Juventus’ On Field Performance has “Significant Financial Implications” for Shareholders

Juventus

Cristiano Ronaldo’s hat-trick (last Tues. night) gave Juventus Football Club S.p.A. a 3-0 victory over Atlético Madrid (in the 2nd leg of their round of 16 matchup) and pushed the club through to the UEFA Champions League quarterfinal round on aggregate (3-2). CR7’s performance also had “significant financial implications” for the publicly traded Italian football club. Participation in the next round guarantees “The Old Lady” another $18 million in UEFA prize money and ticket sales (team sold a record $6.2 million worth in last round), and should Juventus go on to win the tournament for the 1st time since ’96, the team would stand to take in at least $57 million more ($39 million from UEFA, +/- $18 million in gate receipts & hospitality). JUVE shares climbed by as much as +30% on Wednesday (3.13.19), before closing the day +18%; they’re up +23% ($1.70) since Tuesday morning’s open.

Howie Long-Short: There is a volatility to the share prices of publicly traded European football teams that you won’t find in U.S. sports. Troy Brazell, CEO of Optima Sports Group, explained “while U.S. investors are looking for long-term capital gains, the shareholders of these thinly traded penny stocks are emotional fans looking to capture the excitement associated with being a part of a winner.” 

Publicly traded European football teams are also owned by fewer individuals than a common stock like MSG (Knicks/Rangers) or RCI (Maple Leafs/Raptors), so their shares are going to be more susceptive to the whims of the irrational emotional investor. JUVE’s strong rally has been super-charged by the low expectations investors had heading into the 2nd leg last week, but historically speaking the biggest fluctuations in the market come after a bad loss; investors simply become more risk adverse after losing.

Juventus’ value has increased by more than $225 million since the Borsa Italiana opened on Wednesday, +/- 150% more than Juventus would claim in prize money if it were to win the tournament, but that doesn’t mean the share price is now overvalued. Troy says that winning the Champions League would boost sponsorship revenues and positively “impact everything from ticket sales to merchandising and television revenues moving forward.”

Winning on the field isn’t the only way for a publicly traded European football team to move the share price. “The introduction of a new stadium, signing of a star player or the announcement of a high-profile match against a team that would not normally appear on the schedule can all excite the masses; and remember, these are global fan bases.” JUVE shares are +140% since the team acquired Ronaldo.

Round of 16 results also impacted the share prices of the other publicly traded teams participating in the Champions League. AFC Ajax (AJAX) and Manchester United (MANU) shares climbed +8% and +2% respectively, as both teams advanced to the quarterfinal round. Borussia Dortmund (BVB) shareholders weren’t as lucky. The stock price has fallen -10% since the club was bounced by Tottenham Hotspur.

Fan Marino: Some Champions League team executives are said to be meeting with UEFA officials tomorrow to discuss “radical changes” to the league format – including the introduction of a promotion/relegation system (4 teams/year) that would benefit the “biggest and richest clubs and make it harder for smaller teams to qualify.” As it currently stands, participation is based on where clubs finish within their respective domestic leagues during the prior season; a format that has resulted in Arsenal, Manchester United and AC Milan all failing to qualify in recent seasons. The league is also said to be considering moving games from mid-week to weekends, a move that would encroach on the territory of the national leagues. Needless to say, Richard Scudamore (EPL) and Javier Tebas (La Liga) are not supportive of the ideas. No changes are expected to be implemented before the 2024 season – last month the ECA and UEFA agreed to extend the league’s Memorandum of Understanding for 5 years.

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Despite Massive Corporate Spending on Sports Sponsorships, Few Companies Measure ROI

Anheuser Busch

The World Advertising Research Center (WARC) has indicated that companies will spend $65.8 billion (+4.9% YoY, $24.2 billion spent in North America) on (mostly sports) sponsorship deals in ’18, but few are monitoring their efficacy. Research by MKTG revealed that just 19% of the 500 corporate sponsorship executives surveyed have a way to measure returns on their sponsorship investments. While surprising, 73% of those polled in MKTG’s survey said that “brand awareness”, not ROI, is the “main point of sponsorship.”

