ACTIVISION BLIZZARD’S OVERWATCH LEAGUE FOLLOWING NFL, NBA, MLB & NHL TEMPLATE

Activision Blizzard (ATVI) has made some recent changes to its Overwatch League, designed to stabilize the fledging Esports ecosystem for game publishers, owners, players and sponsors.  Permanent city-based franchises (plans for at least 28 world-wide), revenue sharing agreements and franchise fees ($20 million) are among the concepts ATVI has borrowed from the NFL, NBA, MLB & NHL. Moving forward, the development of a players’ union will be necessary to ensure gamers are compensated fairly. The league has announced 9 franchises, with Patriots owner Bob Kraft, Mets COO Jeff Wilpin, Rams owners Stan & Josh Kroenke and Sacramento Kings co-owners Andy Miller/Mark Mastrov among the pro sports owners that have purchased teams.

Howie Long-Short: Unlike pro sports leagues which are a collection of individually owned franchises with an elected commissioner overseeing the league, ATVI is a publicly traded company who must act in the best interests of their shareholders and they’ve done a great job of it. Company shares are up 82% YTD (500% over the last 5 years) as ATVI has proven capable of generating revenue growth without having to release new game titles. The potential for in-game advertising, creation of the Overwatch League and soaring in-game revenues (up 100% YOY to $3.6 billion in 2016) have the company well positioned for future growth. The recent release of Destiny 2 and the upcoming blockbuster release of Call of Duty: WWII, should give the company a revenue boost in the Q4.

Fan Marino: As Howie noted last week, Comcast Spectacor’s (CMCSA) acquisition of an NLL franchise made sense because the company’s strength is in hosting events and building businesses around pro sports teams. The same can be said about pro sports team owners investing in Esports franchises. The revenue model for Esports is based on sponsorships, advertising, merchandise, ticket sales and media rights; areas which pro sports teams can leverage established relationships. In the short-term, these acquisitions seem like a no-brainer; I have long-term concerns though. I can’t envision any scenario in which a game that is popular today, remains popular in 2030. Technology evolves quickly and attention spans are short. What happens to the value of these franchises when the next big game comes along?

Esports Leagues Set To Level Up With Permanent Franchises

RICHARD SHERMAN CRITICAL OF NFL’S HYPOCRITICAL STANCE ON GAMBLING

Outspoken Seahawks star Richard Sherman has been critical of the NFL, questioning why a league that takes a public stance against gambling puts out daily injury reports designed to ensure a level playing field for gamblers. Sherman went on to express frustration with fan interest in fantasy football; saying the commoditization of players has resulted in a lack of compassion for real life injuries. The NFL responded to Sherman’s comments, but didn’t exactly dispute the allegations stating injury reports are “designed for competitive fairness purposes and curtails the potential for someone to attempt to gain and exploit inside information.” League owners have approved the Raiders pending move to Las Vegas, but insist that no changes will be made to the league’s gambling policy. Commissioner Goodell has been firm insisting that the integrity of the game remains the league’s number one priority and is something “we will not compromise on”.

Howie Long-Short: If the U.S. Supreme Court rules in favor of New Jersey and legalizes sports gambling within the state, a flood of others will follow (5 states have backed NJ). Should that happen, expect the NFL to quickly change its stance and turn legalized sports gambling into the league’s next revenue growth driver ($154 billion were illegally bet on sports in ’16). With a SCOTUS decision expected no later than summer ’18, fans could be legally betting on NFL games by Week 1 of the 2018 season. As for Sherman, he’s right, injury reports are for gambling purposes and the NFL’s stance on gambling does seems hypocritical; but to expect fans to care about how an injury effects a player’s mental state or family, when 26% of NFL fans make less than $40,000 and struggle to make ends meet, makes him sound both entitled and out of touch with reality.

