Play these 6 sports stocks and you just may win big
For investors aiming to swing for the fences with single equity plays, check out these athletic names -- including Nike and Madison Square Garden Co.
Wall Street, its parlance replete with sports lingo, offers the same thrilling divide between victory and defeat on a daily basis. The New York Times Company (NYT), playing to an obvious audience overlap, tellingly opted to embed its business and sports sections in the same part of the paper some years ago. Diehard fans are statistically more likely to switch spouses than ditch teams, yet loyalty to sports stocks has historically been a spectacularly awful investment. In no other business is success subject to the whims of an erroneous refereeing decision or the snap of a star player's Achilles tendon.
Ironically, we free-enterprise Americans arguably lag far behind our more collectivist European cousins in the business of sports. It won't be until next season that the National Basketball Association grudgingly agrees to turn over 2.5 tiny inches of its team jerseys to sponsors' logos. Contrast this with the situation overseas, where players’ shirts have long been walking billboards bringing in untold millions for the outfitted organization. (In 2012, a financially stricken fútbol side in Greece even had the enterprising idea of advertising a brothel on their outfits in return for cash.)
While fans looking to get rich quick from buying a hot initial public offering of their hometown heroes are invariably out of luck, across the Atlantic, a more measured business plan may yet prove more profitable. I spoke recently with Ron Scott, a Wall Street veteran and now Commissioner of the British Basketball Association. His league has an initial pool of eight franchised teams, drawn from an array of different geographic areas across a media-savvy country Scott says is in a "sweet spot" to further grow what is already the world's second most popular sport. The BBA's relatively stable grassroots and ground-up approach, a single-entity model in which the league owns all teams, ultimately aims to provide investors whose time horizon is roughly five years with a potentially lucrative piece of the overall portfolio.
For less-patient types aiming to swing for the fences with single equity plays, let us examine six sports-related names. All surely offer far better bang for the buck than aging Alex Rodriguez, the lavishly compensated and currently convalescing New York Yankee.
Stock in The Madison Square Garden Co (MSG), owner of "The World's Most Famous Arena," has surged some 65% in the past year. If not quite a Miracle on 34th Street, that still leaves both the Dow Jones Industrial Average (DJI) and the S&P 500 (INX) trailing in its dust during the same period. Its hallowed halls hosted the "Fight of the Century" between Joe Frazier and Muhammad Ali in 1971, not to mention Marilyn Monroe memorably cooing "Happy Birthday" to JFK a decade earlier.
MSG owns the New York Knicks, New York Rangers, New York Liberty, and Hartford Wolfpack. For good measure, it's also an entertainment empire that buys you a ticket to Radio City Music Hall and its world-renowned Rockettes, with the Fuse music channel thrown in for good measure. Boosted by ticket price hikes at its core basketball and ice hockey assets, the company recently reported a 24% increase in third-quarter profit. This performance was especially impressive as it came amid challenging NBA comparisons and a since-resolved National Hockey League work stoppage. Media-related revenue also showed strength. Risks include the fickle nature of sports, as evidenced when about $100 million was instantly wiped off its market capitalization after the abrupt end of last year’s "Linsanity." Operating permit issues for its marquis Manhattan property, and ever-escalating cable network costs, also loom as thorns in the Garden.
Its feet-of-clay spokesmen -- from a disgraced cyclist to an Olympian accused of murder -- keep on stumbling, yet nothing it seems can trip up Nike, Inc. (NKE). Shares have returned roughly 22% in the past year, having hit an historic high in May. Named after the Greek goddess of victory, this Oregon outfit is the biggest athletic footwear and apparel firm on Earth. Its "swoosh" logo is arguably the most instantly recognizable in all sports and adorns such soccer superstars as the boys from Brazil, whose hosting of next year's World Cup will provide the firm with priceless sponsorship publicity.
Adidas AG (ADDYY), which commands a 19% market share in athletic footwear sales, perennially finds itself playing second fiddle to Nike. Yet its approximately 50% stock price gain over the past 12 months leaves Big Brother from Beaverton far behind. The company's history dates back to bombed-out Bavaria in the late 1940s, but the German company's future has rarely looked better. Brushing off the continent's debt crisis, Adidas recently received a huge boost from its enduring kit sponsorship of compatriot soccer club Bayern Munich, just anointed the world's most valuable sports team brand after capturing Europe's elite club title. Besides doing battle with Nike over an approximately $6 billion soccer market, Adidas also owns golf's TaylorMade, the equipment of choice (GolfDigest) for just-crowned U.S. Open champion Justin Rose.
