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What Investors Need to Know About the Return (or Not) of Sports

Tuesday, July 07, 2020 07:18 AM | Neal Farmer

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What Investors Need to Know About the Return (or Not) of Sports

A little over a month ago most of the major sports leagues announced plans to either begin or resume play. 

The NBA and NHL both announced a late-July return and have not yet revised those plans. 

The NFL has mostly held firm with a standard season beginning in September except with fewer preseason games to reduce the potential spread of COVID-19. 

Major League Baseball also announced plans recently, with a shortened season that is set to begin later this month. 

So what does this mean for investors?

Well some of the first stocks to avoid buying if sports do shut down or delay again are going to be sports-based gambling stocks such as Draftkings (DKNG). Obviously if sports are not going on, there won’t be much gambling on games, making this company roughly the same as an idled cruise ship. That said, DKNG stock has done very well during quarantine as gambling becomes less regulated across the country with many states allowing it now or in the near future. 

Some of the other major industries and specific stocks that are going to be hurt by suspension of play are TV networks and apparel companies that have licensing agreements with the leagues. Disney (DIS), Comcast (CMCSA), and Viacom CBS (VIAC) are the most likely to be hurt as a massive loss of sports viewers will translate to a giant impact on ad revenue and profits.

Nike (NKE), Adidas (ADDYY), and Under Armour (UAA) will also be hit hard as a fair share of their profits are from sports equipment sold to players from elementary years to college. The merchandise sales from licensed apparel will also no doubt see a massive decline if leagues are not actually in play.

With coronavirus cases spiking in recent days, many people both inside and outside these leagues are beginning to seriously question if play can safely resume under those plans..

Even before this recent surge in cases, it seemed hard to believe that sports would return to play so soon. Many players, in all leagues, are hesitant about playing again and plenty have been very outspoken about not feeling safe yet to return as professional sports teams involve close cooperation of not just the players, but also coaches, trainers and other support staff. This means that a return to games means coming into contact with lots and lots of people, often in situations where social distancing is difficult. These players such as Kyrie Irving, Dwight Howard or Kris Bryant aren't enough to stop these leagues from returning play to try to salvage what revenue they can from their television contracts. 

Other than a few players, there hasn’t been much criticism of these leagues yet for trying to return so soon. That’s not surprising as many people want sports to return as people look for something to do in their homes. The recent rise in cases should bring worries about the likeliness of a return this month, or at all.

In order to return to play, every organization is going to have a large amount of staff working in a big building to manage practices and recovery. The number of people it takes to run one organization in one sport is much higher than most people realize. Coaching/athletic staff, trainers, doctors/physical therapists, cleaners, and of course players adds up to many moving parts that is multiplied by around 30 teams in each league.

Football especially seems doomed as more than 50 players are on a roster and there are many coaches due to the wide variety of positions in the sport. The number of staffers needed to keep teams this size operating smoothly is going to lead to an environment that heavily promotes the spread of coronavirus. Nearly every year it seems like at least one or more teams are hit with an illness, often being some kind of flu or cold, that spreads through the locker room like wildfire. 

All it's going to take is for one organization to have an outbreak of COVID-19 for the league to have to seriously consider shutting down or having another delay. The backlash from players and fans alike if any of the major sports leagues doesn’t stop play if an outbreak occurs will be too much to ignore. Now It's not assured that an outbreak will occur, but cases have already been found among players on several teams in different sports and these outbreaks may easily spread at extreme rates as play, and travel, resume.  It's possible one or more leagues might be able to continue with their plans but it feels unlikely that things will go well enough that serious delays won't happen if cases rise. With the current situation of cases skyrocketing in dozens of states right now, it just adds to the probability of a delay.

These same sectors and stocks should see a strong rally if play does continue as scheduled. In addition to the professional leagues though, collegiate sports seem to be even more behind schedule and wary of a return to play since it represents an even greater danger as there are many more athletes and support personnel involved. The schools first need to figure out how to hold classes for thousands of students which is already difficult given how little social distancing is possible in facilities like dorms, classrooms and cafeterias.

While nothing has been said yet about delays in return to play for professional leagues, it seems likely that another stoppage of play will happen, if play resumes at all. Many may still try to remain on schedule and see what actually happens. But once players are testing positive for COVID-19, it may become impossible for leagues to keep playing without major backlash that could lead to permanent damage to the image of the sport in question.

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