NBA Suspension Costs Lebron James $404K Per Game

market in general. Was the n b A coming out and suspending their season until further notice, really came out of nowhere. To get a sense of what that means for everybody involved, we welcome Scott Sashnik, sports business reporter for Bloomberg News, joining us here on a Bloomberg Interactive broker studio. So, Scott, really kind of shocking piece of

news by the NBA. What are the ramifications? But shocking in that it happened, but in where we were headed and the news that we were looking at not really shocking at all. Because you had the nuclear scenario of a player testing positive for Corona. What are they to do? That player and his teammates must be isolated that had Phase six teams in that incubation period. They have to be isolated. You just cannot play. The referees have to be isolated. You don't have enough players to go around

her teams anymore. You had no choice but to suspend this season. Can you give us some color on that one player who made fun of this whole thing and went around touching all the Michael that's the guy who tested positives, Rudy Gilbert, So I'm not sure he was

making fun as much he was he. I believe from the folks I've read and talked to in the city, in the Salt Lake City that it was a bit of solidarity with the reporters saying this is not a solution to the problem, that you guys are six to eight feet away from us, and they were worried about by the way the reporters giving it to the players,

and a solidarity, okay. At the same time, with hindsight, it seems seriously irresponse, absolutely insane that he went around and touched every absolutely And I'm wondering, you know, is there going to be some sort of penalty or something. I'm just throwing this out there because I read this, and I'm just thinking from a social responsibility, my guests would be no, there will be no penalty, but the ramifications we don't know yet. As you know, Paul, the

NBA's backbone is the billion dollar TV contracts. That's Turner and espn Um. There are fource maasure clauses in the in the in the labor contract with the players, by the way, inserted after nine eleven, so you've got things like earthquakes, terrorism specifically inserted at that time, epidemics, so you would think, Uh, the labor contract calls for a forfeiture on the players for every game one nineties second point six of their salary, accounting for regular season, h

preseason and the average of postseason games. So we did the math Lebron James, for instance, loses four and four thousand dollars per game not played. How long is this gonna lasts or any speculation from the NBA office or

owners or anything like that. Mark Cuban is the one who speculated the most, saying we could be looking at the NBA into August, the most valuable from a TV perspective, from a ticket perspective, the most valuable time of year for the sports leagues, especially the NBA is the playoffs. You don't want to lose your playoffs. If you can nix six to eight weeks and come back in stage of playoffs, perhaps with the current standings, that would be

best case scenario. How well do you play basketball? Not that well? All right, we can't. We can't count on just watching Scotch sashnik is, Bloomberg Sports columnist. Markets continue to sell off in a big way, off seven percent across the board. We did have that circuit breaker triggered

earlier this morning. We were now trading again. One area I want to spend a few minutes on least night were we really like to focus on crude oil and it continues a free fall here West West Texas Intermediate crew down six percent today, about thirty one dollar a barrel. Really on that thirty dollar barrel, kind of a support level right there. Obviously a big issues in global supply demand concerns. So let's dig into that for a few minutes. Here.

Wells Fitzpatrick, he's a managing director for E and P Research at sun Trust Robinson Hump. He joins us on the phone from Houston, Texas. So, Wells, I mean clearly there's a demand issue out there. We've seen that brewing in the coronavirus really putting a point on it. But in the last week we've also gotten a supply shock here and we've had a you know, a week or so here to kind of digest what's going on between

Saudi Arabia and Russia. I want to get your informed opinion about what do you think Saudi's and the Russians are actually thinking here. Yeah, it's clearly a game of brinksmanship, and Saudi Is is putting in all the cards on the table to make it a credible, uh move for them to go up north of twelve million barrels a day. Obviously, they've they've contracted a fleet of tankers. Um, you know, they've they've they've lowered their selling prices. They you know,

they are trying to gut check Rush. Um, you know, it's it's a game of chicken at this point. I mean, the fact is is that Saudi and the golf increasing production by you know, well over two million barrels means that they're selling out of storage. So is it a

long term strategy? I don't know. I mean, swapping your storage for Chinese storage at less than thirty thirty dollars of barrel doesn't seem like it, but but clearly at this point it's a game of chicken, and specifically a game of chicken between UH two men, MBS and and putin. Right now, I'm looking at the shale patch, in particular high yield debt of the energy companies in the United States. I'm trying to understand how deep the pain is going to go. I'm looking right now at the market value

