Index Fund for the Sports Fan

SportsETFs

SportsETFs launched a Pro Sports Sponsors Index (FANZ) during the ’17 MLB all-star break, consisting of 66 companies that are official sponsors of the 4 major sports leagues; today that figure is up to 67. Nick Fullerton is the man behind index fund and JohnWallStreet had the chance to connect with him late last week to discuss what it is about pro sports sponsors that makes them attractive from an investment standpoint. 

JWS: Who is investing in this fund?

Nick: We designed this index to provide a general investor, a sports fan and a financial advisor with a product they can intuitively get. This gives them a vehicle to invest in something that they know.

JWS: Can you discuss the methodology behind selecting names for the index?

Nick: It’s rules based product, so we’re not doing any stock selection on our end. You must be an official partner of one of these core four sports leagues. The leagues are essentially doing the vetting and stock picking for us when they enter one of these multi-year agreements. You must be publicly traded on one of the major U.S. or Canadian stock exchanges and the index is equally weighted.

JWS: What is it about corporate sponsors of pro sports leagues that makes them an attractive investment option?

Nick: If you look at the companies that partner with the league, they are typically blue-chip companies that still want to grow (think: DIS, AMZN, BRK.A); so, they’ve got a growth component but, they’ve also got a value component in that they have enough free cash flow to earmark a big chunk of their marketing budget to sports. They’re typically strong cash flow, well-known brands. These are companies that want to market and sell to a loyal, dedicated and passionate community of customers – there is no other group or medium that brings so many people together for these brands.

Howie Long-Short: How was the fund performed?

Nick: The index has been similar to or beating the S&P 500 since our July 11, 2017 launch date. We back-tested the index to 2005 and it beat the S&P 500 by over 130%.

Note: The fund trades under the symbol FANZ on the BATS exchange.

Fan Marino: Investing > Gambling. On Saturday evening, Michigan played Florida State with a spot in the Final 4 on the line. Down 4 and with 10 seconds remaining, Florida State chose not to foul allowing the clock to expire. Coach Leonard Hamilton said after the game that the reason he chose not to foul was because “the game was over”. Despite Hamilton’s belief, it wasn’t over for Florida State (even with 2 FTs, it’s only a 2-possession game) and it certainly wasn’t over for gamblers who had Michigan -4.5. Tough loss.

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MLB Takes “Next Great Leap” in Sports Broadcasting

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Facebook (FB) has landed the exclusive broadcast rights to stream 25 Major League Baseball day games (primarily on Wednesdays) during the 2018 season; the first time a “big 4” U.S. sports league has awarded exclusive distribution to a social network. Industry consultant Lee Berke called the deal “the next great leap” in sports broadcasting, comparing the milestone to the migration of games from network to cable television in the mid-to-late 1980s. It’s been reported that the social network paid $30-$35 million for a package that includes; the live games (MLB network will produce the broadcasts), on demand highlight packages (for every game) and weekly recaps of all 30 teams. The first Facebook Watch broadcast will be on April 4th (Mets vs. Phillies).

Howie Long-Short: While this is a landmark deal in sports broadcasting history, it’s premature to call it a “great leap”; it’s more like a big step. A “big 4” sporting event appearing exclusively on a digital platform is noteworthy; it’s just not the game-changer that Berke implies. All 4 leagues have broadcast rights tied up through at least the balance of the decade and none are expected to forego linear television money in the next round of negotiations. There may be a day when FAANG companies control exclusive NFL, NBA, MLB, NHL broadcast rights, just don’t expect it to come anytime soon.

Fan Marino: In the hours following the announcement, Twitter (TWTR) and MLS announced their own streaming partnership; a 3-year deal gives TWTR the exclusive English broadcast rights to at least 24 live matches/season that air in Spanish on Univision (plus on-demand highlights). A week prior, AMZN announced a deal with the UFC to stream PPV events (cost $64.99) on Amazon Prime Video (do not have to be Prime member); while YouTube TV (GOOGL) locked up exclusive live streaming rights to the Seattle Sounders FC, it’s 2nd MLS deal (L.A. FC). The arms race between digital companies seeking to lure users with sports, is officially on.

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Twitch Rewarding Gamers as OWL Viewership Declines, Activision Blizzard Hits 52-Week High

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Twitch (AMZN) has begun encouraging gamers to watch exclusive Overwatch League broadcasts, by awarding Overwatch League tokens that can be used to buy team-based character skins, as the live streaming video platform seeks ways to increase viewership. OWL’s opening day drew 408,000 concurrent viewers, but that figure has steadily declined in the weeks since; compelling Twitch to run a program that encourages OWL gamers (and fans) to watch more. Viewers will earn one token per live map finish (roughly 3-4/hour), with a “percentage” of those watching the conclusion of the final map randomly winning 100 tokens during the live cast. Skins (and team specific gear) will also be awarded to users who tip (with paid emotes) during live streams. For reference purposes, users need 100 tokens to unlock OWL skins; they have a cash value of +/- $5.

