The bear market has wiped away more than two years of gains in sports stocks, with the JohnWallStreet Sports Stock Index falling 14% in September despite sports betting companies seeing good trends with the start of the NFL season.
The Sportico barometer of widely held sports stocks closed the third quarter at 1,014, down more than 42% from its all-time high. The index is now at its lowest mark since Aug. 3, 2020—best remember as the day The Rock bought the XFL. The JohnWallStreet Sports Stock Index was reconstituted as an equal-weighted 40-stock measure at 1,000 at the start of August that year, rallying to a peak of 1,763 by Nov. 1, 2021. The sell-off in growth stocks, which includes most sports-related equities, has since been nearly unrelenting, with the Sportico index falling eight of the past 11 months.
Much of the blame sits with the broad market. The S&P 500 has been in a bear market nearly all of 2022 and is down nearly 25% year-to-date.
“It's been a very painful quarter for the stock market,” Tim Ghriskey, senior portfolio strategist Ingalls & Snyder in New York, told Reuters. “There's uncertainty about the Fed and their ability to keep the economy moving along as they attack inflation and bring it down to a sustainable level.”
Those broad concerns hammered nearly every stock in the sports index lower in September. FaZe Holdings (FAZE), the parent of esports’ FaZe Clan, was the worst performer, losing 47% of its share price. The business was valued at $1 billion in a SPAC merger that brought it public this summer; it now has a market cap of $706 million. The weakness comes on no apparent news but from a lack of market support that has been typical of companies that have gone public by blank-check merger this year.
Plenty of other companies suffered steep losses in September, with 28 of the sports index’ 40 losing 10% of their value or more. Daktronics (DAKT), which makes scoreboards used in 60% of all pro sports facilities in North America, lost 34% in the month, despite reporting quarterly sales rising 19% and a record backlog of orders, including a nearly acre-sized display for the L.A. Clippers’ Intuit Dome now under construction. Nike (NKE) shares got crushed Friday, tumbling nearly 13%—a loss of nearly $20 billion in value—after reporting third quarter earnings that more or less matched expectations, but belied the fact the company resorted to discounting its goods to move inventory. “Selling more, making less? Just don’t do it,” wrote BMO Capital Markets analyst Simeon Siegel.
Betting stocks, which perked up in August and appeared to enjoy a strong start to the NFL betting season, were all lower in the month. GeoComply, which provides services to the sports betting industry, said there were 103 million transactions on the league’s opening weekend, well over the 60.1 million of 2021. That should have encouraged Wall Street—it reflects strong business in newly opened betting states—and on a relative basis, most betting stocks didn’t decline as badly as the broad market.
Still, there were a few that saw big sell-offs in September, including Caesars Entertainment, down 25%, and hurt in part by concerns over Asian casino volumes, and Rush Street Interactive, down 24% as its margins were crimped by New York’s high tax rates on sports bets.
Just four stocks posted gains in the month, and only World Wrestling Entertainment (WWE, up 5%) rising more than a nominal amount. The WWE continues to have momentum from media deals and beating earnings expectations. Over the past year, WWE has been the best-performing sports stock, up 26%.
Sportico’s JohnWallStreet Sports Stock Index is meant to reflect the state of the sports business. To be included in the index, companies must have a minimum market cap of $50 million and be traded in sufficient volume on an American exchange. The index is rebalanced quarterly, with components dropped and added as needed and the weightings of each stock returned to 2.5% of the index.
With the start of the fourth quarter, the SPAC RedBall has been dropped from the index because it closed down and returned its capital to shareholders after failing to execute a merger during its two-year lifespan. Taking its place is the Kevin Durant-led SPAC, Infinite Acquisition (NFNT). Infinite held its IPO in November last year—at the peak for growth stocks—raising an upsized $240 million to pursue a sports technology or other consumer tech business. While SPACs have been among the most out-of-favor securities in the stock market of late, there remain 64 sports-related SPACs that are actively seeking a company to bring public. As a group they have $18.4 billion in capital raised from their IPOs, according to data compiled by Sportico.
