Ferrari Contemplates Exit from Formula One, Could Save $119 Million/Year

Ferrari (RACE) could be leaving Formula 1 (FWONK) at the expiration of their contract following the 2020 season. RACE, F1’s oldest team (67 seasons), opposes the organization’s plan to introduce a new version of its engine to the racing series and its intention to redistribute prize money beginning with the 2021 season. The introduction of a new engine will increase RACE’s expenses and a balancing of prize money would likely cost the company its guaranteed annual bonus payment ($94 million/year). Ferrari Chairman Sergio Marchionne has been quoted as saying an exit would be “totally beneficial” to Ferrari’s bottom line.

Howie Long-Short: There is a narrative that should RACE pull out of Formula 1, the company would see an increase of $119 million to its bottom line; the team’s annual deficit. I don’t believe the number is nearly that high. Marchionne has already said that if the company were to leave F1, it would join another racing circuit. Even if you believe F1 R&D is irrelevant to the development of Ferrari street road vehicles (and theoretically draw the expenditure down to $0), competing on another circuit is going to require some level of R&D capital. An exit from F1 may reduce the required spend, but it doesn’t eliminate line item.

Fan Marino: Red Bull team principal Christian Horner is calling Ferrari’s bluff saying, “they’ll bluster that they don’t need Formula One, but what other form of motor racing is going to give Ferrari the platform that Formula One does? I think when the music stops they’ll be there.” He may be right as to the latter, but Ferrari doesn’t need F1 as a marketing platform; and certainly, not like F1 needs Ferrari. As well-respected motorsport journalist Peter Windsor recently said “the key to everything in Formula 1 is keeping Ferrari happy and part of the programme. Without Ferrari, Formula 1 is just another motor racing championship”. In that scenario, Ferrari would form its own racing circuit (and likely not miss a beat).

Ferrari on track for £100m boost in profits if team leaves Formula 1

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

MGM Announces Plans to Open New Jersey’s 1st On-Site Sportsbook at the Borgata Casino

The Supreme Court is going to hear arguments on December 4th surrounding New Jersey’s right to legalize sports gambling and there seems to be a foregone conclusion that the SCOTUS will rule in the state’s favor before the end of June 2018. MGM Resorts International (MGM) seems particularly confident, announcing its intention to become the first casino in the state with an on-site sportsbook. At last week’s Sports Betting USA Conference, Jay Hood, the company’s VP of Race and Sports, said development has begun on a $7 million sportsbook at the Borgata hotel and casino in Atlantic City. But ESPN gaming writer David Purdham isn’t convinced we’re going to see legalized gambling in 2018, placing odds on the high court siding with New Jersey at -$110 (or just 53.5%).

Howie Long-Short: Experts have estimated a legalized sports gambling industry could be worth $150 billion, but Monmouth Park owner Dennis Drazen believes that number to be as high as $400 billion. Either way, Drazen (and William Hill) is prepared to cash in once the Professional and Amateur Sports Protection Act of ‘92 is repealed. Back in ’11, when NJ voters approved sports betting legislation, Drazen partnered with William Hill (OTC: WIMHY) on a sportsbook at Monmouth Park. That property, which was turned in to a sports bar, is currently being converted back to its intended use. Drazin said the Monmouth Park sportsbook could open within weeks of a SCOTUS decision.

Fan Marino: Give DraftKings credit for being creative in finding ways to engage fans. The company recently partnered with MSG Networks (MSGN) on a live fantasy show that ran parallel to a Knicks game broadcast and as of Q1 2018, will be airing select Euroleague games within their mobile app; enabling fans to flip between their fantasy contest and a live game broadcast. Unfortunately for those invested in daily fantasy, legalized gambling is set to put the industry out of business. In-game betting is going to replace it.

A Borgata Sportsbook, An NBA Pivot And What Else We Learned From A Week Of Sports Betting Conferences

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

Foot Locker Shares Experience Largest Single-Day Percentage Gain in Company History

Foot Locker (FL) shares gained 28% on Friday, their largest single-day percentage gain ever, following the announcement of better than expected Q3 financials. The market responded overwhelmingly positive, despite a drop in YOY revenue (-.08% to $1.87 billion), same-store sales (-3.7%) and earnings per share. CEO Dick Johnson said the company will focus on its digital efforts to reenergize the business, believing that speeding up customer access to inventory is a way to maintain market share. FL is also banking on a NKE rebound, saying that company is “on the verge of a major breakthrough in terms of product innovation and customer engagement.”

