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Sports Teams Put on Bailout Rally-Caps

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Many franchises choke during recession.

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We've seen an indiscriminate assortment of companies declare bankruptcy these days: automakers, banks, insurers, retailers and restaurants. What I want to know is: When will the Pittsburgh Pirates file?

The question isn't so far-fetched. (The Pirates have been abysmal for almost 2 decades.) Until now, professional sports were considered the last refuge of a sinking economy. Baseball, in particular, still without a salary cap, has seen players' compensation skyrocket to unspeakable heights. In a single week alone, the Yankees spent nearly a half-billion dollars on free agents CC Sabathia, A.J. Burnett and Mark Teixeira.

But, with ticket prices having gone almost parabolic in their ascent, leagues maxed out in size, and sports towns losing key corporate customers and sponsorships (consider Detroit, Charlotte, and Orlando), some teams could fold in the next few years.

Or they could receive a bailout. Just look at the National Basketball Association. Earlier this week, Sports Business Journal reported that the NBA is borrowing $175 million for 15 teams in tough straits. That's basically half the league. The private deal, arranged for the NBA by JPMorgan (JPM) and Bank of America (BAC), charges interest rates as high as 8.27%. The NBA's executive counsel for business and finance told the Sports Business Journal that the league decided to do the deal after teams expressed a real need.

This is a remarkable development. Many teams in the NBA are struggling to pay bills and fund capital improvements. One team in particular trouble is the Orlando Magic, which confirmed it would take $10 million of the $11.6 million maximum allowed per team. The team has lost $15 million to $20 million over the last 6 years. Is it any coincidence this happened in one of the states most ravaged by the housing collapse-cum-recession?

Somebody will have to pay for the pain teams are suffering - and not just in the NBA. Fans have played the patsy for awhile: Even if you put aside the fact that it now costs $25 for a beer, hot dog and peanuts, ticket prices have all but exceeded the reach of longtime fans.

With new stadiums built or being built for football's Dallas Cowboys and New York Jets and Giants, along with baseball's New York Yankees and Mets, those teams have jacked up ticket prices and charged season-ticket holders with personal seat licenses (PSLs). (PSLs give you the right just to buy the damn tickets.)

These moves are an unambiguous appeal to corporate season-ticket holders, since the outcry from fans has been vociferous. But this trend, too, should sour. How can companies in dire straits justify purchasing expensive luxury boxes? How can they justify -- in the case of Citigroup (C) and the Mets -- sponsoring a new stadium? And how can cities like New York continue to offer tax breaks to clubs when their municipal coffers are empty?

New York is a rare example - the leading sports town will only suffer so much. Smaller teams are already facing greater hardship. Baseball teams including the Washington Nationals and Boston Red Sox have cut or frozen ticket prices this season. Oakland Athletics owner Lew Wolff said last month that ticket sales were down 10%.

Eventually this pain will trickle down to players, especially if fans finally cry mercy. There's talk in the NBA that the salary cap might be lowered to account for lower revenues and higher debt payments. However, most of the top NBA players have contracts that assume the salary cap would go up indefinitely as time goes on.

Hey, wait a minute - doesn't this logic sound eerily familiar?
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