Fan Marino: Gamblers that bet on the Chiefs/Redskins game Monday night, experienced one of the wildest finishes in recent gambling history. The Chiefs (-7) kicked a FG with 4 seconds to go, putting the team up 5 points and all but ensuring a win for those who placed their money on Washington. After the kickoff, Washington had a chance to run one last play. That play ended with a KC fumble recovery, a defensive TD giving the team a 29-20 lead and a win for those who bet on the Chiefs. The madness wasn’t over though yet. With the over/under set at 49.5 points, Kansas City had to make the XP for the over to hit. Coach Andy Reid chose to kneel on the ball, giving those who took the under reason to celebrate.

Richard Sherman gave an eye-opening explanation for why NFL players don’t care about your fantasy football team

FOX SPORTS 1 TARGETS KNICKS, DOLAN WITH NEGATIVE AD CAMPAIGN

Fox Sports 1 introduced an ad campaign within the NYC subway system targeting the NY Knicks; calling the franchise hopeless and insisting MSG Executive Chairman James Dolan is the root of the team’s failures. FS1 does not have rights to broadcast NBA games, so it’s believed the “pick a side” ads are meant to promote the network’s daily debate shows (one side of the train says “hopeless”, the other says “hopeful”). Dolan apparently was not amused, calling 21st Century Fox (FOXA) Executive Chairman, Rupert Murdoch, directly to complain about the messaging. It has since been reported that at FS1’s request, the ad wrap will be removed.

Howie Long-Short: Both the Islanders and NYCFC are looking to build new venues at Belmont Park. The Islanders have already submitted their proposal “to create a world class sports and entertainment destination”. NYCFC has until Thursday at 2p to submit their plans for a 26,000 seat facility. What does that have to do with Jim Dolan and MSG? Joining the Islanders in their proposal is the Oak View Group; an advisory, development and investment company focused on the sports and live entertainment industries. The company happens to be backed by Dolan’s Madison Square Garden Co. (MSG).

Fan Marino: Knicks fans seem unlikely to argue with the campaign’s messaging, “nothing will change until Dolan sells the team”. It’s odd though that the campaign takes target at Phil Jackson and Carmelo Anthony, considering neither are still with the franchise. I also question putting Tim Hardaway Jr.’s face next to the word “hopeless”. The Knicks signed him to a terrible contract; but he’s 25 years old, can play both shooting guard and small forward and averaged just shy of 17 PPG over his last 45 starts in Atlanta. Expect that number to increase as the Knicks will be looking to replace Carmelo’s 22.5 PPG.

Jim Dolan calls Rupert Murdoch about FS1’s Knicks-bashing subway ads, causes “shitstorm”

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?

MGM SHARES DOWN, GUN STOCKS UP IN WAKE OF DEADLIEST MASS SHOOTING IN U.S. HISTORY

The deadliest mass shooting in modern U.S. history had an immediate effect on the stock market, with MGM Resorts International (MGM) losing over $900 million in market cap (to $17.8 billion); with shares down nearly 6% (to $30.87) at the close of trading on Tuesday. The Mandalay Bay Casino, operated by MGM, is the site where shooter Stephen Paddock opened fire. With 13 properties (accounting for 57% of revenue) on the Las Vegas strip, MGM is the most exposed Sin City casino operator should tourists decide to stay away from Vegas in the wake of the tragedy. MGM shares were up 19% over the last 12 months prior to Sunday night’s massacre.

Howie Long-Short: The horrific news out of Las Vegas drove down MGM share prices, but MGM China Holdings’ announcement that the company is delaying the opening of its new hotel in Macau, from late ’17 to early ’18, certainly didn’t help. Damage from Typhoon Hato in August has been cited as the cause for the delay. Casino shares typically see a bump around a new opening and with the company banking on Asia for future growth, short-term investors were likely dismayed by the news.

Fan Marino: Shares of American Outdoor Brands (AOBC), formerly Smith & Wesson, and Sturm Ruger (RGR) are up 5.7% and 5.6%, respectively (at the close on Tuesday, from the close on Friday 9/29). Gun stocks typically rise following a mass shooting, as investors expect sales to spike amid discussion of gun restrictions. It’s disturbing to consider that there have been enough mass shootings in recent U.S. history to formulate predictive trends. JWS isn’t a political forum, but we should all be able to agree that there is no reason for a civilian to own a weapon capable of firing 400 bullets/minute.