Howie Long-Short: Blizzard Entertainment (ATVI) is the publisher behind Overwatch and the OWL is their most ambitious esports endeavor. Once thought to be overpriced at $20 million/franchise, CEO Michael Morhaime said on the company’s Q4 earnings call that he’s “pretty confident” the price is going up for the next group of owners that buy in; indicating there’s been an increase in global demand for OWL expansion franchises. ATVI posted Q4 ’17 earnings on February 8th, reporting an 8% YOY increase in revenue (to $2.64 billion). The company hit a 52-week high Tuesday morning ($75.41), before closing the day at $73.92.

Fan Marino: To put OWL’s opening day success in perspective, you can compare it the viewership figures Amazon (AMZN) and Twitter (TWTR) received for their initial TNF livestreams. Amazon’s first TNF game drew 372,000 viewers per 30 seconds; Twitter saw just 243,000 viewers per minute, during their first broadcast. While OWL viewership has since declined, Blizzard Entertainment managed to negotiate a 2-year, $90 million deal to stream OWL Season 1 & 2 games exclusively on Twitch.tv in English, French and Korean (they do not hold the rights to broadcast in Chinese).

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Amazon Interested in Premier League “Super Pack”

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Amazon is reportedly interested in acquiring a “super pack” of English Premier League (EPL) broadcast rights; a package that would give them 40 live matches/season, near live rights to all 380 games/season and the ability to show highlights. The rights would span 3 seasons (’18-’19 through ’21-’22) and in theory, help the e-commerce juggernaut bring new subscribers to their Prime service. The EPL, looking to offset the loss of value (-14% from last round of negotiations) from the first 5 packages that were awarded, has additional incentive to work out a deal with AMZN; the organization is considering launching its own OTT service and wants to use the next 3 seasons to gauge the potential for streaming success.

Howie Long-Short: Of the 5 rights packages awarded thus far, Sky Sports (subsidiary of Sky PLC, SKYAY) won 4 of them; for $1.655 billion/season. On Tuesday, Comcast Corp. (CMCSA) made a $31 billion offer for the European pay TV provider, driving SKYAY share prices up 21% (to $74.58). While that’s good news for SKYAY shareholders, the offer likely has DIS execs fretting. SKYAY was the “crown jewel” of DIS’ $52.4 billion offer for FOXA assets. DIS now must decide if it will proceed with the FOXA deal without SKYAY or look to outbid CMCSA for an asset it desires.

Fan Marino: The term “near live rights” refers to a networks ability to re-broadcast games shortly after their conclusion. That must be a European phenomenon. I find second screen devices (and platforms like Twitter) critical to the sports viewing experience. If the game isn’t live, you’re eliminating the use of those devices for the purposes of social interaction, game updates etc. Of course, you also must manage to avoid the score of the game while it’s being played; good luck with that!

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Twitter, Amazon, YouTube and Verizon Bid for TNF Streaming Rights

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Twitter (TWTR), Amazon (AMZN), YouTube (GOOGL) and Verizon (VZ) are all interested in acquiring Thursday Night Football streaming rights; with the NFL reportedly seeking a multi-year deal, for the first time (since the package was introduced in ’16). Among the remaining companies, only YouTube has yet to broadcast a league game; though, CEO Susan Wojcicki has stated she would “love to stream the NFL” and her platform may be able to offer the league, the greatest potential for viewership (AMZN drew 370K for 1st ’17 game, TWTR 240K drew for 1st ’16 game, YouTube drew 1.5 million for a recent SpaceX launch). It’s unclear if its status as an existing league partner, with some TNF mobile streaming rights, will give VZ a leg-up in the competition.

Howie Long-Short: The NFL received a 47% YOY increase in the value of their newly signed TNF contract, worth $3.3 billion over 5 years; though, Fox will also get rights to broadcast the NFL draft and may receive another playoff game. If the league receives a comparable return on mobile rights (expect the percentage increase to be higher, they increased 400% from ’16 to ‘17), the new deal will be worth more than $72.5 million/year.

Fan Marino: Fox’s TNF deal touts the potential addition of a playoff game as a benefit, but the game they would likely get (Wild Card, early slot, Saturday) has been a loser for its existing rights holder (ESPN). The game has consistently drawn the lowest ratings of Wild Card Weekend since ESPN started carrying playoff games in ’15 and the network has yet to turn a profit on those broadcasts.

