How to Play the Big Business of Sports
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I don’t exactly remember how it happened, but it was love at first sight. All I do know is that when I opened my first pack of baseball cards that my dad had given me as a gift that I was hooked. Flipping those cards in my hands I’d immediately been drawn to the team on one card in particular and despite never watching one of their games I’d become a fan. A few years later when game six of the 1993 World Series turned with one swing and my heart stopped in a moment of ecstasy as the ball cleared the fence it sealed my lifelong devotion to the team.
Maybe your story involved a catch in the end zone or the puck sneaking past to strike the back of the net. Or maybe yours ended in the heartbreak of the final out or a field goal that sailed wide right. No matter what your story, odds are you’ve spent many hours and many dollars following your favorite sports team.
Recently, I spent a morning at a leadership conference entitled “Show Me The Money…The Big Business of Sports.” The theme of the conference was the financial side of sports that we as fans sometimes see as being in direct conflict with our love of the game. With labor disputes, rising ticket prices, blackouts and the like, what’s a fan to do?
While the old saying “if you can’t beat them, join them” sounds good, in practice it’s not well, practical. Still I’ve found that at least understanding the dynamics at play is helpful and if I can someday retire from what I’ve learned all the better. So, how can a sports fan play in the big business of sports? I have two ways to consider.
Be an Owner
One of the speakers at the conference was the CFO of the Pittsburgh Steelers, Mark Hart. He said something that no fan wants to hear. Our beloved sports franchise isn’t that at all, it’s a content and entertainment company. It’s one that needs to generate multiple streams of revenue to survive (think ticket sales, TV rights, sponsorships, etc.). It’s also a business that thrives on being an exclusive provider of this content through an experience. While the experience is best found at the stadium you can still access it in your living room or the device of your choice.
I think it’s quite natural then for fans to loath the owners. They’re restricting our access by putting a price tag on it and some would say watering down the content by not reinvesting in the product unless we send more revenue their way. As I alluded to in the beginning, I’m a lifelong Toronto Blue Jays fan. The Jays, along with several other Canadian sports teams are actually now a division within Rogers Communication (NYSE: RCI).
Few sports franchises are publically traded, either as a division of another media company or in a more pure play form. They are either buried deep within a company like Liberty Media (NASDAQ: STRZA) subsidiary Atlanta Braves or in a bit easier to spot configuration like New York Knicks and Rangers owner Madison Square Garden (NASDAQ: MSG). These trophy assets are usually reserved for the 1% so it stands to reason that if you can get your piece it’s at least worth a look.
Liberty Media’s shares trade for about 14 times earnings while Madison Square Garden’s shares fetch closer to 30 times earnings. However if the allure of owning your favorite pro sports team is too much to overcome, I’d see no problem putting a very minor portion of your portfolio into owning an owner. In my case I’ve found Rogers to be a fine long term investment as their core communications and media businesses are worth owning for the long term.
Be a Player
If the allure of ownership doesn’t fit in with your investing style, consider if you might be better off by investing in one of the two major “players” in fitting the players. We’ll make it simple here, you’ve got the veteran all-star Nike (NYSE: NKE) and the young upstart Under Armor (NYSE: UA). Are you looking for a safe secure sure thing or someone with the potential for multi-bagger future returns?
One of the other conference panelists was Pittsburgh Pirates President Frank Coonelly who made that comment that “winning equals revenue.” The point he was alluding to was the more his team won, the more revenue they’d generate at the gates and through merchandise sales. Finding a winning investment is one that’s winning in the competitive marketplace by increasing sales. Over the past five years Nike’s grown their revenue by 6.75% a year and earnings by 9.32%. Under Armor’s grown revenue 22.78% and earnings by 16.24% annually over that same time frame.
So if more wins are found by growing revenues faster the better player for the long haul looks like Under Armor. If you look out over the next five years they’re expected to grow earnings by 21% while Nike will grow them by just 13%. Both respectable but Under Armor could be a future all-star and reward your portfolio with several winning years.
With the average Steeler game generating $8 million in economic impact and the Pirates following at $2 million a game there’s a lot of other ways to play in the big business of sports. That economic impact multiplied across all the major league cities over a full season is a lot of impact. We don’t like to think about the dollars involved as we pursue our passion for the game but it’s good to take a step back and at least think about its impact. Don’t dwell on it for too long, you don’t want to miss that big game.
latimerburned owns shares of Rogers Communications (USA) and Under Armour and has an options position on Nike. The Motley Fool owns shares of Madison Square Garden and Under Armour. Motley Fool newsletter services recommend Nike, Rogers Communications (USA), and Under Armour. 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.If you have questions about this post or the Fool’s blog network, click here for information.