After Las Vegas Shooting, Casino Stocks Fall and Gun Stocks Rise

ALIBABA ACQUIRES MOBILE GAMING COMPANY, LAUNCHES DIVISION TO DEVELOP OWN TITLES

Alibaba (BABA) Digital Media and Entertainment Group has announced the acquisition of mobile gaming company Ejoy and its plans to launch a new games division; just 6 months after laying out plans for a $145 million venture into mobile gaming distribution. The new division will develop its own titles and leverage the resources of BABA sister platforms, like online videos and movies, to push its way in to the world’s largest gaming market. The Chinese online gaming industry was last estimated to be worth $11.8 billion and is expected to grow to $27.5 billion by the end 2017.

Howie Long-Short: While late to the game, Alibaba is not new to the gaming sector. In 2014, the company made a $120 million investment into mobile gaming co. Kabam, the developer behind Marvel: Contest of Champions and Kingdoms of Camelot. The expected growth within the industry certainly provides BABA the opportunity to carve out market share, but they have some ground to make up; competitors Tencent (OTC: TCEHY) and NetEase (NTES) currently bring in 70% (41.2% and 28.5% respectively) of all Chinese online gaming revenues collected. It is worth noting that online gaming revenues accounted for 47% of TCEHY’s 2016 total revenue.

Fan Marino: Retired gamers and nostalgia junkies spent last weekend on their couches, as Nintendo re-released its classic Super NES system on Friday September 29th. The console, originally released in November 1990, includes 21 games including classics; “Super Mario World” and “Yoshi’s Island”. The biggest complaint I’m hearing about the re-released version? The controller wires are still too short! The more things change, the more things stay the same.

Alibaba Is Making Bold Moves in Online Gaming With Newest Acquisition

 

U.K. BASED SPORTS DIRECT IN TALKS TO ACQUIRE FINISH LINE

Reports indicate that Sports Direct (OTC: SDISY), the U.K.’s largest sporting goods retailer, is in talks to buy Finish Line (FINL). SDISY currently owns 8% of FINL, but a recently added “poison pill” shareholder rights plan, designed to prevent the unwanted takeover of the company, caps their potential ownership at 12.5%. It now appears that FINL’s adoption of the “poison pill” was a negotiating tactic, as opposed to a move to prevent a merger. Talks are apparently far enough along that an announcement could be made within the next several weeks.

Howie Long-Short: Susquehanna Group Analyst Sam Poser estimates that should the sale go through, the buy-out price would be $13.30. Sports Direct would continue to operate as Finish Line in the U.S., but would create a “DSW of athletic shoes” that would sell its lower priced sneakers. Considering shares are down 37% YTD, that 70% of its business comes from NKE products and that NKE is putting less stock in its wholesale business, shareholders would seem lucky to receive this bailout.

Fan Marino: FINL reports that 70% of its customer traffic comes from mobile, so the company has been focused on getting its web pages to load faster, providing customers with the ability to return products directly on the website and adding in-store beacon and geofencing technology to connect the digital and physical shopping experience. It makes no difference to me. I’m a sneaker guy, there are no technology enhancements that can be made to get me to shop from the bargain shoe bin.

Report: Finish Line In Merger Negotiations With Sports Direct

BILAS, BEASLEY SAY AMATEURISM RULES TO BLAME FOR CORRUPTION IN NCAA BASKETBALL

The FBI investigation that lead to the arrest of 10 people for bribery and corruption within NCAA basketball, has lead Jay Bilas, Michael Beasley and others to argue that the issues at the root of the problem are the NCAA amateurism rules that prevent college athletes from being paid. Bilas points out that coaches are not bribed to accept jobs, because a free market ensures they’re paid what they’re worth. Beasley notes that while he helped to put Kansas State on the map, watching the school increase enrollment following his time in Manhattan; he isn’t compensated for driving that growth. Those that argue in favor of the current amateur system believe full scholarships that include; a free education, medical care and stipends constitute payment.

