3 stocks that could collapse with the cancellation of college sports
The mixed success of restarting professional sport has been closely watched by many in the business world. The NBA, NHL, and MLS have created bubble-like environments that have so far avoided disruption by the coronavirus. Other sports like international football and Major League Baseball try to play outside of a “bubble”.
As these sports continue to be played, college administrators appear pessimistic about their fall sports amid COVID-19 delays and rescheduling. Now that some big conferences have decided to cancel fall football and other sports, investors can start to consider the implications. Companies including Disney (NYSE: DIS), DraftKings (NASDAQ: DKNG), and MGM Resorts International (NYSE: MGM) saw their stock prices rise in part due to the return of college sports and income from broadcasting and sports betting. Let’s see if the cancellation of college football and other fall sports could reverse these gains and impact stock prices.
Image source: Getty Images.
Biggest contributor
Disney has experienced mixed impacts from the pandemic. It has been hit hard as cruise ships remain docked, theme parks have only recently reopened with limited capacity, and film production and releases have been halted. On the bright side, growth in Disney’s streaming services has been strong, and as of June 27, the company had 100 million combined subscribers for its Hulu, ESPN + and Disney + streaming services.
But its biggest contributor to income remains its media networks segment, which includes cable networks and broadcasting.
Percentage of Disney sales by segment
| Segment | 9 months ending 6/27/20 | Full year ending 09/28/19 |
Full year ending 09/29/18 |
|---|---|---|---|
| Media networks | 41.8% | 35.7% | 36.9% |
| Parks, experiences and products | 27.5% | 37.7% | 41.6% |
| Direct to consumer and international | 23.9% | 13.4% | 5.7% |
|
Studio entertainment |
15.9% |
16% |
16.9% |
Data source: Disney Financial Records. Note: Numbers add up to over 100% due to the inclusion of intersegment content transactions which are then eliminated from total revenue.
Advances in streaming services alongside the reboot of professional sports, including the NBA playoffs at Disney’s ESPN Wide World of Sports complex in Orlando, have helped bring the stock price below 10% of its level. beginning of the year. However, now that college football is under threat, recent gains may fade. Investors should brace for a further drop in the Disney share price if ESPN’s College GameDay isn’t around to help generate revenue this fall.
Getting into sports betting
MGM Resorts has also struggled to navigate the pandemic, as its casinos have been forced to close and only reopened at partial capacity as MGM tries to attract consumers who are comfortable traveling again. .
But MGM has invested more in sports betting through its BetMGM app, which was launched in March as a joint venture with CVM Holdings (OTC: GMVH.F). The company also recently struck a dealing with the Denver Broncos in the NFL to set up a sports betting lounge inside the Broncos stadium, helping to promote the app.
BetMGM also recently announced a multi-year betting partnership with NASCAR. The deal will introduce race betting options for racing fans on the BetMGM platform. It will allow various types of pre-race and in-game bets including driver showdowns, race stage winners and on / under bets based on the winning car number.
Media mogul Barry Diller took note, and his media and tech company IAC / Interactive (NASDAQ: IAC) just acquired a 12% stake in MGM Resorts worth approximately $ 1 billion. This news is helping to boost recent gains in MGM stock, which rose more than 35% just in August.
Optimism about sports betting now seems to be built into the share price. If cancellations in varsity sports in the fall bring the industry down, those recent outsized gains could evaporate as well.
Too much, too fast
DraftKings is another stock that has built optimism into its course of action. Stocks have held up well as the online fantasy and sports betting company made its public debut in April, when professional sports were halted.
But the company is spending money to grow and has yet to make a profit. Recently released results showed that the company’s losses tripled in the first half of 2020 compared to the period a year earlier. Even though DraftKings continues to see strong revenue growth – the company is forecasting 22% to 37% growth in the second half of 2020 – it is valued at over 45 times sales. Any disruption caused by setbacks in college athletic programs impacting its growth trajectory will likely lower that rich assessment.
Long-term thinking
With the potential loss of college football this fall, and even NCAA basketball in question for the spring, the stock prices of these three companies could be impacted. But investors might see this as an opportunity to buy stocks at better prices for a long-term investment.
Disney is high quality company “Blue chip which appears to be successful in its streaming business, and the effects of the pandemic should eventually wear off for its other businesses. MGM Resorts is expected to see its casino business return, and its push into sports betting is likely to become a significant future contributor. DraftKings is a speculative investment at this point, but investors with this strategy in mind might find an attractive entry point for a massive sell-off in the share price.
With long-term thinking in mind, the suspension from college sports could be seen as an opportune time to grab those names.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.