It Keeps Getting Worse for Sports Stocks in Summer Meltdown
To flip a common stock market phrase, an ebbing tide lowers all boats.
Sports stocks stumbled into summertime, with 39 of the 40 components of the JohnWallStreet Sport Stock Index ending June down from May. The benchmark sports index surrendered 13% in the month to close at 1,034, its lowest level since the Sportico index debuted at 1,000 on August 2020. Sports slid along with the broad market, as the S&P dropped 8% this month amidst a bear market driven by a cascade of fears stemming from inflation.
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“It’s a perfect storm of negative factors,” said David Russell, vice president of market intelligence at the brokerage TradeStation, in a video call. “You have higher interest rates squeezing multiples on growth stocks, a hawkish fed, higher gas prices hammering leverage stocks and economically sensitive stocks like casinos. You put all those things together and you have a perfect storm of negativity right now.”
Most sports-related stocks sit in one of two market sectors—communications, such as broadcasters Paramount (PARA, down 27%) and Sinclair Broadcasting (SBGI, down 15%), or consumer discretionary, such as Vivid Seats (SEAT, down 19%) and Nike (NKE, down 12%). Those are the two worst sectors of the market in 2022, as inflation crimps the valuation multiples investors will pay for stocks, makes servicing corporate debt more expensive and makes consumers less willing to spend.
“They’re economically sensitive—sensitive to consumer demand, and advertising spend. Those two things alone are highly cyclical areas,” said Russell. “So if you think the Fed is going to slam the brakes, you anticipate things are going to be bad. That is the big story for [sports-related] stocks here.”
That continues to mean sports betting stocks bear the brunt of the sell-off. Betway owner Super Group (SGHC) was the worst JohnWallStreet index performer in June, losing 43% of its value to finish the month at $4.11. The losses were in part carryover from the sports betting company missing earnings expectations in a late May report. It also reflects the seemingly relentless backlash against sports betting stocks which, along with SPACs and meme stocks, ruled the pandemic’s bull market phase. Other sports betting companies didn’t fare much better: data and analytics provider Genius Sports (GENI down 29%), Caesars Entertainment (CZR, down 26%) and Rush Street Interactive (RSI, down 25%) also sustained large drawdowns.
Sports-centric streaming TV provider FuboTV (FUBO, down 30%) got no lift from mid-month announcements that it is combining live sports streaming with its own sportsbook. It extends a rough stretch for Fubo, which since early November has lost 93% of its market cap, finishing yesterday at $2.46. Fubo began rolling out live pick ‘em games on June 19 and plans to add more betting features in coming months.
Esports betting data and analytics provider eSports Technologies (EBET) lost 26% in the month to close at of $2.40 and a market cap of just $36 million. The combination of low price and shrinking market cap means eSports Technologies is being dropped from the sports index entering today. It’s replaced by Shift4Payments Inc (FOUR), which has a $2 billion market cap from offering point-of-service technologies for entertainment venues, consumer sporting venues like country clubs, and restaurants. In particular Shift4 Payments targets the sports and entertainment market as a primary growth arena, recently inking deals to do payments at Philadelphia’s Wells Fargo Center, San Francisco’s Oracle Park and all of Ohio State University’s athletic facilities. It also has designs on being a cog in a crypto-based sports betting ecosystem.
Throughout June, bears were largely indiscriminate, swatting more than 10% of the prices of 22 of the Sportico index’ 40 components. Among them were Madison Square Garden Entertainment (MSGE), which mainly operates entertainment venues, losing 22% on concerns over the shrinking cable subscriber universe for its regional sports network, and Under Armour (UAA), which decreased 19% as the business’ long-sought turnaround continues to be elusive.
Relative to the broad market, a handful of Sports Index components outperformed, including F1 (FWONA) and Activision Blizzard (ATVI), each down less than 1% for June. The only component to gain in the month: B. Riley Principal 150 Merger Co. (BRPM). The SPAC has scheduled a shareholder vote for July 15 to approve its merger with FaZe Clan, a content and esports business with 11 esports teams and some 500 million social media followers. The SPAC gained 1.2%—12 cents—in June.
Overall, the first half of 2022 gave the S&P 500 index its worst first half year in about five decades. The S&P fell almost 21% to start the year. The JohnWallStreet Index is down 32% year-to-date and 41% from its peak in November.
The long stretch of poor stock performance probably doesn’t end until the market feels the Federal Reserve Bank will ease its “hawkish” position of fighting inflation. That eventuality seems some time off, according to Russell. “The Fed right now isn't even fighting inflation, they are only normalizing interest rates. Interest rates are still negative when you consider where inflation is, when you consider an economy with jobless claims under 200,000—a low number, historically—and millions of unfilled jobs.”
Sportico’s JohnWallStreet Sports Stock Index is meant to reflect the state of the sports business through 40 equally weighted stocks traded in the U.S. To be included in the index, companies must have a minimum market cap of $50 million and be traded in sufficient volume on an American exchange. The index is rebalanced quarterly, with components dropped and added as needed and the weightings of each stock returned to 2.5% of the index.
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