WSJ: Just 7 Ways to Publicly Invest in Sports, JWS: Not the Case

wsj-wallstreetjournal

The WSJ published a recent story asserting there are few ways to directly invest in sports, a notion we dispute. The article deemed just 7 publicly traded equities to be sports-related and based their conclusion, that fans are better off watching and playing sports than investing in them, on the performance of 2 exchange traded funds; one of which (FANZ) has beat the S&P since its July ’17 inception, which would seem to counter to their argument. The article cites Matt Hougan, the CEO of Inside ETFs, and his belief that most of the economic value within sports (ownership and player contracts) “comes in private transactions”, to support the author’s thesis; but fails to pay consideration to the revenue streams that support those contracts (and generate ownership profits). It’s worth noting that JohnWallStreet follows over 100 sports-related equities.

Howie Long-Short: Sports teams generate revenue from 4 sources; broadcast rights, ticket sales, sponsorships and merchandising. Several publicly traded equities use a similar business model; Churchill Downs (CHDN), International Speedway (ISCA), Dover Motorsports (DVD) and Speedway Motorsports (TRK), and thus should also be included on the list. Others, like Acushnet Holdings Corp. (GOLF) and Callaway Golf Company (ELY), are undeniably directly tied to sports; and no one would claim your basket was unfocused if companies like Nike (NKE), Lululemon (LULU) and Fitbit (FIT) were to be included. Oh, and don’t forget Activision Blizzard’s (ATVI) new esports league (Overwatch); their inaugural season starts today.

Fan Marino: The story names the New York Knicks, New York Rangers (MSG), Atlanta Braves (BATRK), Manchester United (MANU) and Borussia Dortmund (BORUF) as the teams you can purchase equity in. The Toronto Blue Jays, Toronto Maple Leafs (RCI), Juventus F.C. (JVTSF), A.S. Roma (ASRAF) and SS Lazio (BIT: SSL) are also all publicly traded.

To join our free daily email newsletter list, sign-up here!

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.

To join our free daily email newsletter list, sign-up here!

Lululemon Counting on Growth of Men’s Line to Reach $4 Billion by ‘20

Lululemon (LULU) introduced its first ever marketing campaign targeting male clientele in fiscal Q3; growing annual men’s sales 21% YOY, during the quarter. The athleisure company has publicly stated it is targeting $4 billion in annual revenue by 2020; projecting $1 billion in sales from the men’s division. During the Q3 earnings call, CEO Laurent Potdevin said the company currently sits “almost halfway there”; remaining on track to accomplish both goals, on time.

Howie Long-Short: LULU reported Q3 revenue grew 14% YOY (its 2nd straight quarter of growth) to $619 million; with gross profit rising 16% to $322 million. E-Commerce (+25% YOY) and international (i.e. China) growth helped drive the increases. It’s worth noting that the company set records for sales on both Black Friday and Cyber Monday, boding well for Q4 financials. Company shares are up 6% since the earnings release and 11% YTD.

Fan Marino: Kevin Watley, a consultant with GlobalData Retail, said that LULU’s ability to resist excessive discounting has strengthened the company bottom line (52% profit margin). Profit margins may be strong, but it’s corporate policy that is preventing discounted sales; not the company’s ability to restrain itself in a promotional market. The LULU website currently has 160 items on sale, but all are final sale; meaning no returns or exchanges. Who is buying a $69 t-shirt that can’t be exchanged if it doesn’t fit properly?

Lululemon CEO sees huge potential in men’s apparel, says ‘almost halfway’ to lofty sales goals

For the balance of today’s newsletter, sign-up here!

NIKE TO OPEN 5,000 “PANTS STUDIOS” AS IT LOOKS TO GROW WOMEN’S BUSINESS

In supplemental documents distributed at Nike’s (NKE) investor day, the brand provided a game plan for how they plan to cash in on the young, affluent, active female demographic; “pants studios” and “sneaker boutiques”. On November 1st, NKE will open the first of 5,000 “pants studios”; dedicated space within their stores to showcase pants, organized by sport or activity. The company has been pouring R&D dollars into the female demographic, even vowing to rethink athleisure pants beyond tights; and for good reason, women’s athleisure is a $7 billion industry that they see growing.

Howie Long-Short: Lululemon (LULU) has competitors coming from all directions. Amazon (AMZN) is creating private label sportswear lines using LULU manufacturers and now NKE is introducing 5,000 “pants studios”. While LULU CEO Laurent Potdevin can argue AMZN is playing in a “very different playground” (I would debate that), there is no doubt NKE is going after LULU’s target clientele. As NKE President Trevor Edwards stated earlier this week, “our growth in our women’s business is outpacing our men’s business, and it will continue to do so”. Unfortunately for LULU shareholders, that growth looks like it will come at your expense.

