0 Houlihan Lokey Sports Industry Update Dear Clients and Friends, Houlihan Lokey is pleased to present its Sports Industry Summer 2020 Overview. We have included industry insights and select transaction announcements to help you stay ahead in the dynamic and constantly evolving sports sector. Driven by growing national and local media rights deals, digital platforms, and increased sponsorship monetization, recent years have witnessed several blockbuster acquisitions in the major U.S. professional sports leagues. We expect activity to remain high, especially for minority ownership stakes, for the foreseeable future as franchise assets remain scarce and institutional buyers enter the marketplace with increasing demand. In recent months, COVID-19 has sent shock waves through markets globally and captured the attention of the world. Since mid-February, COVID-19 has caused significant market disruption that is expected to continue for the foreseeable future. The sports industry has been particularly impacted with the cancellation of live sporting events, forcing sports leagues and franchises to reevaluate their business models for the duration of the pandemic. In recent weeks, leagues have begun to resume competition in empty stadiums, which has profound financial implications on teams’ operations and financial outlooks. We hope you find this update informative and that it serves as a valuable resource to you in staying abreast of the market. If there is additional content you would find useful for future updates, please don’t hesitate to call or email us with your suggestions. We look forward to staying in touch with you. Regards, Roy Kabla Brian Marler Ronald de Gier Kyle Corigliano Managing Director Director Senior Vice President Vice President Global Co-Head of TMT Group Head of Sports Valuation [email protected] [email protected] [email protected] [email protected] 212.497.4157 310.788.5374 212.497.4193 310.712.6548 Conrad Kolasa Marcos Melendez-Lluch Travis Schwartz Associate Analyst Analyst [email protected] [email protected] [email protected] 310.789.5713 310.788.5332 310.789.5793 1 Extensive Sports Franchise Clientele Houlihan Lokey has extensive experience within the professional sports industry. We have provided fairness opinions, valuation opinions, and other financial advisory services to numerous sports franchises and sports-related entities across all major U.S. leagues. These engagements and the experience of our bankers have enabled us to develop strong relationships with professional sports team owners. Major League Baseball National Basketball Association National Football League National Hockey League 2 Select Sports Transactions Houlihan Lokey’s professionals have unparalleled experience in advising sports franchises and sports-focused companies. a subsidiary of a subsidiary of has successfully completed the spin-off of Provided financial advisory services and a valuation opinion in connection with the purchase of has been acquired by Tribune Media’s 5% interest in has been acquired by Chicago Entertainment Ventures, LLC Houlihan Lokey provided financial opinions to the Board of Directors of both Twenty-First Century Fox and Fox Corporation. Sellside Advisor Sellside Advisor Financial Opinion Financial Opinion has been acquired by a subsidiary of has been acquired by We rendered a valuation opinion for tax & financial reporting purposes to The Topps Company regarding its has been acquired by sports & entertainment business Sellside Advisor Sellside Advisor Sellside Advisor Financial Opinion $275,000,000 $70,000,000 has completedsold substantially a financing all its assets, Series E Preferred Stock Series D Preferred Stock has successfully concluded a $28 million financing led by consistingpursuant to of Section 363 of the U.S. syndicated loan in the amount Bankruptcy Code, to of €50,000,000 $24,000,000 Series D Convertible Preferred Stock Financing Advisor Financial Advisor Placement Agent* Placement Agent* CompanyPlacement Advisor Agent Sample has been acquired by has been acquired by has acquired $15,000,000 Strategic Advisory Services DCC Environmental Limited has acquired Series B Preferred Stock from Strategic Advisor* Financial Advisor* Strategic Advisor Sellside AdvisorBuyside Advisor Financial Advisor* Tombstones included herein represent transactions closed from 2008 forward. *Selected transactions were executed by Houlihan Lokey professionals while at other firms 3 acquired by Houlihan Lokey. COVID-19 Impact on Professional Sports COVID-19 has dramatically changed the sports landscape. During the three months of quarantine in the U.S., many questions had remained unanswered; however, the recent outlook for many sports leagues is positive. NBA suspends season after player Tokyo 2020 Olympics