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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Adidas Takes Macro View, Competing with Netflix for Share of Wallet

Adidas Global Creative Director Paul Gaudio believes the company isn’t just competing with rival footwear and apparel manufacturers (i.e. NKEUAAPMMAF etc.), but with anyone “competing for share of wallet.” Gaudio’s premise assumes that consumers have a fixed budget for recreational purchases and weigh the value of a product not just against its immediate competitors, but against all other products under consideration prior to purchase. ADDYY isn’t the first company outside television and film to be threatened by the blue-chip company; in 2016 Darden (DRI) CEO Gene Lee said the restaurant industry was competing with what he calls today’s “new necessities” (including: smart phones and NFLX) for discretionary dollars. ADDYY reported a Q3 ’17 sales increase of 9% YOY (to $6.6 billion) and profit that increased 30% YOY (to $610 million).

Howie Long-Short: While I admire Mr. Gaudio’s macro view on consumer spending, U.S. consumer confidence remains near a 17 year high. Consumer confidence measures feelings about current and future economic conditions, with an optimistic consumer purchasing more goods and services. If consumer confidence remains high, NFLX isn’t a threat to ADDYY; however, if consumers begin to pull back the reigns on spending (should the economy falter) it’s reasonable to think they will begin asking if that new pair of NMDs is worth forgoing 12 months of binge watching.

Fan Marino: Kanye West got Kim Kardashian a portfolio of blue-chip stocks including; Disney (DIS), Apple (AAPL), Amazon (AMZN), Adidas (ADDYY) and Netflix (NFLX) for Christmas! The portfolio included; 920 shares of DIS (valued at +/-$98,500) and 955 shares of ADDYY (valued at +/- $96,500). That sure beats the luggage I got for Hanukkah as a 16-year-old. Thanks dad (eye roll).

Adidas considers Netflix as competition

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YOUTUBE SIGNS ON AS PRESENTING SPONSOR OF WORLD SERIES; WILL PROMOTE CABLE-LIKE LIVE STREAMING SERVICE

Youtube (GOOGL) will be the presenting sponsor for the 2017 World Series; using commercials during the fall classic to promote YouTube TV, the company’s live cable-like streaming service. The ads will run on Fox (FOXA) during games, gain exposure across MLB’s digital platforms and be visible to fans within the stadiums in which games are played. YouTube TV, now available in 49 of the Top 50 markets for $35/month; targets sports fans with 40 channels (including ESPN (DIS) & Fox, the most watched sports channels on television). Financial terms of the deal were not released.

Howie Long-Short: The race to turn cord cutters into skinny bundle subscribers is picking up. Direct TV Now (AT&T’s (T) service) is trying to onboard subscribers by offering Netflix (NLFX) for just $5/month, while Hulu has made itself available through the X-box (MSFT) video game console. The goal of this campaign is to raise the sports fan’s awareness of the 6-month-old service, so having access to 40 million (2016 WS audience) engaged baseball fans gives YouTube the right audience. If the company can effectively convey that viewers will save +/-$100/mo. and still have access to “must see” sporting events, subscription numbers should spike. I would provide free access to YouTube TV during games, so that prospects can simultaneously compare video quality.

Fan Marino: The 2016 World Series was the most watched series in 25 years, so YouTube probably shouldn’t expect a repeat viewership numbers. As for YouTube TV, they have programming deals with ABC, CBS, and NBC (in addition to ESPN & FOX). In fact, you’ll get 80% of live sports programming with the bundle. Fans won’t get is the NCAA tournament though, as TNT and TBS aren’t included. No big deal, March Madness on Demand is free and carries all of the games.

YouTube Seeks Web-TV Boost Via World Series Sponsorship

DISNEY NOW OWNS 75% OF BAMTECH; DIGITAL CONTENT DELIVERY CO. WILL POWER SHIFT IN TO STREAMING

The Walt Disney Company (DIS), who just last year acquired 33% of digital media darling BAMTech for $1 billion, has reached a deal to become the majority stakeholder in the company that will provide the infrastructure behind the media giant’s shift in to streaming. DIS announced it has picked up an option to purchase an additional 42% of the MLB Advanced Media spinoff for $1.58 billion. The technology, which currently acts as the backbone behind WatchESPN, will power ESPN’s newly announced OTT service, along with Disney’s ambitions to compete with Netflix (NFLX) in the streaming space.

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BAMTech valued at $3.75 billion following Disney deal

Howie Long-Short: No surprise here. It was clear from the start that DIS sees BAMTech as the foundation for their digital sports platform going forward. Sure wasn’t cheap, but Disney has deep pockets.

Fan Marino: Each of the 30 MLB teams put up $4 million to develop BAMTech. It returned $50 million/team and collectively MLB and its teams still own 15% of the company. Not a bad ROI.