6 NFL stocks to kick off the season
These picks offer exposure to the billions of dollars the league rakes in each year.
By Jonas Elmerraji, Stockpickr
Football is really back -- finally. The NFL regular season kicks off on Thursday when the New Orleans Saints meet the Packers at Green Bay. It's been a tumultuous road to the gridiron for the most valuable sports league in the world, with a lockout that threatened to curb football for the 2011 season -- a move that would have had implications beyond disappointing fans. After all, billions of dollars are at stake here.
And there is a way for investors to get exposure to the billions of dollars the NFL brings in each year. It's all about finding publicly traded stocks with hefty income statement exposure to the NFL.
Obviously, these aren't pure plays on football, but each of these names does receive meaningful revenue from the sport:
Walt Disney. You may not realize it, but Disney (DIS) has considerable ties to the NFL. The $59 billion owner of Mickey Mouse also happens to be the owner of ESPN, the home of Monday Night Football. ESPN is the crown jewel in Disney's cable network business, contributing three quarters of the division's revenue. That means that the sports network contributed around 20% of Disney's total revenue last year -- and ESPN is absolutely built on football.
ESPN pays $1.1 billion per year to carry 17 Monday Night Football games, the most that any network pays to carry the sport. The payoff is a massive audience for its football broadcasts and, more important, considerable NFL content that the network is able to use across a number of other shows. As long as that content keeps attracting viewers, ESPN gets to keep collecting affiliate fees from its cable providers and hefty premiums from advertisers.
DirecTV. Another company benefiting from contracts with the NFL is DirecTV (DTV). The satellite television provider has made its NFL Sunday Ticket subscription service the lynchpin of its advertising efforts this year, offering a free one-year subscription to the service for new customers who sign up. Like ESPN, DirecTV pays a hefty fee for rights to broadcast out-of-market NFL games to its customers -- more than $700 million annually.
The decision to include the premium package in its new subscriptions could end up being a very lucrative one for DirecTV. Not only is the offering pulling new customers from cable and rival satellite TV providers, but it's also the source of huge potential recurring revenue for DirecTV when those subscriptions renew next year (the retail price is a whopping $385).
Margins have been expanding in recent years for DirecTV, a welcome change from 2008's profit squeeze. Investors should expect more of the same in fiscal 2011.
Under Armour. Under Armour (UA), whose shares have climbed nearly 24% year to date, has had a relationship with the NFL since 2006, when the athletic apparel maker became one of just three authorized footwear suppliers for the league. The move meant that UA was able to market its NFL-branded apparel to consumers -- and that athletes using the firm's products wouldn't need to hide logos before games.
Under Armour has been adept at securing attractive endorsement deals with big-name prospects (as opposed to players who are already superstars). That focus on emerging talent has enabled UA to dramatically limit its endorsement costs without losing out on the cachet of popular names to endorse its wares.
Financially, Under Armour is looking strong. Growth has continued to come at a quick pace for the firm, and UA's balance sheet has remained with a net cash position. The NFL season should bring about increased visibility for this brand as players use its products on and off the field.
Electronic Arts. Electronic Arts (ERTS) owes one of its most successful video game franchises to the National Football League -- I'm talking about the firm's Madden NFL title, which hits the market in a new iteration every year. That annual revamp -- ongoing since 1990 -- allows the Madden NFL franchise to collect substantially more sales than competing titles that come out less regularly.
The firm's estimated $300 million deal with the NFL and the NFL Players Association means that EA has exclusive rights to use NFL teams and players in the game -- an added element of realism that's contributed to the $3 billion in total sales that the franchise has grossed for EA.
Comcast and General Electric. It may be a bit premature to talk about the Super Bowl, but you can bet that NBC -- owned by Comcast (CMCSA) and General Electric (GE) -- is already mulling the implications of airing the most-watched television event of the season in February.
NBC is paying the NFL just $600 million per year in its current contract, the cheapest deal among the major networks -- and an incredibly lucrative one in that it includes this season’s Super Bowl rights. The deal ends this year, meaning NBC will have to renegotiate its agreement with the NFL for the 2012-13 season -- likely ending the amazing price the network is been enjoying.
In total, NBC yields approximately $17 billion in sales and $2.3 billion in profits to its corporate parents. The Super Bowl alone should account for around 15% of the network's revenues in 2012.
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Investors are anxious to see if hiring can maintain its strong pace in the second half of the year.
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