of high yield junk of energy junk bonds. It's fallen by fifty billion dollars since the beginning of this year. Yeah, it's been it's been brutal. Um, it's been brutal, and and you know the market caps are are something similar. You know, all the traditional avenues for UH financing for the industry have have essentially been shut off. I mean, A and D was down over UH in in four Q before we really hit the skids. High yield, as

you said, yield the worst is more than double. The bank revolvers are going to be down in the upcoming revolver redetermination season. And you know, no one's talking about issuing equities. So if you have uh near term debt maturities. Um, it's really something that you have to pay out of cash flow or out of some sort of fire sales.

So the companies that were most cautious on are the ones with near term debt maturities and the ones that are largely drawn on their bank lines, because obviously those bank lines are gonna come down. So if if you have seventy out, um, you know, it's reasonable to expect that you would be a hundred percent or even overdrawn

at the end of the spring redeterminations. Just to give a sense of the scope of the pain, what proportion of the shell producers, whether in the premium basin or elsewhere in the United States, what percentage do you think we'll run into solvency issues and have to either restructure

or declare bankruptcy. Yeah, that's that's a great question. Um. You know, I think that I think that there's a there's a very reasonable case if this continues for a couple more quarters that we that we challenge the I don't want to even call it a record, but the previous record of of thirty four uh e MP bankruptcies in a quarter, and that was second quarter. A few thousand and sixteen. Um, you know, it couldn't get that

brutal again. Yeah, if they go through with this, with this price war, and and oil stays in in the low thirties or even dips into the twenties, it gets pretty bad pretty quick for a lot of these folks. Um and other perhaps under appreciated aspect of a lot of these companies had three way hedges, so you know, you sell another put to get a little bit more upside. Uh. And it's so far out of the money that two

months ago we didn't really think about them. But you know now you have to build all those into your model, and these companies have them. Uh And and it limits the downside protection. It essentially it limits your insurance. So there's a lot of moving parts, um and frankly, not a lot of them are good, except for maybe maybe the gas side. So well, when are we going to see some of the majors come in here and just scoop up and buy some quality assets that really just

kount of prices. You know, that's a great question. I mean, I think that they are in in full uh full defense of their uh their distributions. Um. I mean it's gonna be hard for the big guys, even Exxon to to to defend their dividends, uh with with thirty dollar w T. I maybe maybe they can do stock deals for some of these companies, come in and rescue them.

But um, you know, to to it to your earlier point, If a company's debt is trading at thirty cents on the dollar, do you really want to go in and buy them out and and make those bond holders whole? Um when when you know that value might not be there. So when when bonds get this low, I think it actually freezes up to a and D market a little bit more than the valuation should in theory. Help Wells.

Thank you so much for being with us well as Fitzpatrick, Managing director of NP Research at SunTrust Robinson Humphrey, there is a question just to go back to this, uh, this sort of idea that the bear market is signaling

an over chance of recession. Luckily we have someone who can kind of weigh it on what to expect in a potential downturn in a recession this time around, given the lead up, Robert Lawrence, We're so glad to have he has, Professor of International Trade and Investment at Harvard Kennedy School, former economic advisor to President Clinton, with decades of experience throughout watching the economy. I'm trying to get

your sense of where we are. People say that we had a lot of momentum in the United States heading into this coronavirus induced slow down. Do you agree with that let's start there. Well, I think we we did have momentum, but I think it's come to a halt. I think that all of the movement is obviously in the opposite direction. I think not only is the stock market signaling immense uh trouble lies ahead, um. But in a sense, the big issue is is there enough liquidity

in the system. Currently? The big banks look like they're in good shape, but the question is are they going to be lending to many other companies who have cash flow issues? Um. Ironically, I think because we're fighting the last war where there was a lot of credit risk the current issues that that may have made them more prudent, But in a sense, that's simply shifting some of the

problems onto those who are much less, much more liquidity constrained. So, Robert, what do you think the administration needs to do here? The U S Government needs to do here, aside from what we're already seeing from the federal Reserve, in order to combat this coronavirus and mitigate its economic impacts. Well, I think certainly it has to be fiscal policy. Uh. First, I think the administration has to give the public a