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Amazon Closes Event Ticketing Operation, May Relaunch with New Platform in 2019

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Amazon (AMZN) has announced it will be closing its U.K. event ticketing operation (Amazon Tickets), less than 3 months after abandoning plans to launch in the United States; though, the company may be planning to relaunch in 2019 with new technology. Amazon’s open distribution model had some initial success in Europe (signed a partnership with AEG, launched a concert series), but the company’s inability to work out a partnership with Ticketmaster (in the U.S.) was its downfall. Speculation exists that AMZN is working on a new platform that would sync with both Echo and Firestick devices and use AI-powered Alexa to locate tickets.

Howie Long-Short: If you’re looking for “underdogs” that could potentially take on Ticketmaster (LYV), look at Alibaba subsidiaries Tao Piao Piao and Damai.cn. Tao Piao Piao, an online ticketer, was formed out of a partnership between Alibaba (BABA) and Damai.cn in May 2016; BABA has since increased its stake in Tao Piao Piao to 96.7%. In March 2017, Jack Ma’s e-commerce giant acquired the ticketing agency Damai.cn for an undisclosed sum (BABA a minority investor since ‘14). The Alibaba Pictures Group (the entertainment sector of BABA) reported in September, that H1 ‘17 revenue increased 313% YOY (to $165 million); attributing the growth to increased contributions from Tao Piao Piao.

Fan Marino: Here’s to hoping AMZN re-enters the ticketing space; they intended on cutting the service and processing fees for Prime members, a change that would have resulted in a savings of +/- $15 for every $100 ticket purchased.

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Twitch, Overwatch Agree to Biggest Deal in Esports History

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Twitch (AMZN) and the Overwatch League (OWL) have agreed upon a 2-year media rights deal worth at least $90 million dollars (the biggest deal in esports history); enabling the live-streaming video platform to broadcast all league matches, starting with the first match of the inaugural season tonight at 7p EST. Twitch will be the exclusive worldwide (minus China) digital provider of the league, broadcasting all regular-season, playoff and championship matches in 3 different languages (English, Chinese, French). To drive viewership and engagement, the league and its broadcast partner will introduce a program that rewards the league’s biggest fans and give them a chance to root on their favorite gamers/teams with OWL “cheermotes”.

Howie Long-Short: ATVI shares are up 480% (from $11.52 in ‘13) over the last 5 years (to $66.19 at Tuesday’s close), while most reporting a Q3 record $1.9 billion for revenue generated (+17% YOY) and raising full-year revenue guidance from $6.4 billion to $6.68 billion ($2.08/share), in early November. CEO Robert Kotick has tried to temper expectations for the Overwatch League saying, “the first season is really about building a solid foundation”; but news that the company has recently launched a consumer products division (which will sell OWL skins) combined with the newly signed broadcast deal, would seem to raise the bar.

Fan Marino: The league has announced 12 franchises (2 6-team divisions), with Patriots owner Bob Kraft, Mets COO Jeff Wilpin, Rams owners Stan & Josh Kroenke, Sacramento Kings co-owners Andy Miller/Mark Mastrov, Texas Rangers co-owner Neil Liebman and the CEO of Comcast Spectacor (owns Flyers) Dave Scott are among the pro sports owners that have purchased (or made an investment into) teams. Owners paid $20 million for the rights to participate in the new league.

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Exclusive: Mia Khalifa Talks Twitch, John Wall All-Star Campaign (Part 2)

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In December, Twitch.tv announced a partnership with the G-League that enables users to co-stream games. Social media influencer Mia Khalifa has a Twitch.tv channel, is calling the NBA development league’s games and averaging 100,000 views per broadcast (3 million views, 30 broadcasts). In the second half of an exclusive interview (you can read the 1st half, here), JohnWallStreet had the chance to get her thoughts on the future of sports broadcasting, the platforms she uses to watch games and her strategy for getting John Wall to the All-Star game.

JWS: Are you broadcasting these games on behalf of Twitch.tv (or the G-League) or is this a personal endeavor?

Mia: Twitch.tv approached me offering front page promotion and I was like “wait what? The G-League is on Twitch.tv?” I was excited because it was such a big step in the right direction for sports streaming. Nobody wants to be forced to sit down on their couch and watch NBC; they want to watch the game on their phone, wherever they are.

JWS: Are Twitch.tv co-streams the future of sports broadcasting?

Mia: I think the future of broadcasting is going towards people’s favorite pundits, being the ones that they listen to. Twitch is the one spearheading all of this; but I think in 5 years, people will have the option to pick who they want to listen to.