Fan Marino: Nike’s revamped strategy for women’s sneaker sales (i.e. sneaker boutiques), focuses on the premium and sub-$100 categories. The company has reported sales are up 30-50%, at stores running the “sneaker boutique” pilot program.

Nike reportedly set to open yoga pant studios in stores, sending Lululemon shares lower

Editor Note: The summary for this story was written by our friends at The Water Coolest. Check out TheWaterCoolest.com for the latest market news and professional advice.

For the balance of today’s newsletter, sign-up here!

UNDER ARMOUR BANKING ON CURRY 4 TO LEAD COMPANY REBOUND

Jefferies investment bank analyst Randal Konik is predicting the newly released Steph Curry 4 “will become the #1 sneaker in basketball this year”, leading to a rebound of the Under Armour (UAA) brand (down 44% YTD). After years of rapid growth, the UAA reported its second straight losing quarter in August; pointing to a sluggish signature market and weak consumer reception to the Curry 3 as reasons for the decline. UAA is taking a different marketing approach with the Curry 4; releasing the shoe in phases, while limiting distribution and colorways to create consumer demand.

Howie Long-Short: Konik points to the Curry 4 “championship pack” selling for 80-100% above retail, as evidence of a pending turnaround. I’m not so sure. Just a handful of stores received them and those that did had just a couple hundred for sale. You can create buzz selling in limited quantities like that, but you won’t generate meaningful revenues that way (see: Adidas/Yeezy); and unlike ADDYY, UAA doesn’t have a Stan Smith, NMD or Superstar to drive their resurgence. Konik’s most valid argument for UAA upside? LULU having a higher market cap than UAA “makes no sense”.

Fan Marino: The “championship pack” included: 2 pairs of Curry shoes, 2 pairs of Stance socks, a golf divot tool and a signed letter from Curry. The pack retailed for $400. The Curry 4 is selling for $130. Steiner Sports sells Steph Curry autographed photos for $299. Fans lucky enough to land a pack would seem to have gotten their money’s worth.

Stephen Curry’s new shoe will spark an Under Armour turnaround: Analyst

AMAZON ENTERING PRIVATE-LABEL SPORTSWEAR BUSINESS, TO COMPETE WITH NIKE, LULULEMON

Amazon (AMZN) is 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). Both manufacturers have begun to produce limited quantities for AMZN, as the company looks to test the market before entering in to long-term contracts.

Howie Long-Short: AMZN 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 product themselves and compete directly against the brand. That’s not good news for retailers (LULU shares dropped 4.9%, UAA down 2.8% since Friday’s announcement), but it does offer manufacturers a viable new revenue stream. Eclat expects its new e-commerce clients to generate up to 12% of company revenues in 2018, with the potential for that percentage to grow significantly.

Fan Marino: There are no shortage of media stories pointing to the end of the athleisure trend, so hearing that AMZN is first looking to get into the space is big news for those of us who live in joggers. Bezos isn’t known to be late to the party, so I’m betting this concept of dressing comfortably isn’t going out of style anytime soon.

Amazon Is Getting Into Sportswear

LULULEMON CEO SAYS BRICK AND MORTAR RETAIL IS HERE TO STAY

Lululemon (LULU) CEO Laurent Potdevin remains bullish on the future of brick and mortar retail, saying “people don’t want to be stuck on their phone” and those that seek “mindful lifestyles continue to crave human connections”. The company employs 10,000 “educators” to develop those connections within in their 421 stores and an additional 2,500 “brand ambassadors” worldwide to foster human engagement. Potdevin points out that Lululemon should not be grouped with other struggling athleisure apparel companies, as the brand does not sell footwear and controls its fleet of stores (competitors tend to be wholesale companies).

Howie Long-Short: Yoga’s popularity in China is growing and Lululemon is cashing in with sales in the country up 350% YOY. LULU, who has an exclusive partnership with Tmall (BABA), China’s largest B2C e-commerce platform, saw a 100%+ increase in traffic and higher conversion rates lead to a 175% YOY increase in sales on the platform. Rapid growth within the Asian market puts the company’s $4 billion revenue target for 2020 in sight.

Fan Marino: Speaking of footwear, NBA MVP Russell Westbrook is the new face of Jordan Brand (NKE). Westbrook signed a 10-year deal that will make him the highest paid endorser in the history of the company. Westbrook will also get his own signature shoe line. While financial terms of the deal were not released, Westbrook shouldn’t be short on cash. He recently signed the richest deal in NBA history, a 5 year $205 million extension with Oklahoma City.

Lululemon CEO: Retail isn’t dead because people ‘crave human connections’