Sports stocks rebounded to gain more than 8% in August, led by sports betting shares, which fought off their mid-summer bears to lead the JohnWallStreet Sports Stock Index to close at a new high of 1,737.13.
“Suddenly NFL season is starting Sept. 9, the World Series is two months away, college football is starting—all these are coming together to bring attention back to sports betting,” said David Russell, the vice president of Market Intelligence at TradeStation Group.
The benchmark Sportico index consists of 40 U.S.-traded stocks that reflect the state of the sports business. After a difficult July in which investors fretted over betting stock valuations and looming tax issues, traders turned optimistic once more, sending the index to an 8.1% gain in the month, besting the S&P 500’s 2.9% August gain. It’s the eighth month the JohnWallStreet Sports Stock Index has outperformed the S&P since August of last year.
July’s worst performer, Score Media and Gaming (SCR) reversed its curse to post a 128% gain in August, thanks to the pending purchase of the Toronto-based company by Penn National Gaming (PENN), itself one of the sports index’ top performers with an 18.6% advance. Penn, which owns a sizeable minority of Barstool Sports with options to buy half and negotiate a majority stake in future years, is paying $2 billion to add Score to its fold and gain access to the potentially lucrative Canadian sports wagering market.
“Penn National is packing in all these pieces and can be an emerging player in this space, and people are starting to see that,” said Russell. While a dominant topic in the financial landscape in sports these days, betting is still a niche in the overall market without the deep support of large institutional fundholders, so volatile periods like July’s plunge and August’s surge could still come in the future, Russell added.
DraftKings (up 22% DKNG), Genius Sports (19.8% GENI), Caesars Entertainment (16.3% CZR) and Churchill Downs (13% CHDN) were other sports betting-focused issues posting double-digit gains in the month as investors focused again on the industry’s prospects for North American growth.
“From a standing start in 2018, when [the federal law restricting sports betting] was repealed, sports betting is now live or regulated in 28 states. These are all brand new markets, each with additive revenue for sports betting organizations,” said David Sargeant, a London-based sports betting consultant and investor, in an email. “Nine or ten more states should regulate in the next year, bringing more revenue opportunities to fruition, and strengthening further still the performance of sports betting brands in the stock market.”
Other sectors in the index performing well in August include broadcasters led by FuboTV (up 11.9% FUBO), live entertainment businesses headed by Madison Square Garden Entertainment (up 14.6% MSGE), and most sports organizations led by Knicks and Rangers holding company MSG Sports (up 11.1% MSGS). Overall, 29 of the JohnWallStreet Sports Stock Index components were gainers in the period.
Sports shares have been bolstered, too, by the broader bull market in equities. The S&P 500 has gained 20.6% year-to-date (behind the Sportico index gain of 22.5%), helped by exceptional earnings reports from large tech companies and consumer driven stocks like Nike, which trounced expectations earlier this summer. Nike (NKE) is up 18% in 2021 but was one of nine Sportico sports stock index components to decline in August, by 1.5%. It is expected to report its next quarter’s earnings on Sept. 23. One stock—RedBall SPAC (RBAC)—closed out the month unchanged.
The worst sports-related stock in the month? Topps’ erstwhile partner into the public markets, Mudrick Capital Acquisition Corp. II (MUDS), which lost 8.5%. Mudrick II, added to the sports index this quarter for its seemingly inevitable merger with the sports card company, called off the deal with Topps just a few days ahead of the definitive shareholder vote. Topps, owned by former Disney CEO Michael Eisner and private equity firm Madison Dearborn, lost its crown jewel—the rights to make MLB-licensed trading cards—when Fanatics inked the league and the MLB Players Association to exclusive deals beginning when Topps’ contract runs out.
Sportico’s JohnWallStreet Sports Stock Index is meant to reflect the state of the sports business through 40 U.S.-traded companies. To be included in the benchmark index, stocks must be traded in sufficient volume on a U.S. exchange and have a minimum market cap of $50 million. Companies that fail to meet the requirements, experience a significant corporate event (such as a SPAC deal falling apart) or pivot in strategy away from professional sports may be dropped from the index. The index is rebalanced quarterly and equal-weighted at that time, with each component starting at 2.5% of its total value. The index took its current form in August 2020 at a starting value of 1,000. Its 73.7% gain since then is nearly double the return of the S&P 500 index.