Howie Long-Short: There is certainly an argument for repurposing the fiscal resources dedicated to keeping up in the facilities arms race (“lazy river” at UCF, flat screen locker displays at Texas, imported foosball tables at Oregon) as compensation for revenue generating athletes; but I tend to believe that a $200,000 scholarship and the opportunity to graduate without carrying student loan debt, is fair compensation for all but a handful college athletes. 

Fan Marino: Beasley makes the strongest case on behalf of college athletes. Those that sell jerseys and drive enrollment/endowment growth, should be monetarily compensated. Unfortunately, the thought process behind the balance of his comments is so flawed that it undermines the logical part of his argument. Beasley added that because the majority of college players fail to play professionally, they should be paid while in college. I fail to see how ones’ future earnings are relevant to the current exploitation they may be suffering from.      

The basketball world is convinced that the bribery scandal engulfing college basketball comes down to paying players

1.6 MILLION TUNE IN TO WATCH TNF ON AMAZON; AMZN OFFERS BRANDS UNIQUE VALUE PROP

The NFL is reporting that Thursday Night’s Bears/Packers game, the first to be streamed by Amazon (AMZN), saw 1.6 million people log-in to watch the game. The retail giant averaged 372,000 viewers, who watched for an average of 55 minutes; a significant increase from the 266,000 averaged during Twitter’s (TWTR) first stream last season. The comparison is noteworthy as Amazon required Prime members to log-in, while Twitter’s stream was free. 14.7 million people watched the game on traditional broadcast television (CBS).

Howie Long-Short: Amazon sold ad packages for their streamed broadcasts for $2.8 million. While the company will not state how many minutes are included within each package, they are offering advertisers a unique value proposition; the ability to track sales. AMZN is giving advertisers data reflecting the number of people purchasing or searching for a specific product, during or immediately after the ad streams. It’s a competitive advantage that not even Google or Facebook can match.

Fan Marino: Of course, the television audience destroyed AMZN’s viewership numbers. Size matters. No one is choosing to watch a game on their phone/tablet/laptop if the option to watch on a larger television screen exists.

Amazon’s First NFL Game Draws 372,000, a Fraction of TV Audience

FOX SPORTS DIGITAL AUDIENCE DOWN 300% SINCE PIVOT TO VIDEO

comScore (OTC: SCOR) has reported that publishers who have pivoted to video, have seen at least a 60% drop in overall traffic. Fox Sports (FOXA), which made the decision in June to eliminate 20 writing and editorial positions, reallocating resources towards video production, editing and promotion; saw its audience decline an astounding 300%. Unique visitors dropped from 26.4 million in 2016 to just 9 million this past August, with time spent browsing on Fox Sports digital sites decreasing from 136 million minutes to just 56 million minutes.

Howie Long-Short: At the end of 2015, comScore acquired Rentrak; combining its expertise measuring web traffic with their expertise in TV audience metrics. The company appeared to be  prepared to challenge Nielsen (NLSN), before receiving notification it was being delisted from the NASDAQ exchange for non-compliance with SEC filing requirements. In September, SCOR announced it had hired a new CFO, removed 7 members from the board, settled several class action lawsuits and is undergoing a “complex and time consuming” financial review that would delay filing statements, and any chance of being relisted, until at least March 2018. SCOR is currently being traded over the counter. 

Fan Marino: Video ad spend is expected to rise from $10 billion in ’16 to $18 billion in ’20, so pivots to video are about publishers chasing ad dollars. Video is easier to monetize and is more valuable to advertisers, so on the surface it makes sense. Dig a bit deeper and you’ll notice that Fox Sports has experienced a significant decline in video viewership too (down from 1.4 million to 103K unique), meaning it is highly unlikely they are offsetting the loss of visitors with video ad dollars.

One For The Writers: Jamie Horowitz Torpedoed Fox Sports On His Way Out