Late May Surge Sends Sports Stocks to Victory Over S&P 500

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Sportico’s benchmark sports stock index edged out the broad market in May, as a late-month rebound pulled equities from a mid-month slump to tally a modest gain heading toward summer.

The JohnWallStreet Sports Stock Index notched a 1.9% advance in May, beating the S&P 500 by more than a percentage point. Both indexes had been down markedly mid-month—sports down 6% and the broad market about 3%—as investors favored more value-priced sectors and companies outside the sports/media/technology ecosystem.

“There’s been this constant rotation between different reopening plays, and while sports betting is a reopening play, there are a lot of others, too,” said David Russell, the vice president of market intelligence at TradeStation Group, a brokerage. “People have been favoring the metals, such as steel. Penn National Gaming and DraftKings are things that trade at high multiples—those aren’t the stocks that have been doing well lately.”

Penn National Gaming, a casino operator, had rallied for most of 2020 and into this year, thanks to its exposure to sports betting and its sizable minority ownership of Barstool Sports. Shares have retreated since peaking at $136 in early March and closed May at $81.97.

Similarly DraftKings, which sparked the sports SPAC wave of the past year, crested near $72 in mid-March and tumbled as low as $41 on May 13 before rallying to close out May at $49.97—but still at a loss of 16% on the month. Flutter Entertainment, which owns fantasy sports purveyor FanDuel, bookmakers including Paddy Power and broadcast operations such as horse racing’s TVG, was also one of the big decliners in the Sportico index in May, shedding 15% in the month. The company struck a deal this week establishing FanDuel as the sole sports odds provider to the Associated Press. The trio of stocks were the worst performers in the sports index for May.

Not all betting-related components of the JohnWallStreet index fell, however. Scientific Games, which provides betting software to casinos, lotteries and online gambling apps, gained almost 23% in the month, making it the top performer in the Sportico index. The company posted sustained gains after announcing better-than-expected quarterly earnings on May 10. Scientific Games reported a loss of 16 cents per share, narrowing from a loss of $1.69 a year ago and well ahead of Wall Street expectations. It purchased SportsCast this week, a closely held business that will allow Scientific Games to expand into pregame, in-game and same-game parlays with instant pricing for bets on the five major North American pro leagues and tennis, according to the company. The other double-digit gainers for May were Adidas (up 18%) and Genius Sports (up 11%). The reopening trade also benefited events producer and ticket seller Live Nation, which posted a nearly 10% gain for May.

According to TradeStation’s Russell, the market is likely in the midst of a cyclical rotation that means it will take a bit more time for traders to return en masse to high-growth equities, such as sports stocks.

“As we really start looking toward the end of baseball season and the start of football season, that’s when people are really going to get excited about [sports] stocks, and that story will start coming together in a month or two,” the analyst explained.

The JohnWallStreet Sports Stock Index is comprised of 40 equities, including sports teams, media companies and other businesses highly dependent on professional and collegiate sports. The index, which is equally weighted and rebalanced quarterly, was established at a level of 1,000 for August last year and has risen 71% since, closing May at 1,714. Of the 40 member stocks, 22 advanced in May while 18 fell. In beating the S&P’s May performance, the sports index has beaten the broad market seven of the last 10 months. It is also besting the S&P in 2021 to date by about nine percentage points.

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