Sports data provider Genius Sports, sports-centric TV streamer Fubo and casino and sportsbook operator Caesars Entertainment are joining Sportico’s JohnWallStreet Sports Index to begin 2021. The index, which returned more than 41% from its re-introduction in August last year through New Year’s Eve, has undergone its quarterly re-evaluation and rebalancing.
Genius Sports is in the midst of a merger with a special purpose acquisition company, dMY Technology II. The deal is expected to close this quarter. While Genius isn’t yet combined with dMY Tech II, the SPAC’s share price has been reflecting the pending Genius Sports combination, rising 76% since the deal was announced. Genius provides sports event data for leagues and gaming providers, competing with Sportradar. Genius expects to capitalize on the quickly growing U.S. sports betting market, its CEO Mark Locke told Sportico. DMY’s shares, under the ticker DMYD, are part of the index starting today. The company also sees trading in its units, consisting of a share and a partial warrant.
FuboTV is a streaming video service whose business model is predicated on using sports programming to entice subscribers to join. Fubo offers games from at least a dozen professional leagues, as well as college sports and horse races. The company listed on the New York Stock Exchange in October at $10 a share, having acquired its stock listing through a reverse merger, a technique where a private company purchases a publicly traded entity primarily for its stock listing. Prior to the explosion of SPACs, reverse mergers were a common way to sidestep the time and expense of a formal IPO. Fubo shares had quintupled after the NYSE listing, but lost half their peak value in the last week of December, finishing 2020 at $28 a share after three analysts issued bearish reports on the company’s stock market valuation.
Caesars has been added to the sports index by virtue of its pending acquisition of William Hill, the world’s largest bookmaker. The deal isn’t expected to close this quarter due to regulatory issues (Caesars didn’t respond to requests for clarification), but the casino operator has inked a deal with William Hill to take over the Caesars sportsbook, a sign the business combination stage is already being set. William Hill was a component of the JohnWallStreet Sports Index as an OTC stock. Caesars shares had a good 2020, outpacing the broad market with a 25% gain.
Joining William Hill in leaving the Sportico gauge of the sports business is Collectors Universe. The company, the largest authenticator and grader in the sports memorabilia industry, saw a surge of customer and investor interest in 2020, thanks to the pandemic. New York Mets owner Steve Cohen, Charlotte Hornets co-owner Dan Sundheim and memorabilia investor Nat Turner have teamed up to take Collectors Universe private, paying $75.25 a share for the company. The deal, which will formally close this quarter, gave the parent of grading firm PSA a more than threefold return in 2020.
Also departing the index is eBay, which has less of a direct sports rationale after divesting ticket broker StubHub. While the company’s business includes the brokering of memorabilia sales, the new additions are more immediate reflections of the sports business.
The JohnWallStreet Sports Index is a 40-stock index meant to reflect the state of professional sports. The index was reconstituted starting Aug. 1 as an equal-weighted index, meaning each component begins as 2.5% of the index’s value. Previously, the index was a 50-stock, price-weighted index. Equal weight indexes reflect a sector’s performance more broadly, compared to price- and market cap-weighted indexes, which tend to be concentrated on a few, highly valued names. Starting today, Sportico rebalances the index quarterly, dropping and adding components as needed and resetting every stock to a starting 2.5% index weight. We rebalance because over time, stocks’ component size grows—or shrinks. Penn National Gaming, the best index performer in 2020, ended the year comprising more than 5% of the index. Hall of Fame Village, the worst performer, ended the year as less than one-half of one percent of the index’s weight.
There are several requirements that components must meet to remain in the index. The company must trade in the U.S. (over-the-counter is fine) and have a market cap of at least $50 million. While a minimal level of trading volume isn’t essential, it must trade enough to be considered liquid and, more importantly with lightly traded OTC shares, the stock’s prices must track closely to daily prices on the company’s primary overseas exchange.
Companies that fail to meet all three requirements, experience a significant corporate event (think: bankruptcy, sale) or pivot in strategy away from professional sports may be dropped from the index. We expect that over time more companies worthy of inclusion will emerge, especially as sports and media SPACs locate their acquisition targets.
Disclaimer: The JohnWallStreet Sports Stock Index exists solely for tracking purposes. We are not encouraging anyone to invest in this specific basket of companies.