Its latest gross margin rose 2.4% year-over-year, to an all-time peak of 50.1%. Meanwhile, first-quarter net profit posted a 6% increase to 308 million euros, which CEO Herbert Hainer attributed to "the strong reception to our latest product innovations." Shares, which subsequently scored an analyst upgrade at JPMorgan, also offer investors a decent dividend yield of about 1.58%. Risks of owning its over-the-counter shares include a relative lack of liquidity for US investors. Systemic underperformance at Reebok, the brand it bought in 2006, is also an issue.
Storied British soccer side Manchester United PLC (MANU), a/k/a the "Red Devils," is among the world's most valuable and famous sports organizations. Its rabid army of fans -- among them ex-Goldman Sachs Group Inc (GS) executive and "BRIC" Coiner Jim O'Neill (Telegraph) -- ensures an enviably reliable revenue stream on its historic Old Trafford home turf, which is invariably packed to the stadium's 76,000 capacity. Shares, whose owners include George Soros, had their latest debut in August 2012, having first traded in 1991 before being taken private. The club won the last (as my loyalty is to its biggest rival, I prefer that word to "most recent") of its record 20 domestic championships in the season just ended, and such on-field success sent quarterly sponsorship revenue surging 52%. A blockbuster new English Premiership television deal will keep cash registers ringing at Manchester United mega stores from Bombay to Bangkok. Lucrative kit agreements lined up with blue chip clients like General Motors Company (GM) also augur well.
That said, the stock has barely budged from its $14 IPO price even as the overall market soars. A dictatorial dual-class structure (Minyanville) does not sit well with many shareholders. Last month's abrupt departure of managerial legend Alex Ferguson, at the helm since 1986, unnerved investors. All that on-field talent doesn't come cheap, with wages swallowing up fully 49% of all money earned in the fiscal third quarter. And it must gall a club that bills itself as the planet's biggest to see crosstown neighbor Manchester City, bankrolled by Arabian petrodollars, outspend it to capture many of the most coveted players. (As John Lennon once said, when asked if Ringo Starr was the best drummer in the world, "He's not even the best drummer in The Beatles.")
California's Callaway Golf Co (ELY), founded in 1980 and best known for its Big Bertha clubs, has seen its shares gain almost 20% in the past 52 weeks. Its latest quarterly earnings received a boost from two new product lines, Versa putters and X Hot Woods. Domestic sales rose a solid 7%, and gross margin improved to 45.3% from 43.6%. Overall rounds played in this country have inched up encouragingly, with the economy now firmly out of the rough, but remain some 20% below their 1980s peak as increasingly arthritic baby boomers give up the game. Chronic complaints over slow play and a course glut left over from years of overbuilding are additional industry concerns. Callaway enjoyed a stellar recent run, but a subsequent ratings reduction (Minyanville) due to market share erosion and competitor cost cuts saw shares subsequently act like a falling knife. (An age-old investment adage that one weekend duffer appears to have taken a little too literally (SourceNewspapers).
We'll end with a fun one. Purists will recoil at the unashamedly staged-managed histrionics of World Wrestling Entertainment, Inc. (WWE) being bracketed with bona fide athletic pursuits. But synchronized swimming and rhythmic gymnastics are each Olympic sports, after all. And sneer at your own peril -- WWE shares have surged some 30% since June 2012. (By comparison, Apple Inc. (AAPL) has tumbled about 27% in the same timeframe.) Moreover, its dividend flirts with 5%, which is extremely impressive in our yield-starved age. To be sure, WWE’s hamhanded acting bears little resemblance to its more authentic counterpart, a venerable combat form that dates to Greco-Roman times and is surely the only pastime on Earth capable of uniting, according to Yahoo, those strangest of bedfellows -- the US, Russia, and Iran. Whereas real wrestling, reports CNN, counts several financial industry power players among its aficionados, the nearest this faux version comes to a claim to fame on Wall Street is in having once employed Meredith Whitney's husband.
Yet shares stand at fresh peaks as we speak, propelled by a solid first quarter set of results. The recent 29th iteration of WrestleMania grossed a record $72 million. Television revenues also rose 15% on an annual basis, aided by an additional hour's airing of its Raw program. Issues to grapple with? Audience interest in the company's principal product is notoriously prone to boom and bust cycles, and a return to its Hulk Hogan and André the Giant glory days of the '80s appears unlikely. Weakness in international markets, a steep current stock multiple, and the McMahons' near total headlock on voting rights may also eventually have investors ordering a rematch.
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Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
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