Publicly traded teams were among the handful of sports shares to post gains in 2022, reflecting the hot private market for franchises in a year that otherwise saw investor demand for sports stocks retreat.
The Sportico Index, a measure of stocks in the sports business, fell 33% in 2022, finishing at 1,052 compared to ending 2021 at 1,568. The index of 40 U.S.-traded, sports-dependent businesses suffered along with the rest of the stock market due to rising interest rates—the S&P 500 Index dropped more than 19% during the year. Higher rates affect the prices investors are willing to pay for stocks while also making alternative investments, like bonds, more appealing. Since peaking in March 2021 at 1,792, the sports index has surrendered nearly all its gains from its launch at 1,000 in August 2020.
Still, performance in sports stocks reflected what was seen in the private and venture capital markets: Sports teams are in demand while sports tech, betting, broadcasting and apparel are all in the midst of a repricing downward from the boom years of 2020 and 2021.
The handful of sports teams stocks in the Sportico index thrived, posting gains that reflect the strength in private market sales that show buyers increasingly willing to push valuations, most recently the nosebleed 13-times sales Mat Ishbia recently paid for the Phoenix Suns.
The best stock performer of the year was Manchester United (MANU), shares of which jumped 65% in 2022, a return that puts it in among the best performers in the stock market overall. The catalyst came in late November, when the Glazer family said it was considering strategic alternatives for the club, including a sale. Shares of ManU surged on the news and kept rising, closing out the year at $23.33, its highest price in four years.
The price gives the soccer club a market cap of $3.85 billion and an enterprise value (market cap plus net debt and cash) of about $4.3 billion. That compares to the $3.16 billion paid by a Todd Boehly-led group paid for rival Chelsea last year. That has some in the market expecting an eventual sale of ManU to go for an even greater sum. Manchester United “is a truly unique asset with significant global reach (>1B fans/followers) and plays in the strongest realm within the current media landscape—live sports,” wrote investment bank Jeffries in an research note. The club has more revenue, fans and greater stadium capacity than Chelsea, the bank noted. Even if the club isn’t sold whole to a new buyer, a sale of the Glazers’ stake would eliminate the class of supervoting shares they now use to control ManU, according to company bylaws. That would probably be bullish for team shares, since many investment funds won’t buy stocks where one entity controls the voting power, due to liquidity and shareholder rights concerns.
Hopes for unlocking control of other franchises also boosted shares of the Atlanta Braves, (BATRA) and Madison Square Garden Sports (MSGS), the parent of the New York Knicks and Rangers. Baseball’s Braves closed the year up 14%, at $13.56 a share, after parent Liberty Media announced it will spin off the team and its real estate development, The Battery, as a separate business. To date, the Braves have been a tracking stock, in which shares provide exposure to a segment of a larger business without parent Liberty surrendering any ownership. The Braves and the Battery have a combined stock market value of $1.7 billion right now, well below the mark the team likely would gain in a private sale. Sportico values the organization at $2.54 billion, which would be a record price for a baseball team. Steve Cohen paid $2.5 billion for the New York Mets in 2020.
Similarly, the desire of Jim Dolan to control the NBA’s Knicks and NHL’s Rangers continues to be one of the market’s favorite parlor games. Dolan, who holds a veto on decisions made by the family trust that controls the franchises, has given no indication he wants to part with the clubs. But Wall Street continues to believe that one day the private market value of the teams will prove too compelling for the Dolans not to sell. Since at least 2016 Madison Square Garden Sports (MSGS) has been a top annual stock pick of investing magazine Barron’s for that very reason. This year is no different, with the publication saying MSGS could be worth double what it is now, or an $8.8 billion valuation that would slightly exceed Sportico’s combined $2.01 billion valuation for the Rangers and $6.58 billion for the Knicks. Such bullishness rallied MSGS shares the last two weeks of the year, with the stock adding nearly $24 to close out 2022 at $183.33, its highest price in 13 months. For the year, Madison Square Garden Sports was up 11%.
Outside of teams, most sports stocks suffered a brutal 2022. The worst performer was sports-centric TV streaming outfit FuboTV (FUBO), which lost 89% of its value to close at $1.74. The business suffers from paying some 95% of its revenue out to acquire broadcasting rights for the channels it offers, leaving it a narrow path to profitability without dramatically expanding its subscriber base. Meanwhile, the second-worst performer, FaZe Holdings (FAZE), is a business with a broad user base but not much revenue. FaZe went public by merger with a special purpose acquisition company in July and rallied to a high of $24.69 in August before collapsing, finishing the year at $1.85 a share. FaZe’s promise of exposure to its 500 million GenZ social media followers didn’t generate the sales growth to justify its $725 million valuation at the merger: In its three publicly disclosed quarters it has generated $48.6 million in revenue, including a sales drop from its second quarter to its third this year. The company saw 82% of its merger value evaporate.
Every sports betting stock also suffered an investor hangover, with all eight betting-dependent businesses in the Sportico index losing at least 10% in 2022, led downward by Rush Street Interactive (RUSH, down 79%), Super Group (SGHC, down 70%) and DraftKings (DKNG, down 60%). The decline came in tandem with drops in venture capital funds that focus on sports betting as well. The bear market wasn’t just limited to small, growth stocks, however. Large cap losers included Under Armour (UAA, down 52%), Disney (DIS, down 44%) and Live Nation (LYV, down 42%). The common theme in their decline is the effect of inflation on the stock market valuation of the businesses as well as on consumer behavior.
“2022 was an exceptional year and not in a good way,” said Brad McMillan, chief investment officer of Commonwealth Financial, a network of independent financial advisors. “As usual the bus that hits you is not the one you are watching.”
Hope springs eternal, however: Historically the market gains more than 20% in the 12 months after emerging from a bear market.