Howie Long-Short: Though just 19% of sponsorship execs surveyed are quantifying ROI, 37% are monitoring the sponsorship’s impact; often with a form of digital or social media analysis. That’s wise – at least for those with jersey patch sponsorships – because according to GumGum Sports, 76% of the media value received from that kind of sponsorship comes from social media (think: photos, highlights); compared with just 24% originating from the game broadcast. Live sports are often simply too fast to catch the sponsor’s name in real-time.

One company that is wisely measuring ROI is Anheuser Busch (BUD) and the increase in access to data has led to more efficient spending. In fact, BUD has begun using incentive-laden contracts (think: on-field performance, social media views on co-branded content, market share growth within city), as opposed to signing long-term pacts with fixed fees, for its pro sports partnerships. For the 73% of corporate execs content with brand awareness (from their sports sponsorships), I would say “those audiences can be found in less expensive ways, like through targeted digital media, which do not come with multimillion-dollar sponsorship fees”.

Fan Marino: Speaking of jersey patch sponsorships, the Italian Football Federation recently (August 28th) authorized Serie A clubs to pursue sleeve sponsorship partners for their game kits; a revenue stream afforded to teams in Bundesliga, Ligue 1, La Liga and the Premier League. Curious what kind of financial upside that could mean for a Ronaldo led Juventus (JVTSF) team? Manchester United (MANU, $26 million/season), Arsenal ($13 million/season) and Chelsea ($13 million/season) command more from their sleeve partnerships deals than any other European clubs. That’s a significant number for a club that’s projected to do just $442 million in ’18 revenue. Shares are up 30% since the open on August 27th, they’ll open at $1.84 on Thursday.

The Portland Trailblazers have become the 24th NBA team to add a patch sponsor, agreeing to a multi-year deal (no financial terms disclosed) with Performance Health. The logo for their product, Biofreeze (topical pain reliever) will adorn Trailblazer game jerseys and practice apparel.

There’s been little controversy over jersey patch sponsorship agreements in the U.S., but fans of the English futbol club Wolverhampton Wanderers F.C. (aka Wolves) revolted when the club decided to promote the payday loan firm – The Money Shop – (see: questionable ethics) from sleeve patch to main shirt sponsor. The team ultimately decided to terminate their relationship with the company early, not wanting to detract from the club’s ascension to the Premier League. The team has since inked a deal with the online betting firm W88, a 2-year agreement being marketed as the biggest deal in club history. Wolverhampton is owned by Fosun International, The Chinese multi-national conglomerate, which trades OTC under the symbol FOSUF, has businesses in a variety of sectors including; technology innovation and investment management.

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A.S. Roma Sign’s Massive Shirt Sponsorship Deal, Share Price Drops with Semi-Final Leg 1 Loss

Roma

A.S. Roma has announced the largest sponsorship deal in club history, a 3-year pact (begins in ’18-’19) that will make Qatar Airways the club’s official shirt sponsor through the ’20-’21 season. The deal, worth $48.7 million/season (or +/- 2.5x the NBA’s most valuable patch partnership), is among the largest ever signed by an Italian futbol club. The logo of Qatar’s state-owned airline will “adorn the front of the first team’s shirts” and the company will serve as the top flight Italian soccer side’s “Main Global Partner.” Qatar Airways becomes just the 7th kit sponsor in the club’s 90-year history; the first team has played without a shirt sponsor since the ’14 season.

Howie Long-Short: Limited shares of A.S. Roma trade on the Borsa Italiana under the symbol ASR (OTC: ASRAF). Interestingly, the share price over the last 30 days has mirrored the first team’s success (or lack thereof) on the pitch. When the club stunned Barcelona (overcoming a 4-1 loss in Leg 1) on April 10th to advance to the Uefa Champions League semi-finals, the share price jumped 22% to $.73; by Tuesday morning it had risen to $.82. The team dropped the first leg of the semi-finals (to Liverpool, 5-2) on Tuesday afternoon and the share price began to dip in after-hours trading; by Wednesday’s close, shares were down -14.7% (to $.70) from Tuesday’s high.

