No fans means less revenue, but there’s still plenty of value.
The wide world of sports has shrunk down to bubbles and abbreviated seasons this year as the major leagues figure out how to navigate a global pandemic. Infections among athletes, coaches and staff pose a serious threat to the future of sports — to say nothing of the possibility of infection among fans. Empty stadiums mean not only lost ticket revenue but also a serious lack of souvenir, apparel and snack sales for sports stocks around the world. The companies that own some of the biggest names in sports are taking it on the chin this season, but just because these sports stocks are down doesn’t mean they’re out. In fact, there’s still plenty of value to be found in many sports stocks — and a big comeback could mean big profits for shareholders. Here are seven sports stocks that investors should buy now.
Madison Square Garden Sports Corp. (ticker: MSGS)
Just because a sports team is bad doesn’t mean a sports stock is a bad investment. Take Madison Square Garden Sports Corp., for example, which was spun off from Madison Square Garden Co. back in April and owns the New York Knicks and the New York Rangers, as well as associated NBA G League and AHL teams and two esports teams. While the Knicks haven’t made the playoffs since 2013, the team is an incredibly valuable franchise in a humongous market, giving it inherent value of $4.6 billion according to Forbes — and the Rangers aren’t slouches either, with a $1.65 billion valuation. Now that MSGS has spun off from Madison Square Garden Co., it’s easier than ever for owner James Dolan to find a buyer for these franchises. Even if no billionaires bite, shareholders are poised for profits once fans begin attending games again.
Madison Square Garden Entertainment Corp. (MSGE)
While MSGS gets the teams, Madison Square Garden Entertainment is all about the venue. The company’s crown jewel is of course Madison Square Garden, one of the most valuable sporting arenas in the world, and there are also two major stadium projects in the works in Las Vegas and London. Of course, no matter how nice the arena is, it won’t matter if people can’t attend live sports during the pandemic — but MSGE is well-equipped to survive until fans return thanks to a hefty $1.2 billion in cash, an amount boosted by its recent sale of the Forum to Steve Ballmer back in March. While total revenue declined 96% year over year during the fourth quarter due to the pandemic, there is a ton of value in MSGE, value that should benefit shareholders once fans can come back to the Garden.
Liberty Braves Group (BATRA, BATRK)
Liberty Braves Group is a tracking stock for Liberty Media’s baseball division, and consolidates the Atlanta Braves, its home at Truist Park and a real estate development near the stadium called Battery Atlanta under one ticker symbol. With the MLB abbreviating the baseball season to a mere 60 games, it should come as no surprise that in the second quarter, Liberty Braves’ baseball revenue plummeted 97% year over year and development revenue dropped 40%. While revenue will remain depressed until fans return to Truist Park, after the recent sale of the New York Mets for a whopping $2.4 billion, it’s impossible to deny that Liberty Braves Group looks very undervalued. Forbes believes the Atlanta Braves are worth $1.8 billion, and considering that right now Liberty Braves Group is valued at about $1.2 billion, the difference between the two price tags alone implies that there’s plenty of upside ahead for investors.
World Wrestling Entertainment (WWE)
Unlike other sports stocks, WWE doesn’t rely on ticket sales for revenue. In fact, in the second quarter of 2019, only 18% of the company’s revenue came from live events — that’s why even when revenue from live events plummeted 98% in the second quarter of 2020, WWE’s overall revenue only declined 17% year over year. The majority of WWE’s sales are from media, which includes subscriptions to the WWE Network and licensing of its content. While media revenue rose a mere 2% in the second quarter, WWE Network paid subscriptions increased 6% and digital video views from paid subscribers increased an impressive 55%. This implies that WWE fans are ravenous for wrestling content, and while WWE may not have the mass appeal of the NFL, the loyal fan base will help the company rebound nicely once the pandemic has passed.
Legalized sports gambling continues to sweep the country. This year alone, four states have passed bills legalizing sports gambling, joining 18 states (and Washington, D.C.) that already had gambling laws on their books. After going public in April through a special purpose acquisition company, or SPAC, to capitalize on this opportunity, DraftKings has risen more than 375% this year thanks to the return of sports and pent-up demand among sports fans. Although the number of monthly unique payers may have dropped around 35% year over year last quarter, DraftKings has improved the monetization of each payer by 50%. Executing well like this is key for DraftKings, as other big names in betting have noticed the opportunity in sports gambling and the market is becoming more crowded. This will mean big promotional spending ahead, but with $1.2 billion in cash and no debt, DraftKings looks like a great bet.
Penn National Gaming (PENN)
Online sports gambling is a growing opportunity, and with an estimated 50% of the U.S. population expected to have access to regulated sports betting by the end of 2022, Penn National is not about to miss out. The regional casino operator took a unique approach to getting into the market by paying $163 million for a 36% stake in popular sports blog Barstool Sports back in January, which immediately gave Penn National access to the blog’s 66 million monthly active users. Penn National has already begun to capitalize on this massive following of avid sports fans with the release of the Barstool Sportsbook app in mid-September, which shot to the top of the App Store charts and broke DraftKings’ download record. Monetizing a huge fan base hungry for sports betting is a surefire way for Penn National to stay a step ahead of the competition.
Churchill Downs (CHDN)
Postponing the 146th annual Kentucky Derby — the first postponement since World War II — was probably a tough decision to make, and not allowing any spectators into the historic Churchill Downs racetrack was definitely a financially painful choice. Yet in spite of these pandemic-related problems, Churchill Downs has managed to rise more than 25% year to date thanks largely to the company’s online gambling businesses. TwinSpires is its online betting platform for horse racing, and while the number of active players decreased over 55% in the second quarter due to race postponements, bettors wagered 22% more money on races. While in-person races and its regional casino operations suffered this year, Churchill Downs’ diversification will allow it to survive and eventually thrive.
Seven of the best sports stocks to buy now:
— Madison Square Garden Sports Corp. (MSGS)
— Madison Square Garden Entertainment Corp. (MSGE)
— Liberty Braves Group (BATRA, BATRK)
— World Wrestling Entertainment (WWE)
— DraftKings (DKNG)
— Penn National Gaming (PENN)
— Churchill Downs (CHDN)
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