Will some teams be able to PAY their players?

[upstater1]

I read the Globe this morning and until today, I didn't realize that NFL clubs taken part in ARS style auctions. I'm wondering if some went beyond that and actually parked cash as well as taken loans from these markets.

Here's an article that explains what's going on (after the Coughlin part): http://www.boston.com/sports/football/articles/2008/04/06/coughlin_made_it_a_fun_run/?page=2

Once thought to be a low-risk avenue for clubs to borrow money while benefiting from lower, floating rates, the ARS market dipped considerably in February, with rates unexpectedly soaring because no one was bidding on them at auction. That decline of the market reflects the overall credit crisis in the country that has been a concern since last summer.

The Patriots invested in the ARS market as part of their financing for Gillette Stadium in 2000, and are working to get out of it after seeing a dramatic increase in their expenses.

But after experiencing the benefits of the market for seven-plus years, it turns out the Patriots are fortunate compared with clubs such as the Jets, Giants, and Cowboys, who are now building new stadiums and have significantly more money there. The change in the market means those clubs are almost assuredly going to exceed projected costs.

The scary part about this is that the ARS market has completely dried up at this point. I know of a single investment firm on Wall Street that has customers with $50 billion in these markets, and the money is completely illiquid. My fear is that, if NFL teams were taking part in these auctions for loans and such, they might also have been tempted to park some money in there as well. These auction markets were considered very low risk for at least half a century, and many financial advisors encouraged clients to take advantage of them as though they were money market funds. In other words, they were used as a place to park your cash in the short-term. People put money there, for instance, when they prepared to buy a house and were building up a kitty for the deposit. Unfortunately, the dirty secret going around now is that many companies also parked their payrolls in such markets, and many of them are now BORROWING to pay employees until they can figure out how to make the market liquid again in order to recover their money. This is a major problem for many businesses at this point. Some even fear that the money has disappeared down a black hole. The fact that NFL teams were engaging in these markets for loans raises the possibility that they were also parking their short term funds in the same place. If that's true, and it is with many businesses, then we may find some teams so cash strapped this season that they will have great difficulty paying their players a weekly check. Call it stupidity, but if you KNOW you're going to pay your players $100,000,000 over the coming season, some owners may have tried to take advantage of the slightly higher interest rate (say, .5% over a money market fund) by placing the whole kitty in these markets. So, for an extra $500k to $1 million in interest profit, they may lose the whole amount. Then what?

 

[castlelong1]

I..Then what?

Then pissed off overpaid player abound and we hope the Patriots are OK.