Congressional Republicans have drafted a bill that would put an end to the sale of municipal bonds; used to finance the development of professional sports stadiums and privately funded infrastructure projects (i.e. toll roads, airports). Should the legislation pass, the cost for teams to build new stadiums will increase, as municipal securities carry lower interest rates. The proposed bill, which also includes a provision that would eliminate tax breaks for cities and states that borrow money to build stadiums, is part of a larger tax overhaul plan that would increase government revenues by $39 billion over the next 10 years.
Howie Long-Short: There will be resistance to the bill as proposed, as President Trump’s $1 trillion public infrastructure plan, which certainly has its advocates, requires private investments. However, any changes to the legislation would be unlikely to benefit billionaire sports franchise owners. There is momentum on both sides of the political spectrum to end public subsidies for stadiums, with tax exempt financing on sports facilities costing the federal government $3.7 billion in revenue since 2000. The NFL argues that new stadium development is an economic driver in local communities, but 86% of economists say government subsidies are likely to cost the taxpayers more than any economic benefits realized from the finished facility. Here’s to hoping the we’ve seen the last of public spending on facilities for privately owned businesses.
Fan Marino: While professional sports franchise owners threaten to move their teams when they fail to receive public funding for a new stadium or arena, Amazon (AMZN) can get a “world-class sports and entertainment stadium” built, at no expense to them, just by showing up. Sterling Bay, the Chicago developer on the proposed Lincoln Yards site, has sweetened Chicago’s bid for HQ2 by offering to build the internet giant a stadium on campus. I’m not sure that’s going to seal the deal considering Jeff Bezos doesn’t own a professional sports franchise; but with an estimated net worth north of $93 billion, he could buy every NFL team and still have $13 billion in the bank.
Companies are using blockchain technology to solve problems that have developed as esports have evolved. Network Units, whose pre-ICO begins on November 8th, has developed an online gaming platform with a built-in player conduct and reputation management system. The platform is designed to eliminate the toxic members of communities who abuse others, exploit the system and cheat the game. Esports.com, which kicked off its ICO period on November 1st, provides a platform for merchandise sales, licensed gambling and user generated educational content. The platform is sold as a solution to eliminating problems related to low community engagement. Whitepapers for both initial coin offerings are linked for your convenience.
Howie Long Short: Activision Blizzard (ATVI) reported a Q3 record with $1.9 billion in revenue generated (+17% YOY) and the company raised full-year revenue guidance from $6.4 billion to $6.68 billion ($2.08/share); crediting the growth to the success of September’s Destiny 2 launch and the King mobile games division (i.e. Candy Crush Saga), which reported growth for the first time since Q1 ‘16. Keep an eye on the company’s much anticipated Overwatch esports league which will debut in December, just don’t expect it to be an immediate revenue generator. CEO Robert Kotick has tempered expectations saying, “the first season is really about building a solid foundation.”
Fan Marino: The audience for video game streaming is 600 million and growing, so streaming sites are aggressively working to add streamers. Twitch, the Amazon (AMZN) owned streaming site, grew its number of concurrent streamers 67% in Q3 (to 25K); as the company began offering smaller streamers’ the opportunity to generate revenue. For comparison purposes, YouTube (GOOGL) Gaming (the next most popular site) had just 8,200 concurrent streamers.
Papa John’s Pizza slashed full-year revenue and profit forecasts and blamed same store sales missing analyst estimates, on the company’s association with the NFL. PZZA CEO John Schnatter believes the political controversy that has engulfed the league this season has had a negative effect on ratings (down 7.5% from ‘16). Schnatter was quoted saying “NFL leadership has hurt Papa John’s shareholders. The controversy is polarizing the customer, polarizing the country.” PZZA shares are down 8% since the announcement. The company has pulled all advertising associated with the NFL.
Howie Long Short: Not all NFL sponsors feel the way Schnatter does. Kohl’s (KSS) is said to be working with the league on a holiday ad campaign, Buffalo Wild Wings (BWLD) recently went on the record stating that they do not anticipate any decline in key sales figures because of their relationship with the NFL and Pizza Hut (YUM) CEO Greg Creed said the company isn’t seeing any impact on their business. PZZA blaming poor sales on the NFL, is like the NFL blaming declining television ratings on hurricane coverage; perhaps it’s had a slight impact, but to place the sole blame there belies the fundamental issues with the business. The stock is down more than 26% this year.
Fan Marino: I always wonder why people in New York and New Jersey order from Domino’s (DPZ), Pizza Hut (YUM) or Pappa John’s (PZZA), when there are so many better local options. In NYC for a few days and not sure where to find the best slice? Barstool founder Dave Portnoy has a “pizza review” series to help you out. Here is a link to an episode he did with Bryce Harper.
Under Armour’s (UAA) disastrous Q3 earnings report has ignited a debate about the value athletes bring to the brands they endorse. Steph Curry, Tom Brady, Cam Newton and Bryce Harper all wear the UAA logo, but that star-power wasn’t able to prevent company sales from declining 12% in Q3 ’17; nor has it helped to attract teens to the brand. Those that believe in athlete sponsorships will tout the brand equity received; the value a company realizes from associating their product with a recognizable name.
Howie Long-Short: As a rule of thumb (Jordan being an exception), endorsements do not correlate with significant revenue growth. In fact, among the Top 10 selling sneakers of 2016, only one was associated with an active athlete; Nike’s (NKE) Kyrie (Irving) 2 finished 10th. It’s worth noting that on Thursday evening, Adidas (ADDYY) signed Zach LaVine to a 4-year contract worth up to $35 million. I would not classify that as money well spent.