postponed tests positive for coronavirus over coronavirus concerns — The New York Times — NBC News Can the sports industry survive Boston Red Sox could lose approximately $199 the coronavirus shutdown? million in gate receipts, MLB $2.86 billion with — Financial Times no fans or canceled season — MassLive.com Coronavirus could cost NBA $1 Premier League clubs prepare for billion, bring about record salary possibility of 2020–2021 season cap drop — The Washington Post behind closed doors — Sky Sports Unprecedented Times Many Americans first learned of the severity of the novel COVID-19 pandemic when the NBA suspended its season indefinitely on March 11 after several of its players tested positive for the disease. Other leagues and organizations—including MLB, MLS, the NHL, the PGA Tour, the NCAA men’s and women’s basketball tournaments, and the 2020 Olympics (later postponed until 2021)— quickly followed suit, either suspending their seasons or outright canceling their events. Sports Lockdown COVID-19 has led to a fairly bleak near-term outlook for sports. An analysis conducted by ESPN shows that the loss of sports will erase at least $12 billion in revenue and hundreds of thousands of jobs, which could more than double if fall sports such as the NFL and college football are canceled. Generally, the primary revenue components for sports leagues and franchises include match day, broadcasting, and other commercial revenues. With match day revenues at zero, this leaves broadcasting and other sponsorship arrangements as the sole source of income. Currently, it’s unclear whether networks will be required to pay rights fees with games shut down, but it appears to be a foregone conclusion that advertising revenues will be severely impacted. According to ad firm MediaRadar, COVID-19 could cause roughly $1 billion in lost advertising revenue for MLB, the NBA, and the NHL. “Our revenue in essence has dropped to zero,” NBA Commissioner Adam Silver recently stated. In the midst of team playoff pushes, the NBA and Silver have been at the forefront dealing with the economic fallout from COVID-19. One team’s executive mentioned that the total damage for the NBA could reach more than $1.2 billion, more than $40 million per team. On the other hand, the NFL has been relatively unscathed from COVID-19 thus far due to its lucky position in the calendar. The league’s fortunes were on display during the NFL Draft held in late April, when it was able to capitalize on the pent-up demand for live sports content by setting ratings records. High demand by advertisers, many of whom have been left looking for new programming from the suspension of other live sports, led to double-digit growth in ad revenue year over year. Sources: S&P Capital IQ, public filings, other publicly available information. 4 COVID-19 Impact on Professional Sports (cont.) European soccer has started As COVID-19 closes stadiums, giving up — The Wall Street municipalities struggle with billions Journal in debt — The Wall Street Journal Premier League clubs and Why major sports might risk players are at war. Both are comebacks during the pandemic losing — The New York Times — The New York Times Recent Events and Lasting Impact Even as countries and states begin to lift restrictions, the unpredictable duration of COVID-19 could force sports leagues to make adjustments to operating models to reflect the recommendations of health professionals (e.g., adjusting stadium infrastructure to support social distancing). Recently, Dr. Anthony Fauci, the Director of the National Institute of Allergy and Infectious Diseases (NIAID), discussed sports seasons in an interview with The New York Times. “If you can’t guarantee safety, then unfortunately you’re going to have to bite the bullet and say, ‘We may have to go without this sport for this season.’” However, both the NBA and NHL recently announced plans to resume seasons using fresh and innovative formats. The NBA recently approved a unique 22-team format hosted in Orlando, while the NHL plans to return with a round-robin format with 24 teams in two hub cities. The MLB is exploring a shortened season beginning in July but is currently entangled with the players union on specific contractual terms. The PGA Tour will restart its season without spectators beginning June 11. Meanwhile, in Europe, France’s Ligue 1 and Ligue 2 canceled the current season in April, while other UEFA leagues retained the optionality to resume. In fact, the German Bundesliga recently restarted its season with much success, despite empty stadiums. England’s Premier League, Italy’s Serie A, and Spain’s La Liga are scheduled to restart their respective seasons in mid-June, thus securing the lucrative remaining rights payments from broadcasters. While COVID-19