While stock performance has little correlation with wins and losses in North America (see: MSG +48% since Oct. ’15, Knicks winning percentage over same span is .374, RCI hit a 5-year low during the Blue Jay’s first trip to the playoffs since ’93 in ‘15), it requires a closer look in Europe. Like Roma, MANU is having a strong season on the pitch ranked 2nd in the EPL standings; since the club’s August 12th EPL season opener, shares are up 14% (to $19.10). JohnWallStreet will take a deeper dive the correlation between on-field performance and the share price of publicly traded European clubs, in the coming weeks.

Fan Marino: ASR is playing in the Uefa Champions League semi-finals for the first time in 34 years, but the club is going to need a dominant performance (at least a 3-goal victory) on May 2nd (2nd leg), to qualify for the final. Of course, had the team not scored 2 late goals (they trailed 5-0 in Leg 1); all hope would have dissipated. For those wondering, Real Madrid and Bayern Munich are competing in the other semi-final; Real Madrid won the 1st leg 2-1 on Wednesday afternoon.

U.S. soccer fans will have a chance to catch A.S. Roma (+ Liverpool, Real Madrid and Bayern Munich) live in action this summer. Beginning on July 20th, 18 of the world’s top club teams will compete in the 6th International Champions Cup presented by Heineken. The event’s 27 matches are spread across 3 continents (North America, Europe and Asia), with 17 on U.S. soil; Roma will play in East Rutherford (NJ), San Diego and Dallas. You can find full schedule and ticket info, here.

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Bumble Signs Jersey Sponsorship Deal with NBA Franchise Advancing Workplace Equality

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Bumble has signed on to be the official jersey sponsor of the Los Angeles Clippers, becoming the 20th NBA team to take advantage of the 3-year pilot program. The female-led dating and networking app chose to align itself with the Clippers, in-part because of their reputation as a progressive organization; the team employs the league’s only female President of Business Operations (Gillian Zucker) and has several other women in key leadership positions. The Clippers will refer to the corporate logo on the front of the jersey as an “empowerment badge”, a symbol meant to promote gender equality and the advancement of workplace equality. The total value of the deal is said to be worth +/- $20 million.

Howie Long-Short: Unlike traditional dating apps, Bumble requires women to make the first move. Founder Whitney Wolfe Herd, launched the company in 2014 after claiming she was sexually harassed, stripped of her co-founder title and forced out of rival dating app, Tinder. Herd is no longer Bumble’s majority shareholder (Badoo owns 79%, Herd owns 20%), but she continues to run the company (26 million users) as CEO. Badoo (privately held) is reportedly seeking a sale that would value the company at $1.5 billion.

Fan Marino: Chelsea F.C. has the 2nd biggest jersey sponsorship deal (MANU) in the English Premier League, valued at over $275 million (5 years). How did they do it? They sent out an RFP to 33 companies, “appealed to the emotional side of CEOs” and initiated a bidding war. As a result, Yokohama Rubber (TYO: 5101) agreed to pay more twice the amount Samsung (SSNLF) had on the team’s previous deal.

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Arsenal F.C. Signs Largest Sponsorship Deal in Club History

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Emirates will remain the shirt (and training kit) sponsor for Arsenal F.C. (and all affiliated teams) through ’23-’24, signing a deal worth “in excess of” $56 million/year; the largest sponsorship deal in team history. The English futbol club and the Dubai based airline maintain the longest running shirt partnership in the EPL (it dates back to ’06). Arsenal will reportedly supplement the new deal with a sponsor on the sleeve of their uniform; a first for the club. It should be noted that Emirates also owns the naming rights to the club’s north London stadium through ’28; acquired in a prior transaction.

Howie Long-Short: While not exactly an apples to apples comparison, as La Liga/EPL shirts have corporate logos across the chest and NBA jerseys contain just a small corporate logo patch, there is a drastic difference in the revenue generated from uniform sponsorships between the leagues. The most lucrative NBA patch deal is a 3-year $60 million agreement between Rakuten (RKUNY) and the Golden State Warriors. RKUNY is paying nearly 3x the amount (annually), over a longer period ($58 million/year, 4-years), to be the shirt sponsor for F.C. Barcelona. MANU has the most lucrative jersey sponsorship deal in futbol, valued at $74 million/year (7 years).

