Sports stocks eased slightly lower in March, marking the fifth time in the past six months that Wall Street has sold off the sector even as the broader market has rallied the past four weeks.
The JohnWallStreet Sports Stock Index closed the month at 1,429, 1% below where it settled in February. The modest dip, following last month’s gains, signals that the long bear market toward sports-betting stocks may be ending. Indeed, the best performing stock in the benchmark Sportico index was Super Group (NYSE: SGHC), which added 27%.
“We expect market growth to outweigh challenges to the company’s leadership, and think this creates a positive risk/reward tradeoff,” said Needham analyst Bernie McTernan in a recent research note. McTernan sees Super Group, which offers sports betting globally under the Betway brand, as having the potential to grow revenue 10% annually through the next three years. Super Group announced at the end of February that its 2021 results will come in ahead of prior guidance, at $1.52 billion in net gaming revenue and earnings before interest tax depreciation and amortization (EBITDA), of more than $350 million. Shares of the company settled at $10.71 yesterday, its highest price since it went public by SPAC at the end of January. Management will release its full 2021 results next week.
While Super Group led the 40-stock JohnWallStreet Index, other betting-related companies were among the worst performers in March. Rush Street Interactive (NYSE: RSI) plunged early in the month after delivering quarterly results that slightly lagged Wall Street expectations. Rush Street, which operates online and land-based sportsbooks and other gambling offerings in the U.S. and Latin America, reported a fourth quarter loss per share of 15 cents, a penny worse than projected, on sales of $130.6 million, up 31% on the year but below $136 million estimated by analysts. Investors punished the company by lopping 30% off its share price. RSI closed March at $7.27, about one-third its price six months ago.
Wall Street remains concerned about the cost of customer acquisition by sports betting businesses, even as there remains excitement around the swift opening up of the U.S. and—starting on Monday—Canada, to more sports wagering. Seven stocks in the Sportico index fell by double-digits in March, six of them with sports betting operations, including Rush Street, FuboTV (NYSE: FUBO, down 23%), Genius Sports (Nasdaq: GENI, down 19%), eSports Technologies (Nasdaq: EBET, down 19%), DraftKings (Nasdaq: DKNG, down 18%), and Penn National Gaming (NYSE: PENN, down 17%.) Overall, 22 of the 40 stocks in the index were lower on the month.
Paramount (NYSE: PARA), was the second-best performer in the JohnWallStreet Index. The company, which changed its name from ViacomCBS in February, gained 24% as it appears to be making strides in signing up subscribers. The network’s offering of sports programming, including a number of soccer and golf tournaments, seems to give it an edge over other programmers. “We have long viewed sports as an important differentiator for Paramount+ relative to Netflix and other smaller competitors. Indeed, management recently said that the NFL was the primary source of Paramount+ plus subscriber additions in 2021, a sign that sports are even more important than we imagined,” wrote Argus analyst Joseph Bonner in a research note on the company. The NFL relationship could be upset by discussions that the league is mulling its own streaming service. Rounding out the best performers in March were Sportradar (Nasdaq: SRAD, up 14%) and Liberty Media’s sports properties, the Atlanta Braves (Nasdaq: BATRA, up 12%) and Formula One (Nasdaq: FWONA, up 12%).
Overall, sports stocks are struggling to counteract the bearish sentiment that has permeated many growth stocks in recent months. The JohnWallStreet Sports Stock Index remains more than 360 points below the peak of 1,796 it hit just over a year ago. The market slump has hurt investor interest in sports, which is why ETF creator Roundhill Investments decided to shutter its sports stock ETF offering this month, barely a year after it launched. For the year, the Sportico index is down 7%, compared to a negative return of 5% by the S&P 500. Over the JohnWallStreet Sports Stock Index lifetime, beginning Aug. 1, 2020, it has returned 43% compared to the S&P’s 39% price gain in that time.
The Sportico index is a 40-stock grouping meant to reflect the state of professional sports. The index includes sports teams publicly traded in the U.S., sports betting businesses and major apparel sponsors, as well as media and other businesses with a high reliance on sports for their growth. General consumer sports companies, such as retailers and leisurewear makers, and sports-focused SPACs without a definitive merger agreement aren’t included in the index. The JohnWallStreet index began at 1,000 in August 2020 and is rebalanced quarterly. To be included in the 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. For the second quarter, beginning today, the index has been rebalanced so each component stock makes up 2.5% of the index. No stocks were added or dropped form the index this period.
