Football Leads Sports Stocks Past S&P in June as Faze Fades Out
Sports stocks beat the S&P 500 for the first time since January, as the market brought a broad-based improvement in sports-related businesses in June, especially publicly traded sports teams.
The Sportico Sports Stock Index gained 8% in the month, compared to a 6.5% gain for the S&P. The sports index closed June at 1,221, which puts the index up 16% for 2023, slightly behind the broad stock market.
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Of the 41 stocks in the index, 35 posted gains in the month, led by football-themed real estate developer Hall of Fame Resort & Entertainment (HOFV), which surged 60% to close at $10.84 a share. The Canton, Ohio, company is developing football attractions abutting the Pro Football Hall of Fame. While it doesn’t generate a lot of revenue yet—just $3.1 million in the first quarter and an estimated $5.6 million in the quarter ended Friday—the business appears to be getting some traction with investors.
In part that’s because Hall of Fame Resort’s Tom Benson Stadium served as the home field to two of the USFL’s teams this season, the Pittsburgh Maulers and New Jersey Generals, and hosted the championship game on Saturday. The company also made money from The Perfect 10, a documentary film about the 10 Heisman Trophy winners who are also enshrined in the Pro Football Hall of Fame. Hall of Fame produced the film along with Fox Sports and pro Hall of Famer Tim Brown.
The company also plans a water park and a hotel along with a continued expansion of its nascent media business. In the near term, executives say the market for sponsorship deals faces a lot of headwinds, though they are hopeful to ink Coca-Cola or Pepsi to a multiyear agreement soon. “I would just remind everybody as we’re facing difficult times; big companies, small companies, medium companies are facing difficult times. And so spending on sponsorships on a whole has declined over this last couple of years,” said CEO Michael Crawford in Hall of Fame’s latest earnings call. “I do see it coming back in the future and I do see us benefiting from that.”
English football giant Manchester United (MANU) was the second best performer in June, adding 31% as the club projected it earned £635 million (about $807 million) in the year ended Friday. Financial results for the Red Devils appeared excellent—the team says in-stadium sales are up and it believes there is no sports organization more popular in the world, which should allow it to increase revenue in the future. “The team is well-known and should continue to perform at a high level over the [long term],” said Jefferies & Co. analyst Randal Konik in a research note last week. “Monetization opportunities should increase, and company margins should remain healthy. In our view, MANU should be a core holding for [portfolio managers] looking for companies that have growing underlying asset value (the team) and strong ongoing cash flow.”
In Konik’s view, Manchester United’s business fundamentals justify a $26 share price in the coming year. That said, what’s truly driving shares is anticipation of the club’s sale. United shares finished June just under $25 a share, near a four-month high, driven by reports that Qatari bidder Sheikh Jassim Bin Hamad J.J. Al Thani is increasingly confident he will win the famed English club.
Other sports organizations in the Sportico Sports Stock Index also enjoyed good advances in June: Serie A soccer power Juventus (JVTSF, up 15%), the Atlanta Braves (BATRA, up 9%), soon-to-be-bought WWE (up 7%), Formula One (FWONA, up 7%), Madison Square Garden Sports (MSGS, up 7%). Other notable gainers in the month were sports-centric streamer Fubo (up 24%), casino and sports betting firm Caesars Entertainment (CZR, up 24%) and DraftKings (DKNG, up 14%). Eight of the index’s components rose 10% or more in June.
Not every sports stock had a good month. Of the six decliners, only two fell significantly. One was Sinclair Inc. (SBGI, down 12%), as broadcasters continue to suffer from an advertising recession and expected significant growth from its Tennis Channel properties is likely a year or more away. Sinclair is also not out of the woods yet with its troubled regional sports network Diamond Sports. Sinclair owns all or nearly all of Diamond, though it will see its equity wiped out as Diamond moves through its Chapter 11 bankruptcy reorganization. While Sinclair executives have told investors they believe the business is shielded from liability from Diamond’s failure, it’s not guaranteed. Just last week, Diamond’s lawyers subpoenaed JPMorgan Chase officials to testify about the bank’s relationship with Sinclair and the timing of its pre-bankruptcy Diamond shares sale.
The worst performer of the sports index in June was Faze Holdings (FAZE, down 10%). The parent of esports giant FaZe Clan, Faze Holdings has lost 98% of its value since peaking at $24.69 less than a year ago, shortly after going public in a SPAC merger. Faze has been bedeviled by multiple executive resignations, underperformance versus projections made to investors and a mostly bearish stock market. Valued at $725 million when it went public last July, Faze now has a market cap of $35 million and is in danger of delisting by the Nasdaq because of its low share price. Given its low market cap, Sportico has dropped Faze from the sports index for the third quarter.
The Sportico Sports Stock Index is rebalanced quarterly, with each component stock reset to 2.5% of the index’s value and companies dropped and added as needed. Sphere Corp. (SPHR, up 15% in June) leaves the index since its business—a concert venue under construction in Las Vegas—isn’t sports related. Sphere entered the index in the second quarter after it and Madison Square Garden Entertainment (MSGE, down 5%) were separated into two businesses.
Index newcomers include the Pro Bowlers Association, owner Bowlero (BOWL, up slightly). In addition to the PBA Tour, Bowlero runs pro-am, club and social leagues throughout the U.S. and Canada and owns more than 300 bowling alleys. Bowlero went public by SPAC in December 2021.
The Sportico Sports Stock Index debuted in August 2020 as the first stock market barometer of the sports business. Starting at 1,000, the index has now risen more than 21%, excluding additional gains resulting from dividends paid by component stocks. To be included in the index, a company must have a significant reliance on sports for its growth, be traded in the U.S. at a sufficient volume and have a market capitalization of $50 million or greater.
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