Fan Marino: GumGum Sports is reporting that jersey sponsors maintain the best signage placement within NBA games (except for the league’s apparel provider, NKE) and that the brands participating in the 3-year pilot program, are receiving a significant return on their investment. The sports media valuation company estimates that participating brands will see at least $350 million in social media exposure alone; noteworthy when you consider there are just 30 NBA teams, not everyone has a jersey sponsor and most companies are just +/- $5 million/year. GumGum determined that Goodyear (GT, Cavs), RKUNY (Warriors) and General Electric (GE, Celtics) received the greatest ROI from the 1st half of the 2017-2018 NBA season.

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Stadium Naming Rights Under-Utilized Revenue Stream in EPL

MANU 200x200

A recent study by corporate finance advisors Duff & Phelps indicated that Manchester United (MANU) would earn an additional $36.6 million/season in revenue, if it were to sell the naming rights to Old Trafford Stadium; which the team reportedly will not do. Manchester City currently has the league’s most valuable naming rights deal (with Etihad), worth $26.7 million/season. While naming right sponsorships are commonplace in the United States (only Arrowhead Stadium, Soldier Field and Lambeau Field remain; the Raiders will certainly have one in Las Vegas), they are an under-utilized revenue stream within Europe; just 8 of 20 EPL clubs have deals in place.

Howie Long-Short: It was recently reported that MANU generated record revenue (+6% YOY to $841.6 million), boosted by a $55.4 million payment for winning Europa league, in 2016-2017; making the Red Devils the highest revenue-generating futbol club in the world, in the process. Real Madrid, which held the title for the previous 11 years, placed 2nd; Juventus (JVTSF) finished 10th ($505.2 million). It must be noted that the list only accounts for revenue accrued and does not take any debts incurred into account. MANU reported on February 8th that Q2 ’18 revenue increased 4% YOY (to $229.5 million).

Fan Marino: Selling the naming rights would be a prudent decision (regardless of the price) that would benefit shareholders, but there is some debate as to how achievable the $36.6 million figure is. Historic venues will always be referred to by their original name, reducing the value of the building’s naming rights; sponsors pay a premium for new buildings with no prior association. They broke ground on Old Trafford in 1909 and the venue has hosted World Cup matches (’66), Euro ’96 and the ’03 Champions League Final. I doubt a sponsor would pay more than the $30 million/year (for 20 years) that the Rams are seeking, for their new stadium in Inglewood.

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

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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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Adidas Invests in Facebook for Soccer

Onefootball, a German mobile application with 25 million users across 200 countries, announced it has closed on Series B and Series C funding rounds; the company previously acknowledged raising $20 million in investment capital. Described as “Facebook for football without the social element”, the app offers news, live scores and stats for over 140 leagues in 16 languages. Focused on building a premier user experience that results in higher conversions for advertisers, founder Lucas von Cranach said that despite the captive audience (90% opt-in to receive push notifications), the company “won’t build a betting business, won’t build a merchandise business, and we won’t build a ticketing business”.

Howie Long-Short: Onefootball remains privately held, but Adidas (ADDYY) participated in the most recent round; finding value in the captive mobile fan base mentioned. Information pertaining to the amount of capital invested and valuation were not disclosed. There are several publicly-traded soccer teams. Manchester United is traded on the NYSE under the symbol MANU. You can buy A.S. Roma (OTC: ASRAF), Juventus (OTCJVTSF) and Borussia Dortmund (OTCBORUF) over-the- counter. Lazio is traded on the Borsa Italiana under the symbol BIT: SSL.

Fan Marino: As recently noted, more teams at the 2018 World Cup will wear uniforms made by Adidas (11) than Nike (10); but that won’t be the case when it comes to cleats. It’s expected that for the 2nd World Cup in a row, more than half of all players will be wearing NKE footwear; 52% wore the brand at the ’14 WC. For comparison purposes, just 36% of players wore Adidas footwear in 2014.

