The Memphis Redbirds> Triple-A baseball team is chasing a playoff title and could repeat as champions of the 16-team Pacific Coast League.
However, the tax-free bonds the nonprofit ownership took out to buy the franchise, build the 14,200-seat AutoZone Park, and support inner-city sports programs are getting closer to striking out.
Revenues have slipped, and the annual $5 million in debt payments has proved too great a burden, says John Pontius, treasurer of the only nonprofit group to own a Triple-A baseball team.
Last week, bond trustee U.S. National Bank filed a regulatory notice indicating bondholders would receive a partial payment on a portion of the Memphis Redbirds Baseball Foundation's $50 million in muni bond debt.
"We struggled for the first 10 years to stay current with our debt," Pontius says. "But basically the model was broken, and sustaining that model of revenue in Triple-A baseball was impractical."
The Redbirds, the highest level minor league affiliate of the St. Louis Cardinals, hired a professional sports management company last year and are regrouping "to manage the team for an ultimate sale." Pontius said that may result in the institutional investors who hold the bonds getting "a price that is substantially less" than they had hoped.
Sports and public financing can draw as many boos as winning teams generate cheers, particularly when deals go wrong and sources of repayment revenue get benched. And the Memphis team isn't the only franchise to have trouble.
Revenue bonds for New Hampshire's Manchester Multipurpose Entertainment Facility, now known as Verizon Wireless Arena and the home of the Manchester Monarchs minor league hockey team, went into technical default in July, and investors have since been notified that reserve funds will be used to make payments on a portion of the $50 million in tax-free debt. Moody's Investor Service cut its rating on the bonds in November and dropped its outlook to negative.
Other sports facility related debts in a database maintained by Municipal Market Advisors, which tracks muni bond defaults, include sports revenue bonds issued for a pair of hockey rinks by the Illinois Financial Authority, a total of $21 million.
Robert Kane, chief executive officer of BondView, a New York municipal bond data company, notes that of the 4,408 stadium bonds traded in the last 30 days, 78% carried 2-star ratings and below.
"They are non-essential services bonds, they're not safe sector type debt -- water, sewer and power bonds," he says. "Their revenue stream is not going to be as consistent."
The Manchester arena bonds were going to be repaid through state meal and hotel room tax revenues, but the recession cut into business and pleasure budgets.
"There's a big contraction in travel and tourism and spending," Kane says.
Not every stadium-linked muni bond will have trouble. The New York Yankees, for example, were able to get about $225 million from a tax-free bond sale when they built a new $2.3 billion ballpark, which opened in 2009.
John Vrooman, a professor of economics at Vanderbilt University, says stadium financing has long been an area where governments have worked with sports franchises and found loopholes in Regan-era reforms intended to restrict favorable public financing interest rates.
"The Yankees are making payments in lieu of taxes to retire these tax free munis, and this is on the biggest possible scale you could have," he says, meaning those bondholders won't sweat repayment. "The Yankees are secure, they shift risk everywhere, they're diversified."
The stakes are far smaller in Memphis, but the sources of revenue and the economics of the Redbirds' customer base are vastly different.
"That kind of specificity, particularly in a small market, I think the flags should go up," regarding bond risk, says Vrooman.
Meanwhile, the Redbirds began their Pacific Coast League championship playoffs Wednesday night against the Tacoma Rainiers. The team offered two-for-one discounts.
"It's always been a good little baseball town, but it's poor," said Vrooman. "At a time like this, it doesn't matter how good the team is."