JWS: How do you watch sports? Do you stream games or watch them on television?

Mia: I do both. All my favorite teams are out of market and I have all the packages, so most of my viewing is via streaming; unless my team has the rare national broadcast game. I have 6 TVs and only 1 has cable; the rest are Apple TV and Roku. The only reason I have cable is for Rivalry Night (NHL on NBCSN), SNF and MNF; Twitch has TNF, but you can’t co-stream. Millennials are going cable-less, so sports leagues are going to have to adjust. I can name all my friends who have cable on one hand.

JWS: You are a big D.C. sports fan and actively working to get John Wall to the All-Star game. Can you discuss your campaign strategy?

Mia: I am going to win him that all-star vote single handedly, it’s my main mission in January; and I’m going to do it in the most deceptive way possible. My plan is to post really hot pictures of myself with “make @johnwall a 5-time #WallStar! RT to cast your #NBAVote” so all those retweets, by all my thirty fans, go to his all-star voting. It’s working so far.

Howie Long-Short: Amazon (AMZN) took in 37% of all game-streaming revenue (projected to be worth $4.6 billion) in ’17, with 51% coming from direct revenue streams; their percentage of the take on subscriptions, donations etc.  That statistic is particularly noteworthy when you consider SuperData had projected 69% of all revenue industry-wide to be indirect.

Fan Marino: Mia is an FSU graduate and fanatical FSU football fan. I asked if she was pleased with the hiring of Willie Taggert?

Mia: I’m excited for the Taggert era, but that’s just me trying to make Jimbo jealous. I want to see how we finish recruiting-wise this offseason, before I answer that question more openly.

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Mia Khalifa, the G-League’s Most Popular Broadcaster

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In December, Twitch.tv announced a partnership with the G-League that enables users to co-stream games. Social media influencer Mia Khalifa has a Twitch.tv channel, is calling the NBA development league’s games and averaging 100,000 views per broadcast (3 million views, 30 broadcasts). In the first half of an exclusive interview (2nd half will be in tomorrow’s newsletter, so make sure to sign-up), JohnWallStreet had the chance to ask Mia about her new role as a color commentator, her audience and least favorite broadcaster.

JWS: Twitch.tv has gained widespread popularity within the gaming community, but remains under the general public’s radar. How did you get introduced to Twitch.tv

Mia: As an undercover gamer, I’ve known about Twitch since I was in college; as a place to see new games being demo’d. My manager used to run Chive Gaming live streams and he talked me in to starting one of my own. At first I was hesitant because I’m not necessarily too good at any one video game. I just like to play them for fun and I didn’t think I had it in me to conduct streams that people would want to watch, but he opened my eyes to the IRL channel (in real life streaming); where I can do a cooking show, I can have a Q&A session, I can post a talk-show if I want. I can turn it on and talk sh!t about all the playoff games I lost money betting on. I can do anything I want with this new channel on Twitch; I don’t have to pigeon-hole myself to (video) games and it’s been great. It’s my main job right now; doing cooking and G-League streams.  

JWS: Do you have an idea of who your audience is?

Mia: Most of the people who are watching me stream, I would say probably aren’t even basketball fans; but, that’s the beauty of it. It’s opening basketball to the eyes of people who would never go out of their way to see a court, which is amazing. These are all nerds, like level 10 nerds, like real true nerds who are watching the NBA’s G-League.

JWS: So, what is your goal? Are you looking to become a color commentator? The next Bill Raftery?

Mia: No, I do not take myself anywhere near that seriously. I like to consider myself a colorful commentator, like a rainbow commentator. I’m not trying to be the next Kirk (Herbstreit), I’m just really being myself. I’m commentating on these games the way I would if I was just talking sh!t with my friends. I don’t call plays. It’s all light hearted, all in good fun. You don’t have to be a sports fan, it’s just banter and a good time; and it’s inclusive, World of Warcraft nerds can tune in just as hardcore sports fans can. We’re exposing basketball to an audience that wouldn’t usually tune in.

JWS: Barstool Sports did a live stream of guys living and dying with every pitch during the ’16 World Series, which seems along the lines of IRL streaming. Do you have any aspirations of joining those guys?

Mia: Uh, what’s a barstool?

Howie Long-Short: The video game streaming market was expected to generate $4.6 billion in 2017 revenue. Amazon (AMZN), which bought Twitch back in 2014 for $970 million, is well positioned to cash in moving forward. The company reported concurrent viewership increased 67% during Q3 ’17 (to 737,000, nearly 3x more than YouTube Gaming); while the company took in 37% (the most of any company) of all game-streaming revenue across the industry.