Onefootball has quietly raised a Series C round and added Adidas as an investor

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Study Reveals Why Digital Growth is Crucial to the Future of European Soccer

KPMG published an interesting study on what would happen to English Premier League clubs, if the money generated from league broadcast rights (the most lucrative in Europe) were to be subtracted from the teams’ bottom lines; a viable concern when you consider that broadcast revenues can be worth up to 45% of an EPL team’s gross revenue. KPMG bases the study on the premise that revenue from broadcast rights is precarious; that consumer behaviors change and there are no guarantees that humans will watch television, stream video etc. in the future. What KPMG found, was that the most fiscally sound clubs were the ones that maintained the largest social presences. Those clubs are most successful in closing commercial partnerships and selling out their stadiums; factors that would help to reduce the impact, that a total loss of broadcast revenue would bring.

Howie Long-Short: The EPL’s overseas rights expire in 2019 and are expected increase in value during the next round of negotiations; so, while a fascinating study, not one that should cause immediate concern. Overseas rights for the current 3-year period, total roughly $3 billion Euros (domestic rights for the same period equal $5.1 billion Euros). There seems to be a consensus that while domestic rights may be close to capping out in value, interest from international players like Facebook (FB), Google (GOOGL) and Amazon (AMZN) is likely to send overseas rights soaring. Those rights fees will be split evenly amongst EPL teams, as the “Big 6” conceded their effort to secure a greater percentage of overseas TV money.

Fan Marino: La Liga clubs FC Barcelona (206 million) and Real Madrid (204 million) maintain the largest social followings in Europe, and it isn’t close. 3 EPL clubs; Manchester United (MANU) (111 million), Chelsea FC (76 million) and Arsenal (63 million) round out the Top 5. Bayern Munich (61 million), Juventus (JVTSF) (45 million) and Paris St. Germain (45 million) have the largest digital followings within their respective leagues and all place within Europe’s Top 10.

Data shows why digital growth is more important for football clubs than precarious broadcast revenues

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NFL PLANNING ON LONDON FRANCHISE BY 2022

There are indications that the NFL is looking to establish a franchise in London by 2022 with NFL Executive VP of International and Events saying “the next 4-5 years should be very doable”. The international metropolis has proven to be filled with fans (selling out all but one game since 2007), is a lucrative TV market (with more people than Los Angeles) and has the stadium infrastructure (Wembley, Twickenham, Tottenham) in place to house a team. The league believes a London franchise is “viable”; but concerns remain about the team’s ability to compete for a Super Bowl. Player willingness to live abroad, higher U.K. income tax rates and the strenuous travel schedule are among the issues the league still needs to work through.

Howie Long-Short: Speaking of Tottenham (who is building a new stadium the NFL is contracted to play 2 games/year at for 10 years), they are among 6 Premier League clubs (Manchester United (MANU), Manchester City, Chelsea, Arsenal, and Liverpool) looking for an increased shared of the $1.34 billion/year the league earns in overseas broadcast rights. The 6 clubs argue their popularity drives international revenues and therefore should be entitled to a larger share. The 20 clubs, which currently split the fees equally, are scheduled to meet today with revenue sharing on the discussion agenda. It’s worth noting that even the small Premier League clubs are still being paid large sums of cash. The 20th place team that was relegated last season, still made more in broadcast revenues than Juventus (OTC: JVTSF) and Bayern Munich, which won their respective leagues.

Fan Marino: As I wrote last week, it’s only a matter of time until the Jacksonville franchise relocates to London. The league isn’t going to expand, as 8 4-team divisions work, so moving a small market team seems most likely. A move from Jacksonville to London would increase the value of the Jaguars franchise by at least $1 billion. There are 2 other franchises to keep your eye on. If Buffalo and San Diego (I’m not convinced the Chargers remain in LA) fail to get their stadium situations settled, I would expect both franchises to explore London as a relocation option.

A whole new ball game: will London get its own NFL team?