Fan Marino: Adidas CEO attributes Mark King attributes UAA’s lack of success capitalizing on endorsement deals to the “milquetoast” personalities of their athletes (i.e. Brady, Spieth); while pointing out that ADDYY athletes “Carlos Correa and James Harden have personality”. There is no way that Carlos Correa is moving merchandise. The average sports fan wouldn’t know it, if they were sitting next to him. Harden has a long beard, but even former Rockets coach Kevin McHale acknowledged that trying to lead a team isn’t in his “personality”. If he isn’t capable of being a leader on the floor (and in the locker room), what real value can he bring ADDYY off it?
Qualifying tournaments for EA Sports’ (EA) FIFA eWorld Cup 2018 are underway and will run through July ’18, narrowing the field down to 128 participants (64 PS4 (SNE), 64 Xbox One (MSFT)) who will compete in the FIFA ’18 Global Series Playoffs. The tournament will include both players signed to professional teams as well as amateur tournament winners. Those who advance will play in in the FIFA eWorld Cup Grand Final, with the winner of each playoff (PS4, Xbox One) receiving a $35,000 prize.
Howie Long-Short: EA Sports announced fiscal Q2 revenues rose 7.4% YOY on an adjusted basis (to $1.18 billion), reducing the company’s net loss to $22 million (from $38 million in ’16). CEO Andrew Wilson called it a “strong quarter”, writing that “the company benefited from the customer’s response to EA Sports games (Madden NFL, FIFA), and its mobile games”. CFO Blake Jorgensen said that the company had experienced notable growth in its high-margin digital business (+21.7% to $689 million) during the quarter. As of the close on Wednesday, the stock is up more than 45% on the year.
Fan Marino: More of an NBA 2K (TTWO) gamer than a FIFA one? 2K Sports has announced that the latest release of NBA 2K18 features verified users. That means gamers will know if they’re playing against NBA players, celebrities or members of the 2K development team. Fans are going to flip when they realize they’re playing as LeBron, against LeBron.
Stephanie McMahon called Q3 ’17, the WWE’s “all-time best quarter”, as the company grew revenue 14% to $186.4 million, set a company quarterly record for Adjusted OIBDA ($40.4 million) and saw net income rise to $21.8 million (from $11.1 million YOY). The growth is being attributed to an increase in TV rights fees, a rise in WWE network subscriptions (4.4% to 1.52 million subscribers) and the proliferation of live events. As a result, WWE Chief Strategy and Financial Officer George Barrios said the company has increased 2017 guidance; calling for “record revenue, record Adjusted OIBDA results and record subscriber levels.”
Howie Long-Short: 2018 projects to be a banner year for the WWE, with the company anticipating setting another record for revenue generation and targeting Adjusted OIBDA of at least $115 million; which would also set a record. Those records may not last long, though. The company’s television broadcast deal with NBC expires September 30, 2019 and broadcast deals in U.K. and India (2nd and 3rd largest broadcast deals revenue-wise) expire on December 31, 2019. I expect the total value of broadcast rights to increase and for 2020 to be another record setting year for the WWE.
Fan Marino: While the financial picture is pretty, there is speculation that the WWE could be facing a mass-exodus of talent (despite Lesnar staying and Rousey joining); with wrestlers who feel underutilized or underpaid, looking to leave the company. While once the only game in town, Ring of Honor, New Japan Pro-Wrestling and a booming independent circuit now provide viable alternatives. The success Cody Rhodes, Ryback and Alberto Del Rio have found outside the organization has forced guys (and girls) to evaluate their options; and apparently, at least for some, those options more lucrative on the other side.
Dallas Mavericks Owner and Shark Tank investor Mark Cuban, foresees an upcoming boom; with investment opportunities unlike anything we’ve seen since the rise of the dotcom era, in the late 1990s. Cuban is qualified to speak on the subject, having sold Broadcast.com to Yahoo! (AABA), at the peak of the dotcom bubble, for $5.7 billion (in stock). In an a short interview with Brandon “Scoop B” Robinson, on Scoop B Radio, Cuban pointed to several fields that could experience similar growth over the next few years including; “deep learning, machine learning, machine vision, bio analytics and biomechanics.” As for his thoughts on virtual reality, “I don’t think that’s going to be quite as successful as people think”.
Howie Long-Short: Cuban mentions several technological advances that may not be in everyone’s vernacular, so I’m going to try and explain them. Machine learning is the practice of using algorithms to parse data, learn from it and then make determinations based on the large amount of data the machine was trained on. Deep learning is a technique for implementing machine learning, that relies on artificial neural networks (like a brain), where large amounts of data are run through the system to train it. Machine vision refers to a computer’s ability to see (think OCR). Bio analytics relates to the measurement of substances within a biological system, while biomechanics focuses on the movement or structure of living organisms.
Fan Marino: While Cuban may not be particularly bullish on VR from an investment standpoint, the technology appears useful within the sports world. Set to launch in 2018, RBI-VR (from Monsterful VR) will be used by MLB players to enhance pitch recognition and timing, while minimizing the risk of injury. RBI-VR compiles and calculates data to recreate the throwing mechanics, biomechanics, vertical and horizontal release point of any pitcher in the league with near 100% accuracy. Considered by the MLB Player’s Association to be “best-in market”, the technology has been built with input from an advisory board that includes Lloyd McClendon, Dusty Baker, Gene Orza, Don Mattingly and Edgar Martinez.