Sports betting stocks continue to get walloped by the bears, leading the JohnWallStreet Sports Stock Index down in January. The index lost 7.5% to begin the year, tumbling to 1,423, its lowest level in 13 months.
Wager-reliant shares did enjoy a rare up day yesterday, on the news that Ontario will open its government-controlled sports betting and online gambling market to private operators on April 4. The good news only managed a partial reversal of steep losses to start 2022. Rush Street Interactive (NYSE: RSI) lost nearly 39%, more than $6 a share, with Sportradar (Nasdaq: SRAD) and DraftKings (Nasdaq: DKNG) not far behind, shedding 24% and 20% of their respective value in the month. Genius Sports (NYSE: GENI) declined 15% despite a series of analyst upgrades following its investor day. Esports Technologies (Nasdaq: EBET) which aims to be the esports data analog to Sportradar and Genius, lost the most among index components, 42% of its value, closing the month at $11.93 a share. It was one of three new additions to the index to start 2022.
“In the case of sports betting, [there has been] a sentiment shift toward those companies that are profitable,” said Credit Suisse analyst Benjamin Chaiken, in a recent research note. That’s affected even high-quality sports wagering companies, with the market selling the sector whole in what is likely a temporary rotation into more established stocks, according to Chaiken. Still, there are specific concerns that have been hammering betting stocks for months, mainly continuing concerns over marketing costs as businesses scramble for market share in the burgeoning North American mobile sports betting market. There are 40 sports stocks in the JohnWallStreet index, 11 of which have strong betting exposure. All of them lost at least 13% of their value in January, sending the benchmark index to its lowest level since the first day of trading last year.
Still, the drop of the JohnWallStreet Index isn’t an isolated event: The S&P 500 Index lost 5.3%, its worst January since 2009 as investors fear inflation will undercut the premiums placed on high-growth stocks. That’s because the price of inflation being seen should come with higher bond yields that make debt a more attractive investment, siphoning investor money from equities in turn. To date, however, benchmark U.S. Treasury yields remain below their peak in 2021 and below long-term levels. In short, it’s better to be owning a large asset, like a sports team, than sports-related equities.
The move away from riskier stocks has in turn benefited broadcasters. Six of the seven traditional broadcasters in the Sportico index all posted gains on the month. ViacomCBS (NYSE: VIAC) led broadcasters with a 10% gain, driven by good results in its Paramount Plus streaming service, which streams CBS Sports’ broadcasts as well as a heavy dose of streaming-only soccer, including the UEFA Champions League and CONCACAF World Cup qualifiers. Other broadcasters are benefiting from mostly non-sports factors, such as higher political ad spending expected this year, an election year.
The only decliner among established broadcasters was Walt Disney Co. (NYSE: DIS). The ESPN parent lost about $23 billion in market capitalization as its shares fell about 8%. The drop doesn’t appear to be sports-related, instead coming over concerns on subscriber growth in large streaming services, as Netflix (Nasdaq: NFLX) also reported disappointing results. Netflix isn’t an index component, although its sports content includes a well-received Formula One documentary series and ones planned around the PGA and Tennis Grand Slam.
The biggest gainer in the month: Activision Blizzard (Nasdaq: ATVI). The publisher of video games, including the Tony Hawk Pro Skater series and esports staple Call of Duty, is being bought by Microsoft (Nasdaq: MSFT) in a megadeal worth $62.8 billion.
The JohnWallStreet Sports Stock Index is a 40-stock grouping meant to reflect the state of professional sports. The index began August 2020 at 1,000 and is rebalanced quarterly, meaning each stock is reset to 2.5% weighting. To be included in the Sportico 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.