Sports Finance Report: The Fiscal Value Of A Historic Upset In NCAA Tournament

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The Fiscal Value of a Historic Upset in NCAA Tournament

Yahoo! Sports (AABA) studied the financial impact of a low-major upsetting a top 3 seed in the NCAA tournament; using Lehigh (15 seed, beat Duke, ’12), Florida Gulf Coast (15 seed, beat Georgetown, ’13), Georgia State (14 seed, beat Baylor, ’15) and Middle Tennessee (15 seed, beat Michigan State, ’16) as subjects in their case study. Following historic wins, all 4 schools experienced an increase in freshman enrollment (+ 28.5% in applications, GSU), increased media exposure during the tournament ($346,000 worth, FGCU), a bump in merchandise sales (+ $500,000 YOY) and a flood of alumni donations (+ $454,000 YOY, Lehigh). Ultimately, Yahoo! Sports was unable to put a definitive value on a monumental upset (too many variables); but, they found that the figure was significant enough, that the schools have chosen to “reinvest millions in pursuit of another.”

Howie Long-Short: An increase in freshman enrollment is the most valuable of the benefits a Cinderella story receives. At Georgia State, Georgia residents pay just shy of $6,000/semester; while out of state students pay just over $15,000/semester. The school’s acceptance rate increased 17.4% in the fall of 2016, bringing the total number of students to 50,000. For the sake of round numbers, we’ll assume they added 7,500 students that fall. Even if they were all in-state students, the school is generating an extra $45 million/semester. No wonder school officials agreed to build the men’s basketball team a new training facility!

Fan Marino: Of course, the longer a team remains in the tournament, the more exposure its sneaker and apparel provider will receive. Nike (NKE) has the best chance to place a team in the Final Four, 70% of the 68 teams that were selected are sponsored by the company. Under Armour (11) and Adidas (9) also have a chance to reach San Antonio; Russell Athletic is going to need a miracle; their only squad in the dance is the Texas Southern Tigers. It must be noted Texas Southern won their play-in game over North Carolina Central 64-46.

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Adidas Increases 2020 Profitability Outlook, Announces Share Buyback Plan

Adidas (ADDYY) released its Q4 ’17 earnings report and while the company missed analysts’ revenue expectations, it reported top line growth (+16% YOY) and bottom line growth (+32% YOY) that left CEO Kasper Rorsted “extremely happy with the results.” The company expects to continue growing sales (+10%) and profits (+13%-17%) in 2018, albeit at a slower rate. On Wednesday’s earnings call, Rorsted also announced that the company had raised its 2020 profitability outlook to 11.5% and announced a plan to buyback $3.72 billion worth of shares (+/- 9%) by ’21; news that sent ADDYY’s share price up +9.4% ($116.80) by the days’ close.

Howie Long-Short: Adidas sales were up 35% YOY in fiscal 2017, enabling the company to surpass Jordan Brand in U.S. sneaker sales (and Under Armour in apparel sales). ADDYY now holds the #2 spot in the category behind NKE. How did that happen? As UAA and NKE focused on basketball sneakers (-20% in ’17), ADDYY built a pipeline of desirable lifestyle sneakers (Superstar, NMD, Stan Smith). Simply put, they’re producing a quality product desired by the consumer.

Fan Marino: Fun fact: Adidas sold 1 million pairs of sneakers in 2017 that were constructed from plastic found in the ocean. The Ultraboosts, each reusing 11 plastic bottles, were created in collaboration with Parley for the Oceans (an environmental organization).

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“The Next Lululemon” Raises $34 Million

Outdoor Voices (OV), an “activity and sports” brand, raised $34 million in a Series C round; led by Alphabet (GOOGL) owned GV. The company will use the capital to expand its “physical presence” (currently has 7 stores, to add 5 more in ’18), believing brick and mortar retail (and hosting events nationwide) will help them to “unlock markets online.” Often referred to as “the next Lululemon”, the digital first company has been able to stand out in a crowded athleisure sector by developing a loyal social media following (200,000 followers on IG) and effectively using pop-culture influencers (see: Harry Styles, Frank Ocean), as brand ambassadors.

Howie Long-Short: Outdoor Voices’ direct-to-consumer online platform and the R&D behind their “technical apparel” is what’s drawn the interest of venture capitalists. To date, the company has raised $56.5 million; with General Catalyst leading the prior 3 rounds. In August 2017, former Gap and J.Crew CEO Mickey Drexler was named Chairman of the Board; Drexler is credited with turning Gap into a “global megabrand” in the 1990s.

Fan Marino: 2017 was a milestone year for athleisure, as “women’s elastic knit pants” outsold blue jeans for the first time. While sales of blue jeans have been on a steady decline since 2010, at an average annual rate of 3.9%, it’s been the fast rise (avg. of 25.7% per year) of elastic knits that have enabled the versatile pants to overtake the American staple.

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What is JohnWallStreet?

JohnWallStreet, located at the intersection of sports and finance, is 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 business news, in easily digestible bites, with commentary from both the sports money and sports fanatic perspectives.

We’ll cover publicly traded professional teams & stadiums (MSG, RCI, BATRA, MANU), television networks (DIS, FOXA, CMCSA, CBS, TWX, MSGN), apparel & footwear companies (NKE, UAA, ADDYY, FL, LULU), equipment companies (GOLFELY, FIT), ticketing companies (EBAY, LYV) content and facilities providers (CHDN, DVD, ISCA,TRK, LMCA).  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 Securities & 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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