Sports stocks halted a four-month slide in February, posting modest gains as investors started embracing positive developments in sports betting and live events after a run of bearishness on growth stocks.
The JohnWallStreet Sports Stock Index gained 1.6% in the month to close at 1,446, beating the S&P 500, which fell 3.4% in February. The Sportico index advance is the first monthly gain since October. Over that span the index has surrendered more than 16%, a victim both of a stock market-wide aversion to growth stocks and specific bearishness over the high costs of customer acquisition seen in the North American sports betting market.
“Last year was euphoric and grow-at-any-cost. Now, in response to what the market is looking for, we’re in a period of rationalization,” said Will Hershey on a phone call. Hershey is co-founder and CEO of Roundhill Investments, a thematic ETF company whose offerings include four funds with sports-related exposure holding some $300 million in assets.
As an example, “You had Caesars on their earnings call talking about how they achieved a lot of their goals, they’re pulling back on marketing spend and looking toward profitability at the end of next year for their sports betting,” Hershey said. “That earnings call alone and that change in sentiment is rather bullish for the whole sector.”
Caesars Entertainment (NYSE: CZR) told investors on its quarterly analyst call last week that having beaten its projections on sports betting customers, it was turning its focus to controlling costs and converting customers into profits. Customer acquisition costs for the swiftly opening U.S and Canada sports betting markets had put a damper on the enthusiasm seen much of last year. Investors now appear to be more comfortable returning to wagering equities amid signs the market is separating companies into clear losers and winners, like Caesars, which says it has 21% market share of U.S. sports betting. Caesars shares added 15% in the month, one of thirteen JohnWallStreet sports stocks to post double-digit gains the past four weeks. Others include betting-focused Churchill Downs (Nasdaq: CHDN, up 19%), Rush Street Interactive (NYSE: RSI, up 17%), Sportradar (Nasdaq: SRAD, up 16%), Barstool Sports part owner Penn National Gaming (NYSE: PENN, up 16%) and DraftKings (NYSE: DKNG, up 15%).
Sports betting stocks were buoyed, too, by robust Super Bowl betting. According to data from Roundhill, New Jersey’s handle leapt 22% over 2021 despite the fact neighboring New York State had sports betting for the first time. It’s a long-held belief that much of the Garden State’s sports betting came from New Yorkers hopping over the state line to place bets, and therefore betting in the Big Apple would erode New Jersey’s volume. “People had thought the total addressable market numbers [for U.S. sports betting] were crazy high, but people are realizing how big this market can be, and that’s a bullish sign as well,” said Hershey.
The Super Bowl and sports betting marketing appears to have helped Nexstar Media (Nasdaq: NXST), which gained 15%. The media company is the second-largest NBC affiliate in the country, and so should benefit this quarter from strong Super Bowl ratings. Management also expects sports betting-related ad dollars to flow into its local news sportscasts and regional sports programming. (Nexstar shares are also boosted by expectations of massive midterm election spending.)
Sports-related equities also are benefiting from strong consumer demand for live events again. That made Vivid Seats (Nasdaq: SEAT) the best performer of the benchmark sports index with a 42% gain in February. In addition to event demand, Vivid acquired Betcha Sports in December, a sports betting app developer with 5 million customers, which Credit Suisse says will allow the business to expand into sports wagering. World Wrestling Entertainment (NYSE: WWE, up 22%), Live Nation (NYSE: LYV, up 15%) and arena and venue owner Madison Square Garden Entertainment (NYSE: MSGE, up 14%) also were among leading sports stocks in the period. Overall, 26 of the 40 stocks in the JohnWallStreet sports index posted gains in the month.
Leading decliners was small cap esports data outfit Esports Technologies (Nasdaq: EBET), which lost 19% to close the month at $8.27. That drop came despite a bullish call and $18 price target from Wall Street analyst Needham & Co., which sees the business as a front-runner in the emerging esports betting sector. FuboTV (NYSE: FUBO) was the second-worst performer, shedding 13%, despite reporting more than 1 million paying subscribers for its sports-centric streaming service for the first time. Shares, which peaked 13 months ago at $52, closed out February at $8.55. After shedding as much as 21% of its share price in February after a name change from ViacomCBS and a refocusing on streaming movies, news and sports, Paramount (Nasdaq: PARA) retook some lost ground to close out February down 7%, still third-worst in the Sportico index.
After gaining more than 8% in 2021, the index is down 6% in 2022. That is still ahead of the S&P 500, which has surrendered 8% year-to-date. Since being launched in August 2020, the index has bested the S&P, posting a 45% gain compared to the S&P's 34%.
The JohnWallStreet Sports Stock Index is a 40-stock grouping meant to reflect the state of professional sports. The index 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.
