This week in LWIB, how has MLB so far weathered the recession? And an increasing number of clubs are diversifying their revenue streams. HOW HAS MLB WEATHERED THE RECESSION? The 2009 regular season saw league wide attendance decline approximately 7%. The final attendance was in line with Commissioner Selig’s preseason forecast and given the recession a strong performance. Clubs also practiced widespread ticket discounting and sponsorship revenues were expected to be under great pressure as a result of the cratering of both the financial services and automotive sectors (traditionally amongst the biggest sponsors). TV ratings, both national and local, were a mixed bag but widely considered stable. As the deadline for offering players salary arbitration approaches, agents, players and front offices are assessing the current financial state of the industry. Fewer tickets were sold in 2009 but the more important question is how much revenue did MLB generate during the season? LWIB, Mike Ozanian of Forbes interviewed Chad Lewis of Fitch Ratings on how the “big 3” have so far weathered the recession. Mr. Lewis was very upbeat about their financial health, saying in part, “…when we step back and look at the kind of macro revenue streams of the leagues we see a lot of stability in national TV contracts…” As for MLB, Mr. Lewis characterized 2009 as a “very solid year”. Mr. Lewis was encouraged that attendance was down only “5-6%” given the smaller seating capacities of the 2 new ballparks in NYC. Mr. Lewis has concluded that league wide ticket revenues were flat. He attributed this to, “a combination of stronger market teams being able to increase ticket prices where some of the weaker markets have cut ticket prices and have lost some attendance”. Mr. Lewis does say that Fitch “did take an action on MLB last week” (more on that below) but, “we continue to see the underlying fundamentals of MLB being very strong, attendance and viewership was very strong this year and obviously their TV contracts and collective bargaining agreement have to be very stable rating factors”. The aforementioned “action” that Fitch Ratings recently took on MLB was a downgrade of their “Club Trust Securitization” from A- to A. The downgrade was announced in a press release. Despite the downgrade, overall Fitch is very positive about the present and future financial health of MLB. The downgrade solely reflects a criteria change related to transaction structures which generally utilize a bankruptcy-remote securitization of future contractual flows. AND Importantly, Fitch notes the one-notch downgrade only reflects a change in criteria related to Fitch's opinion regarding the enhancements provided from the legal structure and not related to Fitch's analysis of the principal qualitative and quantitative factors that contribute to performance of MLB. AND The 'A-' rating primarily reflects MLB's premiere status as a professional sports league in the U.S. which has operated for over 100 years, the strength and ability to renew future broadcast contracts and the structural aspects of the transaction which isolates noteholders from team level performance. Additionally, the 'A-' rating reflects the fundamentally strong league economics and fiscal governance, including financial covenants, league level borrowing limits, reserve levels and mandatory pay down mechanisms (in the event national broadcast contracts are renewed at lower rates), collective-bargaining agreement (CBA) which is in place through December 2011, historical renewals of national broadcast contracts, attendance and viewership and popularity and international growth initiatives. Interestingly, Fitch does express some concern about financial and competitive disparities amongst MLB franchises. While Fitch positively views MLB's economic model and financial policies, a wide disparity exists between the financially strongest and weakest teams. A team's reliance on local revenues, which fluctuate significantly between small and large markets, and a team's discretion to spend unreservedly on player salaries can result in greater financial disparity among MLB teams. This disparity has the potential to lead to a less competitive framework for MLB, however, Fitch recognizes MLB's very long history of viability in very good and very bad economic times and more recently the diversity of MLB clubs that have participated in the post season since 2000 as important mitigating factors. Furthermore, Fitch importantly notes despite the range of financial disparity of participating clubs, noteholders are insulated from team level operations given their rights to national television contracts to service debt prior to distributions to teams for operations. The success of MLBAM and MLBN are frequently cited by sports biz pundits as key to the future prosperity of MLB. Curiously, neither are mentioned in the Fitch press release nor did Mr. Lewis discuss these entities with Mr. Ozanian. (or at least in the final edited version) Fitch Ratings’ conclusions about the 2009 season correspond with recent comments made by MLB COO Bob DuPuy. LWIB Mr. DuPuy was quoted by Tom Van Riper of Forbes, "You can't feel too bad when attendance is off but revenue is flat," DuPuy said. "It's a terrific achievement." Agents and players have found relatively soft demand for the services of free agents the past two off seasons. Already, baseball writers (including Buster Olney) are predicting a continuation of the trend this winter. While many clubs will claim that business is suffering, many on the players’ side will claim there is evidence to the contrary. Select Read More to see details on how clubs are diversifying revenue streams