sense it knows what it's doing. UM. The idea of prematurely going public with programs that weren't fully conceived, I think was extremely undermining of confidence. Uh. Secondly, I think we need across the board physical stimulus UM. You know,

with with numerous dimensions helping people. I'm less impressed with the idea of dealing with payroll taxes, but I think, um, we need a We need a whole host of issues focused on problems that people are now going to face in those who are out of work, UM, extending unemployment, insurance helping. By the way, with medical testing, it's very striking. We just heard about Tom Hanks UH in Australia where tests are available for free. I think, uh that should

be true in the United States as well. UM. So, I think health related dimensions in all respects should be focused on and and and physical stimul list should be used in order to UH. To do that, the focus increasingly on fiscal stimulus. Meanwhile, central banks are throwing what they can at the problem, or they're throwing some things they can at the problem. Federals are of cutting rates

by an emergency fifty basis points. They're expected to cut rates by another hunter basis points based on FED funds futures next week. Meanwhile, the ECB today we got out uh, something that was highly disappointing for markets. With now the European stock markets tumbling the most on record, is this the year the central bank put died? Maybe? I mean, uh, you know, uh quite frankly that they appeared cheap, uh not moving down and expected the ten basis points, a

rather small movement by any measure. Um, really deeply disappointed the markets. So what we what we've seen is a host of measures by policy makers. The markets have have viewed these as an inadequate and and that's a striking contrast to uh, you know what Mario Druggi did, where he made it very evident that he would do whatever

it would take in order to change the situation. And I think that's what the central banks and and particularly as we've indicated the physical authorities need to be doing so, Professor, if this coronavirus spread a mirror somewhat like what happened in China, what do you think the economic impact will be on the US? Is that almost guarantee a recession? Well, you know what's very striking is that today that China

doesn't look in bad shape, um so. And that's because I think off to Wuhan, they took very decisive action. And it's very interesting you eyeball what's happened to stock markets around the world. You see the one that's the

most stable is actually the Chinese. So um so. I think the real problem is we if we don't mirror what happened in China, where after the Wuhan debacle they took very very decisive action, and I think, um it's not too late, but social distancing as a matter of overt public policy is essential, and so we actually have numerous examples in Asia now where countries have been able to stem the acceleration, and I think that's the key. If we fail to do that, then I think a

recession is almost inevitable. So do you think, professor, this is actually a really compelling point here that China will emerge stronger or actually be the fastest to record our economically just in general, despite the fact that they're still kind of affected by the slowdown globally of commerce and growth. I think I think that is right. I think it's ironic. You know, they'll lose a point or two um from

there from the expected growth rate, you know. So so from our standpoint, we'd love to have their growth rate of say it will be four percent instead of six. But um, the fact is that they have taken very, very decisive, coordinated action. And what's very striking is if you look at what's happening to infection rates outside of Wuhan, um, and they've seemed to have flattened out. So um, So

I think, um, it could turn out. And and certainly this is what the Chinese already saying that the centralized system has great advantages. We couldn't have had, you know, a stronger demonstration of the failures of our health system. We have a we have a we have a we have a health system that is basically essentially designed to as if all health problems are private. Robert Lawrence, Professor of Trade and Investment at the Kennedy School of Government

at Harvard University. Is also a Senior Fellow at the Peterson Institute for International Economics. We appreciate you for coming on and sharing your thoughts here on the coronavirus and potential economic impact. We keep quoting the stock markets today because the swoons are remarkable. That said, the focus of what's going on right now very much is in credit,

is in solvency, It is in cash flow. It is do companies have enough money on hand and can they get it quickly enough to stay in business even if people stop coming at their doors and doing business and giving them money because of the social distancing and other measures due to the coronavirus. Joining us here is someone who's been covering this very closely, broken a lot of really important news on this matter, Shradar naturage and finance

reporter for Bloomberg News. Joining us here in our interactive Brokers Studios three. I want to get started with this concept of drawing down credit lines. That companies basically have these revolving lines of credit credit at banks, and they have been prophylactically drawing the entire day down so that they can have cash in their balance sheets. What do

