The JohnWallStreet Sports Stock Index suffered its worst month ever, falling 14% in April as 38 of the index’s 40 components finished lower, most down sharply, as investors continue to shun growth stocks.
Sports stocks aren’t alone: The S&P 500 is off to its worst four-month start to a year since World War II, as a combination of inflation fears, Ukraine war jitters and ripples from continuing pandemic lockdowns in China left few safe havens in the markets. The S&P surrendered 8% in April and is down 12% for 2022.
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“The economy seems to be doing well, with job growth still at high levels, consumer spending still healthy, and businesses continuing to invest. But the stock market—which is supposedly a barometer of that economy—is acting very differently,” said Brad McMillan, chief investment officer of Commonwealth Financial Network, in a research note Thursday. The primary reason for the drop is expectation the Federal Reserve will aggressively raise interest rates to combat inflation, which in turn reduces the future value of stocks in Wall Street’s eyes. The current retracement in stocks is almost certainly temporary, the analyst wrote. “As long as the economy is basically healthy (which it is) and as long as policymakers are on top of things (which they are), companies will keep growing and making money.”
There are few signs inflation is curbing consumer spending, and it hasn’t really been affecting sports on the business side, either.
Still, investors in sports stocks have been losing a good bit of money. Sports-centric steaming service FuboTV (FUBO) shed 50% of its value in April. Fubo was the worst performer in the index, which saw two-thirds of its components lose more than 10% in the month. Fubo itself generated little news in April, so blame Netflix’ big miss in earnings midmonth for the weakness, which has investors concerned streaming may be reaching a saturation point. Other big streaming losers in the index were Paramount (PARA, down 24%), which features women’s and European soccer heavily among its viewing options, ESPN parent Walt Disney Co. (DIS, down 22%) and Sinclair Broadcasting (SBGI, down 20%), which has been planning a pay streaming service of its own featuring its regional sports rights.
Elsewhere, betting stocks continue to get battered. DraftKings (DKNG), which 13 months ago boasted a $29 billion market cap, now has a value of $5.6 billion after losing 34% in April. DraftKings is “cash-hungry” and “not expected to be profitable for at least two years,” wrote Tom Waterhouse in a monthly note to investors last week. U.S. sports wagering stocks are suffering from a widespread re-evaluation of their value in the current market conditions, according to Waterhouse, a venture capitalist who specializes in sports betting. By contrast, European sports books have more balanced businesses that frequently pay dividends, reducing wild price swings. Every betting related stock in the JohnWallStreet Index fell in April, including Genius Sports (GENI, down 22%), Rush Street Interactive (RSI, down 21%) and Barstool Sports owner Penn National Gaming (PENN, down 18%).
Since reaching an all-time high of 1,763 in November, the Sportico benchmark has lost 30%, finishing April at 1,241. It’s the lowest level for the JohnWallStreet Sports Stock Index in 18 months, and it means for the first time sports stocks have lagged the S&P since August 2020, when the index was set at 1,000. Only two stocks in the index rose in April: RedBall (RBAC, up 0.1%), the Gerry Cardinale SPAC that is in the sixth month of trying to close its merger with ticker broker SeatGeek, gained a penny; and AT&T (ATT, up 6%), which is due to be dropped from the index at the next rebalancing after selling its regional cable and entertainment businesses to Discover early in April.
The JohnWallStreet Sports Stock Index is a 40-stock grouping meant to reflect the state of professional sports. The index includes teams publicly traded in the U.S., sports betting businesses and major apparel sponsors, as well as media and other businesses with a high reliance on sports for their growth. General consumer sports companies, such as retailers and leisurewear makers, and sports-focused SPACs without a definitive merger agreement aren’t included in the index. To be included in the index, stocks must be traded in sufficient volume on a U.S. exchange and have a minimum market cap of $50 million. Companies that fail to meet the requirements, experience a significant corporate event (think: bankruptcy, sale) or pivot in strategy away from professional sports may be dropped from the index. The index is rebalanced quarterly, with any additions and subtractions to its composition occurring then.
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