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Rating Considerations for Leisure and Sports Industry

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Over time in Nigeria, Leisure and Sports have grown beyond just being a pastime to a source of employment and income.

The Leisure and Sports industry is made up of gaming operators, toy manufacturers, casinos, betting and gambling operators, hotels, resorts & hospitality operators, timeshare operators, cruise lines, sports teams & sports-related companies, sports development, fitness club operators including operators of theme parks & other tourist attractions.  

Generally, country risk plays a major role in the rating of companies, and this is not exempted when it comes to Leisure and Sports. It encompasses the broad range of economic, institutional, financial market, and legal risks that arise from doing business in a specific country.

In assessing the competitive position of a Leisure and Sports company, particular emphasis is placed on market position, brand or asset diversity and operating efficiency. A weak competitive advantage is characterised by a less than adequate brand recognition, an inconsistent or periodically unfavourable brand reputation, locations in less favourable markets with low population or visitation base and below asset quality or limited ability to reinvest in maintaining assets.

Toy companies and other leisure product manufacturers have working capital requirements that fluctuate seasonally and over the course of the business cycle. While others, such as hotels, gaming, or cruise lines, are more fixed capital intensive. Therefore, in assessing financial risks profile, the fixed and working capital intensity of the company are taken into account.

Overall. profitability is evaluated through the combination of the level of profitability and the volatility of profitability. Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA) and Return on Capital are both essential determinants of the profitability of these companies.

To allow for globally consistent and comparable financial analyses, Credit Raters usually start their analyses with a review of the accounting standards, policies and underlying principles on which a company’s financial statements are based. This is to ascertain whether the statements accurately measure a company’s performance and position relative to its peers and the larger universe of corporate entities.

Leisure and sports companies are exposed to material social risks across their value chain. The sector is exposed to Health, Safety and environmental (HSE) risks, human capital management and talent attraction, cybersecurity and data privacy, and community relationship management.

Source: DATA PRO

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