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.
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Depressed golf sales are beginning to have a direct financial impact on the PGA Tour’s biggest stars; as manufacturer volume dwindles, endorsement deals are decreasing in breath and value. With NKE and ADDYY out of the golf equipment space, it was expected that niche brands like Callaway (ELY), Titleist (GOLF) and Ping would sign “free-agent” players to all-encompassing endorsement contracts (hats/clothing/shoes/clubs/bags). That hasn’t been the case. The smaller players that remain have opted instead to sign players to less lucrative equipment-only contracts and in some cases, terminate relationships all-together. Sergio Garcia and TaylorMade announced they have mutually parted ways, effective immediately, ending Garcia’s 15-year endorsement of the company’s equipment. Rumors are circulating that he will sign a new, likely smaller deal with Callaway Golf (ELY).
Howie Long-Short: Tiger Woods couldn’t make golf equipment profitable for Nike, so from the manufacturer perspective, I have strong reservations as to the ROI on golf equipment endorsement deals. On the athlete side, the manufacturers that remain simply don’t have the same size marketing budgets. Instead of seeing massive all-encompassing deals, expect players to take an ala carte, sum of the parts approach to sponsorship dollars.
Fan Marino: Traditionally manufacturers have wanted tour players to maintain uniformity with their equipment and to wear the company logo on their hat; so that casual fans could identify the clubs a player is using. In what has become a fragmented marketplace, there are several companies still capable of offering all-encompassing endorsement deals; Acushnet (GOLF) with Cobra/Puma (i.e. Rickie Fowler) and Titleist/Footjoy and ELY are among them.
New Sergio Garcia equipment deal could be a sign of a new economy in golf
ClubCorp Holdings (MYCC), the owner/operator of over 200 private golf & country clubs, has been acquired for $1.1 Billion by Apollo Global Management, a P.E. firm. Apollo has agreed to pay $17.12 per share in cash, nearly a 31% premium over the July 7th closing price. The deal, expected to close in Q4 ’17, comes just 3 months after Longtime CEO Eric Affeldt announced his retirement and the firm stated it would not be seeking a sale, despite mounting debt and lagging memberships.
Dallas-based ClubCorp agrees to be bought by private equity giant for $1.1 billion
Howie Long-Short opines: Golf course roll-up strategy, really? Never bought this one. Less than fantastic return for any long-term MYCC shareholders participating in the $14 IPO in 2013. Fortunately for them, Apollo continues the trend of buying out companies flagged for questionable accounting or business models. Good luck.
Adam Dow-Jones comments: Oh boy what a saga this was, between activists on both long and short side. Hardly a great return for IPO shareholders but a nice opportunity for those able to value these hard assets, geared to experiential consumption.
Fan Marino says: If you believe Golf is on the upswing, Acushnet Holdings Corp (GOLF), the owner of Titleist, and Callaway Golf (ELY), both remain public.