Sports stocks suffered their worst month in a year, as sports betting-related issues tallied losses with investors reconsidering the lofty valuations they placed on shares.
The JohnWallStreet Sports Stock Index slipped 6.2% in July, its poorest performance in a year and the fifth-straight month the benchmark sports index has lagged the S&P 500. The Sportico index, a bucket of 40 equal-weighted stocks, saw broad-based declines, including every sports betting-related stock. The Olympics generate little betting action and, with no sports betting catalyst until the start of NFL season, investors have focused on the negatives of gambling, including seasonal variations in revenue and the industry’s heavy regulation.
“While there is huge seasonality in sports betting, which we all understand, investors don’t like paying a huge multiple for stocks where there is declining sequential growth, even if there is a seasonality component,” Jed Kelly, senior equity analyst at Oppenheimer & Co., said in a phone call. Also hurting sentiment are indications in recent weeks New York may levy the highest tax on sports bets in the nation. “It reminds investors that this isn’t untethered growth. You’re beholden to the regulator,” he said.
Larger betting-related business, like DraftKings and Genius Sports, lost 7% and 9%, respectively, in July as Wall Street worried over specifics of their businesses. For DraftKings, those concerns include a lower yield from their handle than peers, while Genius Sports is weighed down by investors seeing share lock-ups expire in October, as well as profit-taking by funds that bought in during Genius’ SPAC phase. The worst betting-related performer was Score Media & Gaming, which plunged after reporting deeper than expected losses for its third quarter. Score entered the month riding a wave of positive sentiment from the passage of a sports betting bill in Canada, where Toronto-based Score is believed to have a strong bettor exposure, and a successful listing on the Nasdaq. But Score missed sales and net loss estimates by wide margins, it reported mid-month, resulting in investors hacking 22% off its share price in July.
Other double-digit losers for the month included Penn National Gaming, which owns part of Barstool Sports; Caesars Entertainment; and Scientific Games, which is shopping its sports betting technology business to potential buyers. Often volatile Hall of Fame Resort & Entertainment, which is a micro-cap, football-themed real estate developer in Canton, Ohio, was the worst performer, at a 25% loss.
Overall, 31 of the 40 stocks in the JohnWallStreet sports stock index declined in the month, including in companies touted by Wall Street. Sports streaming service Fubo TV lost 19%, despite six of seven analysts covering the stock recommending it as a buy. Similarly, WWE slumped 15% on little news and a consensus analyst rating of “buy.” Many growth sectors in the stock market at large have been facing headwinds in recent weeks, as investors are quick to see reasons to sell and little reason to load up on shares, rotating their bets from growth stocks to value stocks.
Still, the sports index has posted a 13.3% gain in 2021, finishing at 1,617.79. That’s a 61% gain since it was reformulated in August 2020 at 1,000. The handful of gainers in July were led by Nike, up 8%, which is enjoying follow-through buying on its prior blowout quarter and a belief that it’s adequately navigating COVID-related pitfalls in Vietnam, where many of its goods are manufactured. Manchester United rose 6.5% in the month, and Comcast Corp., which owns NBC and its U.S. Olympics rights, rounded out the top three with a nearly 4% gain.
Sportico’s JohnWallStreet sports stock index is meant to reflect the state of the sports business through 40 equal-weighted 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 (think: bankruptcy, sale) or pivot in strategy away from professional sports may be dropped from the index. The index is rebalanced quarterly.
The index exists solely for tracking purposes; we are not encouraging anyone to invest in this specific basket of companies.