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Wall Street Wary of Man United, WWE Deals as Sports Stocks Slump

brendan coffey
·5 min read

The hotly anticipated deals that powered sports stocks to start the year have cooled down, nudging the Sportico Sports Stock Index down 6% in February.

The index, which tracks the health of the industry as reflected in 40 U.S. traded stocks that rely on sports for a significant portion of their growth, closed out the month at 1,155. That’s still a gain of almost 10% on the year, more than double the S&P 500 Index’s year-to-date rise.

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Despite the advance, most sports stocks were weaker in the month, with 30 of the 40 components dropping in February, reflecting in part the broader market softness. But it also suggests some second thoughts about big deals. Chief among them is Manchester United (MANU), which is accepting bids for the Glazer family’s controlling stake. After shares peaked at an all-time high of 26.84 mid-month, worries began creeping in. First, hedge fund Elliott Management offered financing help for an acquisition of Man Utd., which many interpreted as a sign that the Paul Singer-led fund wanted to help fund the Glazer’s continuing ownership (of course Elliott would if the price was right). Then came a warning from the Glazers to bidders not to run them down. Known bidders, Qatari Jassim Al Thani and Englishman Jim Ratcliffe, had been trying to curry favor with the Red Devils’ balance-sheet obsessed fans by promising a debt-free purchase and to invest money to put Man Utd. back on top. The Glazers could pull a Dan Snyder and not even consider bids from people whom they dislike, no matter how rich.

Finally, the Financial Times ran a column filled with mostly speculative reasons for why Man Utd. is a tough sell–yes revenue is $800 million a year, but soccer players are expensive. Yes, it owns lots of real estate, but, hey, Cristiano Ronaldo said the training complex isn’t up to his standards. Yes, the team’s a crown jewel in the sport, but look at Juventus (JVTSF, down 10% in February); its stock trades at far cheaper multiples than Man Utd. The FT story spooked investors most by peering into the future using discounted cash flow analysis–the CFA’s way of saying guesstimate–and determined the club should be worth about $1.9 billion. The net result of all the bearishness is Man Utd. shares tumbled by about a quarter the past two weeks to finish down 9% for February, at 20.75 a share.

So far, shares of World Wrestling Entertainment (WWE), the other big potential sale in the publicly traded sports world, are holding up fine. WWE closed down 1% to $85 in February. WWE has largely held onto its price gains after controlling shareholder Vince McMahon announced he was returning to maximize shareholder value for the business, including a potential sale. Yet market data compiled by Fintel shows a few hedge funds are betting big that Vince fails: fully 21% of the float–the number of shares available to trade–are bets that WWE shares will fall. Expect some negative rumors to make their way into the market (it may be FT’s next column idea) as bears seek to hammer shares down. On the other hand, it would take short sellers more than 15 days normal trading volume to cover their bets on WWE. That is a classic set up for a short-squeeze, when good news sparks a dramatic spike higher and short-sellers have to cut their losses.

The best performer of the Sportico Sports Stock Index was DraftKings (DKNG), which for the second-month in a row outpaced peers as investors increasingly view the business as the best play in U.S. sports betting. DraftKings shares gained 25%, to finish at $18.86. DraftKings “is a first mover in mobile sports betting and mobile gaming with industry best technology and customer service,” CFRA analyst Zachary Warring said in a weekend research note. DraftKings is is projected to grow revenue 25% annually as U.S. and mobile sports betting expands while capping costs through economies of scale and as weaker competitors eventually drop out of the market, Warring said. Other betting stocks were mixed: Betway parent Super Group (SGHC, up 19%) seems to be putting a terrible 2022 behind it, while Barstool Sports owner Penn National Gaming (PENN) lost 11%.

Another big loser was Sinclair Broadcast Group (SGBI), which fell 21% in the month, despite its efforts to wash its hands of RSN albatross Diamond Sports, which is likely to file for bankruptcy reorganization soon. Last year, Sinclair adjusted its accounting to treat Diamond like an arms-length equity investment rather than a division contributing to profit and loss. Yet in its latest earnings report, excluding Diamond didn’t assuage Wall Street, which wanted a better outlook for this quarter’s ad sales on Sinclair’s extensive local broadcast networks and the Tennis Channel.

Another notable mover was Madison Square Garden Entertainment (MSGE) which rose 24% to $60.53 a share as management gave more specifics on a plan to split the business into two. MSG is now proposing to cleave Entertainment into two companies, one of which will hold most of the live entertainment venues, like the world’s most famous arena and Radio City Music Hall, while another company, MSG Sphere, will hold the soon-to-open Las Vegas Sphere, restaurant group Tao Hospitality and MSG Networks. For those keeping score at home, it will be MSG Networks’ fourth home in eight years. It started as part of MSG Corp, which then spun it out as MSG Networks in 2015, then the controlling shareholder, the Dolan family, merged it with MSG Entertainment in 2021. On the sidelines during all this corporate action was the parent of the Knicks and Rangers, MSG Sports (MSGS), which gained 6% in February.

The Sportico Sports Stock Index was formed in August 2020 at a starting level of 1,000, meaning it has gained more than 15% since. It’s an equal-weighting index that is rebalanced quarterly, meaning every component stock is set to be 2.5% of the index value each period. The index starts March rebalanced and with AT&T (T, down 5%) replaced by Bowlero (BOWL), which owns the Professional Bowlers Association, the top 10-pin tour, as well as some 300 bowling alleys in North America.

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