Bloomberg News

Moody’s May Cut NCAA Rating on Litigation Threat to Revenue (1)

June 24, 2013

Moody’s Investors Service is threatening to downgrade National Collegiate Athletic Association debt because of pending litigation and uncertainty over its amateur business model.

A judge in Oakland, California, heard arguments less than a week ago in a lawsuit filed by former University of California-Los Angeles basketball player Ed O’Bannon and others challenging the right of college sports’ governing body, conferences and schools to keep proceeds from selling the rights to athletes’ likenesses in TV broadcasts, video games and on apparel. The plaintiffs say a victory could reduce the $6.4 billion in annual revenue universities earn from athletics by as much as 50 percent.

The ratings company reduced the outlook to negative on the NCAA’s Series 2005 and Series 2010 revenue bonds that were issued through the Indiana Finance Authority. The bonds are rated Aa2.

“Increased public discourse about the best interest of student athletes combined with the highly publicized litigation could destabilize the current intercollegiate athletic system and negatively impact the NCAA and its member universities,” Moody’s said in a statement.

Moody’s said it didn’t expect a precipitous decline in the NCAA’s financial position at this time.

“Although the outlook change is a long-range projection, the NCAA’s financial rating did not change,” NCAA spokeswoman Stacey Osburn said in a statement. “As a result, we do not anticipate any substantive issues based on the Moody’s report.”

The NCAA earned about $857 million in revenue in fiscal 2012, with more than 75 percent coming from the men’s college basketball tournament, according to Moody’s.

The report said the NCAA had $567 million in cash and investments in fiscal 2012, up 55 percent since fiscal 2008, through retained surpluses and investment gains, enough to cover direct debt by more than 10 times.

To contact the reporter on this story: Curtis Eichelberger in Wilmington, Delaware at ceichelberge@bloomberg.net

To contact the editor responsible for this story: Michael Sillup at msillup@bloomberg.net


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