Coronavirus and the threat to sport: stocks to watch
Coronavirus is causing chaos for the world’s sporting calendar. We outline some stocks and sectors that are likely to suffer as a result.
How has the coronavirus hit sporting events?
No part of the global economy seems safe from the coronavirus outbreak and sports is no different. Major events in virtually all sports have been affected, including football, rugby, cricket, boxing, athletics, horse racing, cycling, darts, hockey, basketball, baseball and motorsports.
Most sporting organisations have decided to postpone upcoming events or competitions rather than cancel them, with some opting to continue but behind closed doors.
All football matches in England, Scotland and Wales have been postponed until early April, the London Marathon has been pushed back from 26 April to 4 October, and the start of the Formula 1 season has been suspended.
It is the same for popular North American sports, with top-flight basketball and baseball already suspended and the NFL thought to be considering postponing the start of the new season pencilled in for late April.
What about the Tokyo Olympics?
The biggest sporting event at risk is the Olympic games in Tokyo that are due to run between 24 July and 9 August. The handover of the Olympic torch in Athens is already being held behind closed doors because of concerns over the coronavirus outbreak.
Still, the message from Japan is that the Olympics are still going ahead. Japan prime minister Shinzo Abe has said the games are to go ahead as planned but admitted the final decision will be down to the International Olympic Committee.
At a cost of over ¥1.35 trillion, or £10 billion, it is understandable why Japan wants to push ahead with the games but doing so amid the outbreak of COVID-19 is risky both in terms of health and economics.
If it goes for it, there is a chance that visitor numbers will be severely lower than anticipated and that the expected economic benefit of holding the Olympic games won’t materialise, all while risking the spread of the coronavirus. The case for pushing back the games is growing considering several Olympic trial events have already been postponed.
If the Olympics are postponed then expect a large and negative reaction from the likes of the Nikkei 225, which has already taken a big hit from the threat of cancellation.
How do sporting moments impact the stock market?
￼Coronavirus cancels sporting events: stocks to watch
Below is a list of sectors and stocks to watch as COVID-19 plays havoc with the world’s sporting calendar.
￼Sports clubs like Manchester Utd and the New York Knicks
First and foremost are the sports clubs that have had their games cancelled, postponed or ordered to be played behind closed doors. Shares in sports clubs have plummeted since the outbreak started to take hold at the start of 2020 and the decline has accelerated as the impact on the sports calendar has become clearer.
Shares in Manchester United and Scottish club Celtic have both lost more than 28% this year, while Italian outfit Juventus has seen its value more than half. It has been a similar picture in the US, where Liberty Braves, the owner of the Atlanta Braves Major League Baseball Club, has seen its share price drop by one-third.
The disruption COVID-19 is causing to the sporting calendar is understandably weighing on the shares of sports clubs as it paints a bleak picture for this year. There will be a multitude of things to consider, such as how it will affect sponsorship deals, revenue at the stadium tills, and money they earn from their performances on the pitch.
￼Sporting goods giants like Nike, Adidas and Puma
Any issues with sponsorship deals could also have an impact on the big brands that fork out huge amounts to tie themselves to the most popular and successful sporting clubs in the world.
The cancellation and suspension of events will mean a loss of advertising for big brands like Nike and Adidas, both of which have already seen sales in China hit after they had to close stores and the remaining ones have seen dramatically lower footfall as people self-isolate.
Nike vs Adidas: what’s the investment case?
As Adidas chief executive Kasper Rorsted admitted last week, people are more concerned with buying necessities and food in the current environment rather than new sporting apparel and trainers. He described the sporting goods industry as ‘the end of the food chain’. Other US sporting good giants to have issued warnings about the impact of COVID-19 on their businesses include Under Armour and Dick's Sporting Goods.
Sports broadcasters like Disney and Comcast
The cancellation and postponement of sports events also raises questions for broadcasters. It will reduce the content available for pure-play sports channels like Disney's ESPN or Sky Sports, which is owned by Comcast. Broadcasters have been significantly increasing the amount they spend on sports rights to attract audiences, partly because having a strong sports offering helped sell wider TV packages encompassing other offerings like movies.
Research from Ampere Analysis released in October 2019 showed companies spent $38 billion on sports rights in 2018, representing about one quarter of total spent on media content. That figure was almost twice as much as the $20 billion spent in 2012.
The postponement of sporting events suggests broadcasters will eventually have the same number of games and events to show, just at a later date. But that leaves them with gaps in programming in the short term, and could cause scheduling problems if, for example, games and matches had to be played in a compressed schedule involving over lapping fixtures.
