The Biggest Brands (and Teams) In Sports Part One
Ash is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Sports is big business, so big in fact that this post will span more than one URL! An investor could, if they tried hard enough, create a diverse portfolio of companies that touch sports in some way. There are publicly traded sports networks, teams, sponsors and apparel brands that all bring in billions per year. In this article we'll take a look at the biggest of the bunch, in the next part we'll look at a few of the smaller brands.
Nike (NYSE: NKE)
You have to have heard of Nike! The company makes all kinds of sports apparel ranging from shirts all the way to patented varieties of sports shoes. They are in direct competition with German giant Adidas, a company that you can find trading on the Pink Sheets in the U.S. if you'd like to look more into them.
Nike has a market cap of $47.6-billion, around two-times FY 2012 revenues of $24.94-billion. The company has some great potential for years to come and I think that investors should look to the stock for potential investment opportunity. Let's take a look at some key Nike ratios to see if we can determine the investment worthiness of this gigantic sports brand.
The P/E ratio at Nike is currently 22.41, definitely on the high end but we're looking at a company that has had some very consistent growth in their footwear division and doesn't show any signs of slowing. Speaking of the footwear division, it makes up over 50% of the company and over the next few years it will likely move into the 55-60% range. Nike has 20% market share in the $75-billion footwear division worldwide and produces a margin on those shoes above 40%.
Five year EPS growth is 6.82% and the five year revenue growth for Nike is at 6.24%. Nike also has a 22% return on equity and a small yield of 1.6%. If you group all of these stats together with the 5-star CAPS rating that this stock has then I think you have yourself a stock for the future.
ESPN has had tremendous success since their founding and that success has only continued since Disney (NYSE: DIS) acquired the brand in the 90's. ESPN makes up around about 40% of Disney which pegs its value at around $36-billion, based upon the $90-billion market cap of Disney.
What makes ESPN so great? They manage to charge around $5 per subscriber in the United States and almost everyone with a cable box is paying it. They also keep increasing those fees and they'll likely be pushing the $7 mark by 2015, that's phenomenal growth. Providing that ESPN can keep pushing the cash towards the content, they'll always come out on top. With the ability to charge $5 per subscriber, they have lots of FCF that they are able to turn right around into more content and more subscribers.
Around a million people tune into ESPN each day which enables the firm to charge a great premium on advertising. The current effective rate is around $17.70 per 1,000 viewers at peak. If they're able to get the $17.70 for just 500,000 viewers per day then they're looking at $8-million+.
As this brand is a part of a much larger and diverse company I believe it represents a great buy. Viewers at ESPN will remain the same but paying households will likely increase over the long term, as will the amount they're paying for the channels and the amount advertisers are paying to reach those customers.
Liberty Media Capital (NASDAQ: STRZA)
It may strike some people as a weird pick for the sports business, but Liberty Media Capital happens to own the Atlanta Braves baseball team. It's a bit more difficult to figure out exactly what the Braves bring to the table in this relationship as the company owns many different properties but we can look at the company as a whole.
First off, the market cap is a little over $14-billion. This company buys up segments of media companies and profits like a regular investor would. While you don't get ownership of the assets you can still claim that your stock is going up partly because of the Braves. In addition to the Atlanta Braves, LMCA also has stake in Barnes & Noble, Live Nation, SiriusXM, Sprint, Time Warner and Viacom. All of these companies, and the many more I couldn't name, are part of the LMCA portfolio and obviously create a lot of diversity.
Earnings at LMCA are wobbly due to their structure. You'll still probably make money on this deal though as the managers are great and they certainly know what they're doing. Liberty Media has a moderate buy rating from analysts and I would certainly give this stock a "strong buy" in the long run. They have a great return on equity at 30.2% and a solid 20% return on assets.
Think this is it for sports? Think again! I still have another sports team, some more apparel, another media group and more in the next article!
Ash1402 owns shares of Walt Disney. The Motley Fool recommends Nike and Walt Disney. The Motley Fool owns shares of Nike and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!