we know so far? Well, so let's let's start with what a revolvers essentially a credit cards for companies, right, You, You drawn them periodically, you pay them down when things are going fine, you needed for some specific reason of the other, use it, pay back the banks. Everything's good. These are These are essentially relationship loans. Banks don't expect companies to be tapping them. It's basically saying, hey, here's there any day fun for you. If you need it,

you can use it when you want. But the expectation is never that on mass every one will come for it. That seems to have changed in the last few weeks, or at least the sentiment about how to treat these revolvers has changed in the last few weeks. Yesterday we had news leaking at one after the other. You had going willing to tap down its entire fourteen billion dollar alone win Hilton Blackstone and Carlisle, two big private equity shops,

urging some of their companies. Blackstones, especially those companies that are in the virus hit sectors, urging them to go out there and draw down their credit lines. Now, that seems like a prudent move, that seems like a smart move, but at the same time, you have to wonder if that accelerates, if that spreads to other companies and to other sectors, how does it affect banks which then suddenly have a lot of exposure to companies that seem to

be in a lot of pain right now. Again, if everything were to turn around today and we're magically stopped going down, we're okay. If it deteriorates, then you have to worry about the second order effects. So are the banks here do they? I guess? The question is do they have if something comes in and draws down their credit line or borrows off of their facility? The banks can't say no, can they? I guess the rule of

law upright? So you have governance and you have you you have things on dotted lines that tell you in the contract how much you can with draw how much you can't. The energy sector, for for example, it's a very interesting space right every six months or so, they have these borrowing base redeterminations where the amount of credit that extended to these oil and natural gas producers, for instance,

is driven off commodity prices. Commodity prices one month ago fifty sixty dollars on the barrel commodity prices now horrible. So when prices now horrible, and when you go and do the redetermination again, their credit line availability is going to shrink remarkably. So they're going out there and tapping

that as much as they can. And the other interesting aspect that we have to think about here is the thing that people always tell you about credit lines is it's always available until you need it was back in no wait, there was the other dynamic. Banks were trying to freeze the credit lines, were trying to walk out of contracts and uh negotiations that they've had with these companies. So it's how much you needed, how much banks are willing to lend. When it's sort of attacking you from

both sides, then we have a problem. You wrote a story on the Bloomberg that said that two and a half trillion dollars of lines undrawn. That's how much credit companies have to withdraw. At least it was at the end of last year. Probably a somewhat different now given how many are actually started to draw them down. Two thirds of that held or extended by the four of the biggest banks, JP, Morgan City Group, Bank of America,

and Wells Fargo. How concerned are people about the ability of these banks and others to make good on these credit lines, extend these loans to companies that could be potentially in perilous positions. So let's let's look at that based on the people who would who would presumably have the best insight into it, the executives of the banks, the analyst covering the banks, the investors sort of invested

in these stocks, executives at the banks. Yet Brian moynihan, Michael Corbett sitting next to Donald J. Trump yesterday in the over well in the White House and talking about how they could help in this time. But there's a lot of the questions were also around how strong our banks, and one after the other, all the senior executives said,

we're in great shape, well capitalized. Perhaps a lot of it does go down to the fact as to what happened after the previous global financial crisis, where we put in place a lot of measures that that ten years later have resulted in people being able to comfortably say that banks are well capitalized, banks are healthy, and banks are in a good position. That's what the banks say,

That's what a lot of the bank analysts say. We're a note from City Group today that said, you know, they have been getting a lot of questions on what happens if everyone starts drawing these credit lines, and they said even a hundred percent of the lines were to be drawn, we don't think the impact would be dramatic that you would have to worry about it in in

any sort of systemic sense. But then it goes back to the discussion we were having off Fair just before we started, right where we spoke to Jim biuncle and he said he whipped out the crisis at our joke about the window washer falling from the tenth floor. When he's going by the third floor, he looks in and says, so far, so good. That's the problem. We don't know

what the bottom is. That's the struggle. We don't know how to model it, and that is why you're seeing this sort of a bout of panic in the markets out there. All right, Well, the good news is for us, as we know, you're going to continue to follow this story and keep us up to date on kind of where what floor we're on at them on the street not a rog and Financial reporter Bloomberg News joining us here on a Bloomberg in our Active Broker Studio. Thanks

for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa Abramoy. It's I'm on Twitter at Lisa A. Bramo. It's one before the podcast. You can always catch us worldwide on'm Bloomberg Radio