The absence of major sporting events also means broadcasters are losing some of the most attractive content for advertisers, but those that have access to a broader range of content will at least be in a better position as they have other programming to fill the void created by the lack of sports. For those with channels dedicated to sports, there will be little they can do until events get back up and running. Still, broadcasters are unlikely to have to pay for programming that isn’t delivered, which means the cost burden of cancelling games would fall on the sports institutions that sell them, and the clubs that the money filters down to. Still, a lack of sport will reduce the appeal and need for TV packages, which sit at the heart of the strategy for many major telecoms companies.
Bookmakers like Flutter Entertainment, 888, and William Hill
Sport is big business for gambling outfits, so the cancellation of major events around the world will weigh heavily on revenue. Flutter Entertainment, previously known as Paddy Power Betfair, makes 78% of its revenue from bets made on sports.
The firm warned that the cancellation or suspension or major sporting events will have a significant impact on the business but that it was ‘difficult’ to quantify the full affect because it doesn’t know how long the restrictions will remain in place. It said annual earnings before interest, tax, depreciation and amortisation (EBITDA) will take a £90 million to £110 million hit if most events remain either suspended or cancelled until the end of August.
However, that assumes all its UK and Irish shops remain open and that scheduled UK, Irish and Australian horse racing fixtures ‘continue to run, albeit behind closed doors’. If it has to shut its shops and these horse racing events are put off, then it warned it would lose another £30 million in EBITDA every month.
Flutter is the first UK gambling outfit to issue a warning, but markets should prepare for peers to issue similar ones in the future. William Hill generates a much larger proportion of its revenue from gaming (like slot machines and online bingo) compared to Flutter, but it still accounts for just under half of total revenue outside of the US. GVC Holdings, the owner of Ladbrokes, is in a similar position. Meanwhile, online player 888 Holdings looks better placed as it generates most of its revenue from online casino, poker and bingo operations rather than sport – although sport betting is the fastest growing area of the business.
Playtech, the world’s largest supplier of software to the online gaming market, has also been affected after its Italian sports betting chain, Snaitech, was forced to shut its outlets as part of a government decree that requires all betting shops, arcades and bingo halls to remain shut until 3 April.
Stocks that have other operations outside of sport, like casinos, have been hit by lower footfall and the discouragement of large gatherings. US outfit Boyd Gaming has temporarily closed several of its casinos and hotels as a precautionary measure to stop the spread of COVID-19.
There is an argument that online operators could benefit as more people self-isolate and look for ways to entertain themselves at home, but people will be more concerned with securing their finances if they are off work than gambling more of it away. Ultimately, COVID-19 is hitting bookmakers and gambling operators from every angle: sports events are being cancelled, shops are being hit by lower footfall, and people are likely to be tightening their purse-strings.
Alcohol and beverage companies like Diageo
The closure of large public spaces like sporting arenas and concert halls will impact sales of food and drink companies. For example, alcohol giant Diageo, the maker of everything from Guinness to Johnnie Walker, has said the ‘restrictions on public gatherings, the postponement of events and the closure of many hospitality and retail outlets’ is having an effect and issued a profit warning in late February as a result.
Other staples at arenas and stadiums, like Coca-Cola and PepsiCo, will also be hit by the reduction in sporting events. Companies that are popular in or around sporting locations, like McDonald's, will have to handle lower than usual footfall.
Suppliers to sporting arenas like Sodexo and Arena Events Group
It will also cause trouble for stocks that supply equipment and infrastructure to major sporting events. For example, small-cap Arena Events Group supplies temporary infrastructure such as seating, so if events are cancelled or even conducted behind closed doors then demand for the company’s services will decline. It has said that the outbreak hasn’t impacted its annual results for the year to the end of March 2020, but warned that ‘the global situation has changed significantly over the past few days’ and casts severe doubt over the new financial year. Enough so that it has temporarily laid-off staff, reduced the length of its working week and cut wages to conserve cash.
In January, Sodexo, which provides the likes of hospitality, food and cleaning services, announced it would be another great year for its Sports & Leisure division as it prepares to help with the ‘biggest international sporting events, from the Super Bowl LIV in Miami to the Summer Olympic Games in Tokyo, the Tour de France and including several UEFA Euro Games’. However, with those events at risk, the expectation for an ‘exceptional year’ could disappear very quickly.
E-sports operators such as Gfinity
It would be fair to think that online gaming would be a relatively safe area while the coronavirus outbreak worsens, as people stuck at home can still access services. However, for the handful of stocks that have tried to champion e-sports with large live-gaming events, where people gather in stadiums to watch people compete, any bans or restrictions on large gatherings will spell trouble.
E—sports firm Gfinity, which had already launched a review of the business amid challenging conditions, warned it is now having to handle ‘the unprecedented impact of the COVID-19 virus which is forcing the postponement of all live sporting and esports events.’.
Two major events that were due to be held before July have already been postponed, and the company has said it already expects annual revenue for the year to the end of June 2020 to be lower than expected while its loss at the bottom-line will be wider.
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