Sports Finance Report: Why Digital Growth is Crucial to the Future of European Soccer

by 2 weeks ago

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Fanatics Acquires the Rights to Manufacture Official MLS Merchandise, MLS Invests in Fanatics

Major League Soccer has signed a long-term deal with Fanatics, scheduled to begin domestically in 2019 (‘18 in Canada), that provides the fast-growing sports apparel manufacturer with the rights to produce official MLS merchandise, not just sell it. The company will be able to make everything but official MLS jerseys, as Adidas (ADDYY) owns those rights as the league’s official on-field apparel provider; though the company is able to sell ADDYY game jerseys on the e-commerce platform. In an unrelated transaction, MLS has made an investment in Fanatics. Financial terms were not disclosed.

Howie Long-Short: The NFL bought 3% of Fanatics in May 2017 for $95 million, at a $3.17 billion valuation. By August of 2017, the company had a $4.5 billion valuation; closing on a $1 billion investment from Softbank (SFTBY). Remarkable growth for a company that was purchased for just $277 million back in 2011. It’s worth noting that both MLB and the NFLPA are also invested in the company.

Fan Marino: In 2019, Fanatics will become the manufacturer of MLB’s official Under Armour (UAA) game jerseys. However, April’s $225 million acquisition of Majestic Athletic means they could be putting their product on the field, as early as next season. Majestic and Nike (NKE) currently own the on-field uniform rights to MLB.

Note: The summary for this story was co-written by our friends at The Water Coolest. Check out TheWaterCoolest.com for the latest market news and professional advice.

Study Reveals Why Digital Growth is Crucial to the Future of European Soccer

KPMG published an interesting study on what would happen to English Premier League clubs, if the money generated from league broadcast rights (the most lucrative in Europe) were to be subtracted from the teams’ bottom lines; a viable concern when you consider that broadcast revenues can be worth up to 45% of an EPL team’s gross revenue. KPMG bases the study on the premise that revenue from broadcast rights is precarious; that consumer behaviors change and there are no guarantees that humans will watch television, stream video etc. in the future. What KPMG found, was that the most fiscally sound clubs were the ones that maintained the largest social presences. Those clubs are most successful in closing commercial partnerships and selling out their stadiums; factors that would help to reduce the impact, that a total loss of broadcast revenue would bring.

Howie Long-Short: The EPL’s overseas rights expire in 2019 and are expected increase in value during the next round of negotiations; so, while a fascinating study, not one that should cause immediate concern. Overseas rights for the current 3-year period, total roughly $3 billion Euros (domestic rights for the same period equal $5.1 billion Euros). There seems to be a consensus that while domestic rights may be close to capping out in value, interest from international players like Facebook (FB), Google (GOOGL) and Amazon (AMZN) is likely to send overseas rights soaring. Those rights fees will be split evenly amongst EPL teams, as the “Big 6” conceded their effort to secure a greater percentage of overseas TV money.

Fan Marino: La Liga clubs FC Barcelona (206 million) and Real Madrid (204 million) maintain the largest social followings in Europe, and it isn’t close. 3 EPL clubs; Manchester United (MANU) (111 million), Chelsea FC (76 million) and Arsenal (63 million) round out the Top 5. Bayern Munich (61 million), Juventus (JVTSF) (45 million) and Paris St. Germain (45 million) have the largest digital followings within their respective leagues and all place within Europe’s Top 10.

 

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Formula 1: Driven by Racing Hosting Fees

Formula 1 (FWONK) is considering the elimination of Friday practice sessions, a fiscal decision that would enable teams to compete in more races without an increase in hard costs. The addition of races would increase the teams’ annual prize fund ($985.5 million in ’16) and line FWONK shareholder pockets; as race hosting fees make up 36% of the corporation’s total revenue ($1.8 billion). The 2018 calendar has a record-tying 21 races scheduled; though more could be added as F1’s governance contract allows the organization to hold up to 25 races/year.

Howie Long-Short: Racing hosting fees make up a higher percentage of F1’s revenue than any other source; with just 33% of FWONK revenue coming from the racing organizations broadcast rights. That is a drastically different model than we are used to seeing here in America. The NFL generated more than $13 billion in revenue in 2016, with 70-75% coming from media rights deals. Just 15% ($2 billion) of the league’s total revenue came from ticket sales. FWONK wants to increase the number of races on the circuit because doing so, will move the needle for them.

Fan Marino: If Friday sessions are eliminated, it’s the fans who lose the most. While tickets to a Sunday race can cost $200+, a ticket for Friday’s event can be had for less than half.

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What is JohnWallStreet?

JohnWallStreet is not a person or location, but a destination for the educated sports fan.

While we won’t be publishing “hot takes” on LeBron’s relative greatness to Jordan, we will be offering up the most relevant sports related finance news, in easily digestible bites, with commentary from both the equities analyst and sports fanatic perspectives.

We’ll cover publicly traded professional teams & stadiums, television networks, apparel & footwear companies, equipment companies, ticketing companies, content and facilities providers. If it trades on Wall Street, and has a sports angle, it’s in our wheel house.

Howie Long-Short and Fan Marino will be providing their expert opinions on each story. They have slightly different areas of expertise. Fan Marino is a firm believer that the SEC is the premier football conference. Howie Long-Short knows it as the Security & Exchange Commission. Fan Marino lives and dies with the college selection of 5 star, blue chip recruits. Howie Long-Short spends his days analyzing blue chip stocks. Howie Long-Short knows that Black Monday occurred on October 19th, 1987. Fan Marino swears it happens every January after Week 17. You get the point.


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