Howie Long-Short: The best single day in shareholder history seems to indicate the company’s turnaround is nearly complete, but the financials don’t reflect that. FL says that basketball is on the rebound, kids’ sales are positively trending and the company is experiencing growth within its apparel line; but I’m not sure that news warrants the gains experienced. The company remains a middle man placing their eggs in NKE’s basket; a company that foresees their future in DTC business. Shares remain down 43% YTD. It’s worth noting that Finish Line (FINL) shares popped 7% following FL’s earnings beat.

Fan Marino: NKE is promoting a shoe that can make the wearer 4% more efficient when running. The Zoom Vaporfly 4% uses a light-weight foam found in airplane insulation and a small carbon fiber plate, shaped like a spoon (propels the runner forward), to provide the optimal balance of performance and weight. Does it work? Runners World tested the shoe and gave it “the highest values ever assigned in our lab”, but George Wu, a researcher at the University of Chicago Booth School of Business ran a study indicating the shoes decreased finishing times. I’m going to need more convincing before I spend $250 to shave 4% off my 12-minute mile.

Foot Locker: Wall Street’s Got a Foot in Its Mouth

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

Fox Sports Implicated in Corruption Scandal, Alleged to Have Paid Bribes for Media Rights

Fox Sports (FOXA) is among the media outlets that have been implicated in a widespread corruption scandal. The company allegedly paid bribes to FIFA executives to guarantee future media rights and expand its reach from Argentina to the U.S. Alejandro Burzaco, a government witness and the former CEO of sports marketing company Torneos y Competencias SA, testified that Fox Sports executives were aware of the bribery. The accusations stem from a 2015 corruption case, brought by the FBI and IRS, accusing three former FIFA executives of wire fraud, racketeering and money laundering. Those accusations forced the resignation of FIFA president Sepp Blatter and have resulted in guilty pleas from 12 officials to date. Fox Sports and Televisa have yet to comment, while Globo has denied any wrongdoing.

Howie Long-Short: The U.K. Competition and Markets Authority is currently taking a deep dive in to FOXA’s culture, before it decides if it will allow the proposed $15.4 billion acquisition of the remaining interest in Sky Plc (SKYAY); so, these allegations could be costly. The three accused FIFA executives are facing jail time. FOXA “won” (there was no bidding process) the right to pay $200 million to broadcast the 2018 World Cup in English — a tournament that won’t include the United States. There are no winners in this story.

Fan Marino: Speaking of the World Cup, Italy, Chile and Holland also failed to qualify and their unexpected absence means that Adidas (ADDYY), not Nike (NKE), will outfit the most teams in Russia. Germany, Argentina and Spain will be among a dozen squads wearing the three stripes. Nike will still have a large presence at the quadrennial event, with 10 teams including; England, Brazil and Portugal sporting the swoosh. Puma would have had the 3rd largest representation (now they’ll share that spot) had Italy and Ghana qualified as anticipated; Uruguay and Switzerland are also aligned with Puma and will participate.

Fox, Globo Among Broadcasters Linked to FIFA Corruption

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

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

 

House Tax Bill Could Cost Athletic Departments Hundreds of Millions of Dollars

A new House tax bill passed on Thursday that would prevent wealthy donors from taking tax deductions on charitable contributions associated with athletic tickets; a decision that could lead to fewer donations and cost college athletic departments hundreds of millions of dollars. Under existing law, athletic tickets are not tax deductible, but up to 80% of “donations” made for the right to buy those tickets can be written off. There is a feeling among politicos that the existing deduction should be outlawed as the individual making the “donation” receives something of tangible value (i.e. tickets).

Howie Long-Short: The consensus is that should this provision make the final bill, a significant portion of the “donations” will end. I don’t see it that way. These aren’t donations, they are personal seat license fees required to purchase the best tickets. A tax deduction is nice, but wealthy alumni buy these tickets as a status symbol (and because they’re fanatical about their school). I don’t foresee any loss of revenue.

