SVG Sit-Down: PNC Equipment Finance’s Schauerman and Munson
Sports & Entertainment execs on funding sports-related construction, renovation
There has been no shortage of multimillion-dollar A/V and scoreboard installations and renovations at U.S. sports venues over the past decade. In addition, new state-of-the-art mobile units hit the road each year, producing thousands of sports shows from coast to coast. Behind the scenes of it all is PNC Equipment Finance’s Sports & Entertainment division. Although these massive monetary investments eventually deliver profit, obtaining funds up front is no easy task, which is where PNC comes in, offering technology credit lines ranging from $100,000 to $10 million or more.
SVG sat down with PNC Equipment Finance Sports & Entertainment SVP Chris Schauerman and VP Russ Munson to address this seldom discussed but monumentally integral phase of live sports production and how PNC has carved out a unique niche in this fast growing market.
Can you detail the role that PNC Sports & Entertainment plays in helping franchises and organizations build and renovate venues and other sports-related projects?
Munson: We currently have two approaches, actually. One is, we work with the major manufacturers — like Daktronics and Sony, synthetic-turf vendors, lighting companies, and others that serve broadcast-systems–integration projects — to provide financing to their customers. When they go in to offer a new broadcast system, like master control for a stadium or new cameras for a truck operator, they often present our financing option as an operating-budget alternative to cash purchase or a capital-budget purchase. From that side, we’re delivering financial services and capital, and we’ve got very deep pockets and the ability to fund transactions from the smallest to the very largest transaction.
From the other side, PNC [serves] the four professional leagues, so we have a lot of relationships with the major professional teams at that level. When teams require any kind of new technology for their stadium — like scoreboard, ribbon boards, lighting, or a sound system — you would think that, automatically, they would budget or plan for technology as part of a refurbishment of a stadium or arena. That isn’t always the case, though. Often, they exhaust their original budget, and they’ll get down to the end and begin to look at a financing option. That is where they bring us in, and we will propose an option to spread the cost of the technology to match the timing of its useful life or match the timing of the revenue that the technology’s going to generate.
Schauerman: As Russ said, at the end of term, there’s always additional things, and I think that’s really where we come into play. We can demonstrate a lot of value to the venue or to the team when it comes to technology that gets periodically outdated. It’s better to have that [technology] in a short-term financing option than bury it in a long-term funding mechanism. And that’s our challenge: to educate the marketplace of the value of [how] a shorter-term lease that allows an upgrade really provides some great value to the team or the venue. It gives them a lot more flexibility to change with the times and upgrade when new technology solutions become available.
PNC Sports & Entertainment is known primarily for venue-project financing, but what about mobile production? What role does PNC play in financing truck builds and equipment additions?
Munson: We have actually been one of the leading financing sources for truck operators, and, over the last eight or nine years, we have financed well over a dozen of these major trucks and a lot of ancillary equipment that go into these systems-integration projects.
The main reason is, the truck operators’ business is all about leverage. They sign maybe a five- or six-year contract with [a league or a network], and their revenue comes event by event over that period of time. But the cost of the truck, in many cases, can be $6 million, $7 million, $10 million up front. That would be a misuse of their capital because of the timing and the way the revenue comes in from the use of that truck. So, in most cases, they try to match the timing of financing to the timing of the utility of the truck, and that’s usually six- or seven-year financing. In the truck business, that is the most common use of financing. It’s a natural use of outside capital to spread the cost of that big expensive unit over its useful earning life.
How are you looking to grow the truck-focused sector of your business now?
Munson: We would like to do a lot more with some of the smaller operators and the uplink operators or some of the operators who don’t necessarily have the long-term contracts with the major sports networks and that sort of thing. We’ve looked at a few of them. It’s very challenging for the smaller [companies] because there’s not a lot of startup capital or private equity for those kinds of operators.
Have you seen that smaller-truck side of the business growing recently, especially with the rise of “at-home” productions, which require fewer resources in the field?
Munson: Definitely. I’m excited about that because, any time you’re looking at a $10 million or $15 million transaction as a lender, that is a challenge, and all these factors go into it. When you break it down to a million or $2 million or $3 million, it makes it a lot easier for us to create a manageable solution for the customer, and that’s what I think we’re all trying to achieve.
What makes financing sports-venue and -production projects different from financing other projects, and how does your experience in this market help you serve sports clients better?
Schauerman: This is a relatively unique segment. It requires some deep understanding of the business: the credit risks, equipment risks, and collateral risks that are involved. It takes a while to learn and understand that. And I think that barrier to entry, if you will, is relatively high here.
That’s really our opportunity. We have a sports vertical program that finances the major football, basketball, baseball, and hockey leagues, as well as the teams on a much higher level. [This] provides us some really good, deep understanding of how teams, venues, and media play within this segment. That knowledge helps us a lot in the underwriting side to reach an approval decision versus … how some other lender might have dealt with it.
It’s a unique segment and a niche that a lot of folks don’t understand. Because of that, our biggest challenge is getting the marketplace to understand that we exist. If the marketplace understood a little bit more about some of our capabilities and the value of utilizing a source like us to handle technology financing, it’s a unique value proposition.
For those sports organizations that aren’t familiar with PNC Sports & Entertainment , what would you say you bring to the table when it comes to financing large projects?
Schauerman: I think some of the truck companies do know who we are, and certainly some of the venues do, but, on the broad-market basis, I think our challenge is getting our brand and product more readily known. I don’t know that, when teams and venues go to buy a new scoreboard or ribbon boards or new production [equipment], we come top of mind to them.
We have a big education process to make sure [teams and venues] know that, when they need that new board, new video system, security system, ticketing system, or whatever and the money’s not there, that doesn’t mean [they] can’t have that technology. Our challenge is to say we can provide the capital to get you that better fan experience or get you that better efficiency at your venue today by utilizing our equipment-financing solutions. We can stretch their budget [funds] over multiple periods, allowing them to get that technology today versus waiting until the next budget year or the year after, when [technology] will have changed already and they will have missed the opportunity.
Munson: I think another factor in the marketplace is that, a lot of times, whether it’s owners of the teams or stadium-management companies, they look at all lenders as though they are the same. One of the big differentiators is that we customize each of these transactions to fit what the customer’s financial objectives are.
For instance, we had an NBA team who wanted to get a new center-hung scoreboard, but they were bumping up against their league borrowing limit, and they could not take on any more outside financing on that multimillion-dollar scoreboard. So we structured an operating lease that would allow them to have “off–balance-sheet” financing, which would not negatively affect their league borrowing covenants.
Another example: an NFL team needed to replace their 13-year-old scoreboard, which, in today’s evolving technology for LED scoreboards, was ancient. The county owned the stadium, and there was a real issue about how much the team and how much the county was going pay for it. We worked out a unique financing solution for the county, and the county worked out a separate deal with the team, and they got a new scoreboard and an annual payment that fit into the county’s budget.
It is the same thing when we’re financing trucks. Inevitably, we deal with the truck owners, and they have a project coming up dedicated to ESPN or to NASCAR or to baseball. We learn what the truck operator’s objectives are for cash flow and other needs, and we create that specialized solution to match their timing needs in terms of capital.