Fan Marino: Mia’s favorite broadcaster is Kirk Herbstreit. I asked who her least favorite was?

Mia: God, Quint Kessenich is so bad. Who is he sleeping with at ESPN to escape all those layoffs? How does he still have a job? Also, Pierre McGuire sucks and NBC Sports should fire him.

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Amazon Takes on The Sports World; 25 Companies That Will Be Affected

Amazon has been credited with killing everything from book stores to electronics retailers since its 1994 launch. Now, with a market cap +/- $570 billion and $16 billion in annual operating cash flow, the company is taking aim at the sports world. In our final newsletter of 2017, we look at 4 of AMZN’s recent initiatives and the 25 companies most likely to be affected in 2018.

Amazon Expands Brand Registry Program, Now Includes Nike

In June, Nike (NKE) agreed to join Amazon’s brand registry program; seeking to curb counterfeiting and non-licensed selling within the e-commerce marketplace. The partnership also supports the athletic apparel and sneaker brand’s initiative to boost revenue through a shift to digital and DTC sales, relying less on struggling retailers. Competitors Adidas (ADDYY) and Under Armour (UAA) already have direct-sales deals in place with AMZN.

Names to Watch: FINL, DKS, FL, HIBB, BGFV; LON: SPD, LON: JD

Howie Long-Short: Athletic apparel and sneaker retailers count on NKE (70% of FL business comes from NKE); but NKE launched its “Consumer Direct Offense” strategy in fiscal Q1 ’18, increasing e-commerce business 19% YOY. Mediocre retailers beware, the company is maintaining just a few dozen wholesale relationships as it looks to increase its e-commerce business (from 15% of revenue to 30% over the next 5 years).

Amazon Entering Private-Label Sportswear Business

In October, Amazon (AMZN) announced it was entering the private-label sportswear business and working with the same Taiwanese suppliers, Makalot Industrial Co. (TPE: 1477) and Eclat Textile Co. (TPE: 1476), that some of the world’s biggest athletic brands use. Elcat’s involvement is particularly noteworthy as the company manufactures high-performance sportswear for Nike (NKE), Lululemon Athletica (LULU) and Under Armour (UAA).

Names to Watch: NKE, UAA, ADDYY, LULU; TPE: 1476, TPE: 1477

Howie Long-ShortAMZN wants to be in the private-label clothing business because it pushes retailers to sell inventory on the e-commerce site. Should a retailer choose not to, AMZN will simply produce the item themselves and compete directly against the brand.

The Pursuit of Exclusive Broadcast Rights

In September, the company hired Brian Potter to lead its sports video business. In November, Jim DeLorenzo, head of sports, Amazon Video, said the company was pleased with viewership numbers, engagement and the reliability/quality of the cloud-based streaming service during its season long experiment streaming Thursday Night Football (10 games, $50 million); though it is too early to say if the company will pursue future exclusive sports broadcasting rights. The company has since done deals that will deliver Prime subscribers 37 ATP tour events (previously owned by SKYAY), the AVP Beach Volleyball tour each of the next 3 summers and docu-series on Michigan Football.

Names to Watch: CBS, DIS, FOXA, CMCSA, FB, GOOGL, NFLX, AAPL, SKYAY

Howie Long-Short: NFL Senior VP, Digital Media, Vishal Shah recently said “we continue to think some of the best days are ahead [for traditional TV partners] despite some shifts in the media landscape.” That doesn’t sound like linear television will be excluded in the next round of negotiations, but the NFL is encouraging interested media companies to bid on both television and streaming rights for the leagues TNF package; leaving the door ajar for the tech giants to receive exclusivity for the first time.

Twitch: The Future of Game Broadcasts?

Twitch, the live-streaming platform most often associated with video games, has agreed to stream up to 6 live G-League (Gatorade sponsored NBA minor league) games. Broadcasts will include interactive overlays (viewers can click a team name/logo for player, team, game and season stats), a loyalty program to reward viewer engagement during broadcasts (i.e. custom emotes for group chat) and the ability for users to provide their own live commentary (over the game feed) via the Twitch co-streaming feature.

Names to Watch: CBS, DIS, FOXA, CMCSA, TWX, RCI, MSGN

Fan Marino: NBA Commissioner Adam Silver has gone on record stating he’d like to see changes in the way sports broadcasts are presented; pointing out the lack of live stats and chatter surrounding the broadcast, that gamers have become accustomed to. I’m not ready to give up Mike Breen, Marv Albert and Ian Eagle for Towelliee; but it’s worth watching to see if anyone else is.

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