Investing in America's Love Affair With Sports
Nov 25th 2013 8:34PM
Updated Nov 25th 2013 8:36PM
As we plunge headlong into the holidays and a winter chill creeps into the air across most of America, the thoughts of many turn to football, basketball, hockey, and the comforts of a warm sofa and a cold beer. Meanwhile, the thoughts of the observant investor are also turning toward ways to capitalize on the renewed focus on America's favorite team sports.
Owning shares in a publicly traded team appeals to many, but unfortunately, there aren't many teams with shares on the open market. For a price, Green Bay Packers fans who want to contribute to the "Cheesehead" cause can buy shares in the franchise and attend shareholder meetings (and, of course, hang a stock certificate on the living room wall). However, the shares aren't offered on any exchange and pay no dividends.
New York sports fans are luckier than the Cheeseheads, as the Knicks and the Rangers are a part (albeit a small part) of the media, sports, and entertainment conglomerate known as Madison Square Garden .
"Good for you" MSG
This Fool is fully (or "Foolly") bullish on Madison Square Garden for four main reasons.
First of all, fourth-quarter earnings were reported to be up 26%, owing mostly to the sports and media business segments (entertainment was down). Food and other sales at sporting events were reported to be partially responsible for the better-than-expected revenue.
Secondly, the NBA All-Star Game is coming to New York in 2015 and is sure to bring a large influx of spending to Madison Square Garden's traditional sports backyard.
The 52-week low is about $40, and the stock is currently trading around $56 thanks to the usual October-November lull. With a beta of about one, it isn't as volatile as a tech stock, and the rest of the fundamentals show it to be a well-managed company. The only downside of this stock is its lack of dividends.
Not just for armchair quarterbacks
The hands-down best television service for sports fans is DirecTV . Couch potatoes from coast to coast can watch every sport under the sun, 24/7, with this popular satellite service. DirecTV has returned about 26% year to date to its mostly institutional investors. With $1.9 billion in cash holdings, 2012 revenue of $29.7 billion, and a stable quick ratio of 0.9, the company also has a great playbook and winning "coaches."
Sunday Ticket continues to be wildly popular among DirecTV subscribers, although many Playstation users are disappointed that it is no longer available through the Playstation network. Helping to drive this stock upward was the fight to purchase Hulu -- which opted to remain private at the last minute.
Hulu would certainly enhance DirecTV's offering and would give the company a much-needed Internet play. A weakness of DirecTV as seen by the market is its lack of diversification; Dish Network and Comcast both offer telephone service and bundled TV-Internet-phone services, while DirecTV has stuck to its knitting. DirecTV also lacks a "TV anywhere" offer, which puts it at a competitive disadvantage to Dish.
This level of focus is responsible for the wide appeal of its sports offerings, but it will need to be addressed in the future if DirecTV is to maintain market share. But Hulu as a stand-alone company is in a far worse position: With competitors emerging daily, it needs a strong partner and parent company like DirecTV to stay afloat.
This Fool believes Hulu is just playing hard to get in order to up the ante, and eventually market pressures will force it to succumb. DirecTV is best-positioned to win this battle.
Investing in family sports
Another way to invest in America's love of sports is by looking closer to home for sporting-goods stores. One affordable stock (trading now at about $18.50 per share) is Big 5 Sporting Goods . Whenever we need any retail sports item, from a basketball to running shoes, my daughter and husband suggest Big 5, and I see new stores cropping up all over Northern California. When the kids favor a store, it gains "trendy" appeal, which helps to bolster stock prices.
Big 5 Sporting Goods is experiencing margin expansion due to a new store concept, favorable lease negotiations, and the addition of higher-end products that command higher margins. The company also opened five new stores in Q3 (and closed one) and anticipates opening nine new stores in Q4 -- a significant increase for a company that currently operates 420 stores across the Western U.S.
This Fool sees Big 5 as a good play for several reasons. Its steady and solid revenue growth and stable financials show it to not be a "fly by-night" stock. Other good signs include the rollout of a new e-commerce platform right in time for the holidays, a 0.6% increase in gross margins in the third quarter that was attributed to lower distribution costs (showing improved operational efficiencies), and an announcement during the same earnings call that net quarterly sales increased to $259.1 million from $251.8 million in the comparable period last year.
However, the dividend announced in October is meager at $0.10 per share and has only been raised twice since the recession. Big 5's performance this spring, after the impact of its aggressive holiday marketing strategy and upgraded e-commerce platform is felt, will be telling.
If you love sports, there are ways to invest in your passion and turn a profit -- if you play the game right! Sporting teams are not easy to invest in unless you are a New Yorker (or a Green Bay fan who doesn't really care about making money), but you can invest in the premier sports-broadcasting network or in sporting goods and still be loyal to the "home team."
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The article Investing in America's Love Affair With Sports originally appeared on Fool.com.Brenda Johnson has no position in any stocks mentioned. The Motley Fool recommends DirecTV. The Motley Fool owns shares of Madison Square Garden. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.