Fan Marino: LSU A.D. Joe Alleva said his school brings in $50 million to $65 million annually in “donations” related to tickets and that even a 10% decline would mean “at least $5 million to us”; adding that “we have no other place to make that money up.” Cry me a lazy river, Joe. Look at the wasteful spending around college football (Texas, Clemson); if there is a drop in revenue, I’m certain they’ll find some areas where they can save.

Funding for sports programs at question in new tax bill

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

Jerry Jones Threatens “Severe Retaliation” Against League Owners, Jones’ Request for Special League Meeting Rejected

NFL owners sent a disciplinary letter to Jerry Jones (and his lawyer) accusing the Cowboys’ owner of “conduct detrimental to the league’s best interests”; stirring up talks that Jones could be removed (through a forced sale of his team) as a league owner. Jones has been trying to void Roger Goodell’s contract extension, which was unanimously agreed upon in May; threatening “severe retaliation” against the league and its owners if they were to pursue his removal. On Thursday, Jones formally requested a special league meeting to discuss the Commissioner’s contract extension negotiations — just one day after his fellow league owners told him to drop the issue. The compensation committee (Blank, Hunt, Kraft, Mara, McNair and Rooney) rejected his request and will meet on December 13 to work “diligently to fulfill its mandate.” (i.e. propose extension)

Howie Long-Short: When Jones bought the Cowboys in 1989, no American sports franchise had ever sold for more than $100 million; Jones paid $140 million for the Dallas football team. The most recent Forbes valuation had the franchise worth $4.8 billion. Forbes tends to undervalue franchises (valued Nets at $1.8 billion, team sold for $2.3 billion; valued Rockets at $1.65 billion, sold for $2.2 billion), so if Jones were to sell, the team would likely fetch $5 billion; an ROI of 3,371%.

Fan Marino: Jones is on an island here and he’s fighting a losing battle. Daniel Snyder is the only other owner who fully supports his efforts. With that said, he’s not being forced out of the league (this isn’t a Frank McCourt situation). They could suspend him (see: George Steinbrenner) and if he goes far enough, perhaps they could justify a lifetime ban (see: Donald Sterling), but no American professional franchise owner has ever been made to part with their team.

Jerry Jones Asks for Sit-Down With Fellow NFL Owners

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

Sodexo Acquires Operator of Food and Hospitality Services at U.S. Sports Venues

Sodexo (OTC: SDXAY), a global event manager and catering company, has acquired Centerplate; the 4th largest operator, by revenue ($1.18 billion, 12-month prior to June ‘17), of food and hospitality services at U.S. sports and entertainment venues. SDXAY generated $1.07 billion in ’16 sports and leisure revenue, so the $675 million acquisition will more than double the company’s business within the segment. CEO Sports & Leisure Worldwide for Sodexo, Pierre Henry, explained that the acquisition is “another step in our long-term strategy to become a leading player in every market in which we are present.” Centerplate CEO Chris Verros will stay on board to lead the company’s U.S. business.

Howie Long-Short: Back in July, Jefferies analyst Kean Martin said, “Sodexo may be losing market share to Compass (OTC: CMPGY), which benefits from scale and a differentiated multi-brand strategy, particularly in the US.” Well, picking up Centerplate helps SDXAY increase U.S. market share; and 2017 acquisitions of Prestige Nursing + Care (home-care) and Morris Corporation (facilities management) strengthen the company’s multi-brand strategy. It seems as if SDXAY is headed in the right direction, after the company cut its full-year sales growth target; following a disappointing fiscal Q3 ’17 (in July). Temper your short-term expectations though, Sodexo only expects the Centerplate transaction to be “mildly accretive to earnings for fiscal ‘18”.

Fan Marino: Centerplate currently operates at the following U.S. sporting venues; Hard Rock Stadium (Miami Dolphins), Safeco Field (Seattle Mariners), AT&T Park (San Francisco Giants), BB&T Center (Florida Panthers) and Smoothie King center (New Orleans Pelicans). My personal all-time favorite Centerplate creation? The Ichiroll at Safeco Field.

Services group Sodexo buys Centerplate to strengthen U.S. presence

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