Genius, Caesars Lead Sports Stocks Bounce-Back in October
A mid-October slip to two-year lows seemed to have stocks on the precipice of a much larger bear move. But buyers rallied to lift the market higher, as renewed favor for small and midcap stocks boosted the JohnWallStreet Sports Stock Index 7% in October.
“This market has been historically negative and pessimistic for months and months, and now we’re getting the sense that the Fed is getting near the end of the road,” David Russell, the head of market intelligence at TradeStation, an online brokerage, said in a video call.
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Rising interest rates have battered stocks for most of the year because they negatively affect how many investors weigh what to pay for stocks. The Federal Reserve Bank has been telegraphing that it expects to pause rate hikes once it gets interest rates to 4.5% or 5%, a mark that likely comes before year’s end. “We’re starting to see that some of the reasons for that negativity are starting to fade,” Russell said.
The Sportico index gains were broad-based, with 33 of the benchmark’s components rising in October, led by Genius Sports (GENI), which rallied 45%. The sports data and analytics firm enjoyed a run of positive news, from a move to commercialize player skeletal data to settling a lawsuit with global rival Sportradar (SRAD, up 16%) that protects Genius’ official rights to English Premier League data. The two companies were among 16 stocks in the JohnWallStreet benchmark to rise more than 10% in October.
Caesars Entertainment (CZR) was the second-biggest gainer, rising 39% on a combination of good news (its Ohio sports book opened) as well as an absence of bad news (competitors with casinos in Macau are once again having to deal with COVID lockdowns imposed by the Chinese government). Scoreboard maker Daktronics (DAKT, up 28%), Barstool Sports parent Penn National Gaming (PENN, up 23%) and Madison Square Garden Sports (MSGS, up 19%) rounded out the biggest winners. Earlier in the month, the Dolan family, which controls MSGS, pronounced the business undervalued, saying they would roll out an accelerated share buyback this month. MSG Sports owns the NBA’s Knicks and the NHL’s Rangers, which are worth more than $2 billion, according to Sportico’s latest NHL valuations, published yesterday.
“When you consider the carnage in names like Meta (META, down 31%) and even Alphabet (GOOGL, down 1%), it’s interesting to see how [sports-related stocks] performed—they’re small caps, by and large, and small caps are starting to outperform,” Russell said. “The World Series and NFL season puts the focus back on these as well … and we’ve seen a recovery in leisure-related names—cruise ships, casinos—which are a similar sort of universe.”
The worst performers in the sports stock group were mega cap Amazon.com (AMZN, down 14%) and esports giant Faze Holdings (FAZE). The FaZe Clan parent saw 68% of its market value evaporate in October; it appears no particular news harmed the clan, but the business is following a typical course seen in companies that have come public by SPAC merger. Faze came public in July and filed a prospectus at the start of October to allow investors in the transaction, including celebrity rapper Snoop Dog and thematic money manager CAZ Investments, to be able to sell some 64 million shares in the open market. Such filings are common with SPAC deals, and don’t mean all the shares will be sold, but nevertheless they do weigh on sentiment.
Despite the October gains, the market still shows a lot of bearishness. Even with the 7% advance, the Sportico index closed October at 1,080, down 30% for 2022. The index was constituted at 1,000 in August 2020 and peaked at 1,763 almost a year ago to the day. The JohnWallStreet Sports Stock Index is a collection of 40 sport-related stocks that trade in the U.S. and reflect the state of the sports business. The index is equal-weighted and rebalanced each quarter, meaning every component is 2.5% of the index’ weight.
While equity prices remain depressed compared to a year ago, a growing segment of market-watchers think October could have marked the low for the stock market.
“A bear market should last longer than this one … and that’s going to be a constraint. Some people aren’t going to want to believe it.” Russell said. “From my perspective, when you consider the extreme negativity and the strength in the economy, I’m leaning in the direction that the risk is priced in, and there is the potential for more relief, once we know for sure the Fed is nearing the end of the road.”
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