To paraphrase a common stock market phrase, a low tide lowers all boats.
Sports stocks stumbled into the summer, with 39 of the 40 components of the JohnWallStreet Sport Stock Index posting declines in June from May. The benchmark sports index fell 13% for the month to close at 1,034, its lowest since Sportico The index debuted at 1,000 in August 2020. The sport slipped along with the broader market as the S&P fell 8% this month amid a bear market fueled by a cascade of inflation fears.
“It’s a perfect storm of negative factors,” David Russell, vice president of market intelligence at brokerage firm TradeStation, said in a video call. “You have higher interest rates hitting growth stocks multiples, a hawkish Fed, higher gas prices hitting leveraged stocks and economically sensitive stocks like casinos. You put all of these things together and you have a perfect storm of negativity right now.”
Most sports-related stocks fall into one of two market sectors — communications, such as broadcasters Outstanding (PARAGRAPHminus 27%) and Sinclair Broadcasting (SBGIdown 15%) or consumer discretionary such as Lively seats (SEATminus 19%) and Nike (NKE, down 12%). Those are the two worst-performing sectors of the market in 2022, as inflation eats away at the valuation multiples investors pay for stocks, makes corporate debt more expensive to service, and consumers are less willing to spend.
“They are commercially sensitive – sensitive to consumer demand and advertising spending. Those two things alone are highly cyclical areas,” Russell said. “So if you think the Fed is going to hit the brakes, assume things are going to go bad. That’s the big story for [sports-related] shares here.”
That continues to mean that sports betting stocks are bearing the brunt of the sell-off. Betway owner Supergroup (SGHC) was the worst-performing JohnWallStreet index in June, losing 43% of its value to end the month at $4.11. The losses were due in part to a report from the sportsbook that missed earnings expectations in a late May report. It also reflects the seemingly unrelenting backlash against sports betting stocks that, along with SPACs and meme stocks, dominated the bull market phase of the pandemic. Other sports betting providers didn’t fare much better: data and analytics providers Brilliant sport (GENIUS decrease of 29%), Caesars entertainment (CZR26% decrease) and Rush Street Interactive (RSIdown 25%) also suffered large drawdowns.
Sports-focused streaming TV provider Football TV (FUBO, down 30%), didn’t get a boost from mid-month announcements that it was combining live sports streaming with its own sportsbook. A rough patch extends for Fubo, which has lost 93% of its market cap since early November to close at $2.46 yesterday. Fubo started rolling out live pick’em games on June 19th and plans to add more betting features in the coming months.
Esports betting data and analytics provider eSports Technologies (EBET) lost 26% this month to close at $2.40 with a market cap of just $36 million. The combination of low price and shrinking market capitalization means that eSports Technologies will be removed from the sports index today. It is replaced by Shift4Payments Inc (FOUR), which has a $2 billion market cap as it provides point-of-service technologies for entertainment venues, consumer sports venues such as country clubs and restaurants. Specifically targeting the sports and entertainment market as a primary growth area, Shift4 Payments recently entered into agreements to process payments at the Wells Fargo Center in Philadelphia, Oracle Park in San Francisco and all of Ohio State University’s athletic facilities. It also has plans to be a cog in a crypto-based sports betting ecosystem.
In June, bears were largely indiscriminate, beating more than 10% of prices out of 22 the Sportico Index’ 40 components. Among them were Madison Square Garden Entertainment (MSGE)which primarily operates entertainment venues and lost 22% on concerns about the shrinking cable subscriber universe for its regional sports network, and Under Armor (UAA)which fell 19% as the company’s long-awaited turnaround continues to fail.
Relative to the broader market, a handful of sports index components outperformed, including F1 (FWONA) and activity Blizzard (ATVI), each down less than 1% for June. The only component that can be won in the month: B. Riley Principal 150 Merger Co. (BRPM). SPAC has scheduled a shareholder vote for July 15 to approve its merger with FaZe Clan, a content and esports company with 11 esports teams and approximately 500 million social media followers. The SPAC gained 1.2% — 12 cents — in June.
Overall, the first half of 2022 gave the S&P 500 Index its worst first half in about five decades. The S&P fell nearly 21% earlier in the year. The JohnWallStreet Index is down 32% year-to-date and 41% since its November peak.
The long stretch of poor stock performance is unlikely to end until the market believes the Federal Reserve will ease its “wrong” anti-inflationary stance. That contingency appears to be a time-out, according to Russell. “The Fed isn’t even fighting inflation right now, it’s just normalizing interest rates. Interest rates are still negative considering where inflation is, considering an economy with jobless claims below 200,000 – a historically low number – and millions of unfilled jobs.”
SporticoThe JohnWallStreet Sports Stock Index is designed to reflect the state of the sports business through 40 equally weighted stocks traded in the United States. To be included in the index, companies must have a minimum market capitalization of $50 million and be traded in sufficient volume on an American exchange. The Index is rebalanced quarterly, removing and adding components as needed and resetting each stock’s weight to 2.5% of the Index.