Who doesn’t miss the sound of a packed stadium, the smell of peanuts and popcorn, and the camaraderie of cheering on your favorite sports teams with thousands of others? With the recent announcement of a publicly available COVID-19 vaccine on the horizon, the possibility of watching sporting events in arenas instead of from our couches is more tangible than it’s been in months.
For fans, this news brings a glimmer of hope after a disappointing year of sports. And for the teams — and the businesses that rely on the professional sports industry — the potential vaccine is a godsend after devastating seasons of fan-free (or fan-light) events. That was reflected in the market after several sports and entertainment stocks shot up following the announcement. As we see these industries begin to rebound, investors may have a potential opportunity to win big in this fourth quarter comeback.
2020’s Unexpected Underdogs
In a November 2019 report, accounting firm PwC projected the sports industry to generate $75.7 billion in North America in 2020. There was little reason to believe major public corporations like Liberty Media or Madison Square Garden Sports Corp. wouldn’t be raking in dollars all year long. But as the sports industry was rocked to its core — 1.3 million jobs eliminated, more than $28.6 billion in earnings lost— these corporations, which own the Atlanta Braves and manage the New York Knicks and Rangers respectively, are among many that saw sales and profits plummet. In the company’s fiscal Q4 (ended June 30), Madison Square Garden Sports Corp. lost $7 million in revenue due to the suspension of the NBA and NHL seasons.
These companies are far from the only ones devastated by the partial ban on fans this year. From the publicly-traded WWE and Manchester United, to event focused corporations like Live Nation, to food service providers like Aramark, and apparel makers like Under Armour, it’s been a rocky year for dozens of corporations who depend on professional and college sports attendance.
However, many of these stocks have seen a boost with news of a vaccine sparking hopes of fans returning in full to venues in 2021. Aramark rose 15%, Liberty’s Braves tracking stock grew 16%, and Madison Square Garden Sports Corp. increased 11% on November 9, the day Pfizer announced its preliminary COVID vaccine trial results. As new life is breathed into these stocks, it looks like they’re officially on the rebound. For investors, this could be an opportunity to take advantage of the comeback.
While fans have been largely barred from attending sporting events, many have turned to alternate forms of athletic entertainment. Beyond watching abbreviated sports seasons on TV, online betting and sports video games have become popular alternatives for those needing a competitive fix. And the companies behind these mediums have thrived.
Fantasy sports platform DraftKings is up around 370% year-to-date and about 45% since November. But its future growth may not be so straightforward. In the short-term, it’s likely DraftKings will be pressured as investors see the re-opening economy as their opportunity to reap profits. Long-term, however, the fantasy sports and online betting industries are poised for significant growth as state lawmakers around the U.S. continue to legalize it. Nearly half of the states have legalized it already, leading many to believe DraftKings will be a leader not only in fantasy sports but online betting as well.
Similarly, Penn National Gaming, owner of Barstool Sports, has had a particularly strong run during the pandemic, surging more than 200% year-to-date. While investors who bought Penn National Gaming and DraftKings earlier this year are likely glad they did, there may still be more opportunity ahead. A near-term drop, due to re-opening, may present a chance for new, long-term shareholders to invest in these stocks and hold them through the expansion of legal sports betting across the U.S.
The outlook for video game production companies may not be as strong. Take-Two Interactive, maker of sports-related games NBA 2K and WWE 2K, has seen a strong year — its stock rising more than 40%. But Take-Two Interactive’s growth, sustained in part by so many people staying home, was stunted by vaccine news: Its stock sank more than 8% following Pfizer’s announcement. Investors looking to get in the gaming market may have to be patient with Take-Two Interactive in the coming year after its pandemic-driven peak.
Time is ripe for a rebound.
Sparsely attended games and nearly empty stands have impacted dozens of industries, from the sports franchises themselves and the corporations that keep stadiums running, to local restaurants and hotels, media companies, and more. While it’s been a difficult year for live entertainment and hospitality stocks, there’s hope on the horizon — and opportunity for investors. As the economy re-opens and teams welcome back the people that make the global sports industry worth more than $500 billion, this year’s comeback kids are making a play to win big in 2021.
Note: These assertions are heavily predicated on the distribution of an effective and safe vaccine.
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Lindsey Bell is Ally’s Chief Investment Strategist, responsible for shaping the company’s point of view on investing and the global markets. She is also President of Ally Invest Advisors, responsible for its robo-advisory offerings. Lindsey has a broad background in finance, with experience on the buy-side and sell-side, in research and in investment banking and has held roles at JPMorgan, Deutsche Bank, Jefferies, and CFRA Research.
Lindsey holds a passion for teaching individuals how to become successful long-term investors. She is a contributor at CNBC, and frequently shares her insights with various publications including the Wall Street Journal, Barron’s, MarketWatch, BusinessInsider, etc. She also serves on the board of Better Investing, a non-profit organization focused on investment education.