

• Ownership decided to pursue discussions with the county to discuss both their lease and the prospects of building a new stadium.
• Additionally, the club’s management was able to negotiate a richer television contract which eliminated a considerable percentage of the club’s losses.

Case Study: Major League Sports Franchise / Entertainment Company

Situation

• An arena entertainment group with ownership of a major league sports franchise and their minor league affiliate, as well as control over their home arena operations, was experiencing significant financial distress and insufficient liquidity.
• The arena group was pursuing various options for enhancing liquidity and sought an equity investment from a significant sponsorship partner.
• The sponsorship partner needed help evaluating the investment opportunity presented by the arena group.

Solution

• The engagement required working hand-in-hand with ownership and management to review the viability of the entertainment company.
• A complete assessment of the business was done, including analysis of salary cap issues, sponsorship opportunities, variable profits of non-sporting events, concession contract structuring, television contract parameters, league revenue sharing, union labor disputes, suites and premium seating programs, royalty agreements, merchandising opportunities, and attendance forecasting

Result

• At the end of the engagement, the client fully understood both the risks and the opportunities that the transaction presented and was able to make an informed assessment on the best path forward for their organization