Sports Finance Report: Gaming Experiences “Cultural Moment”

by 4 months ago

LEIPZIG, GERMANY - JANUARY 27: Participants sit at computer monitors to play video games at the 2018 DreamHack video gaming festival on January 27, 2018 in Leipzig, Germany. The three-day event brings together gaming enthusiasts mainly from German-speaking countries for events including eSports tournaments, cosplay contests and a LAN party with 1,500 participants. (Photo by Jens Schlueter/Getty Images)


Editor’s Note: Welcome to a daily column we run here at BroBible breaking down the day’s biggest stories in sports finance with commentary from the sports money and sports fanatic perspectives. It comes to us via our friends at JohnWallStreet, publisher of a free e-mail newsletter focused on sports related public equities and their subsidiaries. You can sign up here.

Gaming Experiences “Cultural Moment”

Last Wednesday night, between 1a-5a EST, Drake (rapper), JuJu Smith-Schuster (Steelers WR), Travis Scott (rapper) and Ninja (a pro gamer) set an all-time, non-tournament, record for concurrent viewers on a single individual’s Twitch channel (628,000, previous record 388,000) as they streamed themselves playing Fortnite; a popular online survival game with 45 million players. Curious viewers followed along (many chiming in with funny one-liners) as the foursome navigated last-man-standing, 100-man, “Battle Royales”. Despite the late start, the virtual collaboration garnered mainstream attention (see: Chrissy Teigen’s tweet); the significance of which was not lost on Twitch SVP of Marketing Kate Jhaveri who called it “a cultural moment in terms of building awareness around the appeal of social video.”

Howie Long-Short: Fortnite was developed by Epic Games, a privately held company that Tencent (TCEHY) maintains a 40% stake in. TCEHY reported in November that YTD profits were up 69%, with mobile and PC gaming driving the revenue growth; but, those figures don’t account for the recent success of Fortnite. We’ll need to wait for Q4 ’17 and Q1 ’18 financials to see the game’s impact. As for Ninja, he’s making at least $350,000/mo. in subscription fees streaming Fornite on Twitch. TIME pegged the figure at $560,000/mo. I’ve heard the number estimated to be as high as $1 million/mo.

Fan Marino: The City of Arlington and Esports Venues, LLC are investing $10 million into Arlington Convention Center to create a 100,000 SF esports stadium, the largest venue of its kind in North America. Their goal is to bring the “biggest tournaments in the esports industry to Arlington”, a potentially significant financial boon for the city if successful. How big is the opportunity? An old industrial city in Poland, with a population of 300,000, drew 113,000 people for the “World Cup of esports” last year.

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New Tax Legislation to Curb Corporate Spending on Sporting Events

The Tax Cuts and Jobs Act, which includes legislation prohibiting corporations from deducting 50% of entertainment expenditures from their tax bill (a longstanding tradition), has businesses taking “a hard look at their entertainment budgets.” New law designed to minimize the government’s subsidy and streamline tax code will save the government $2 billion/year and $23.5 billion through 2027. Ironically, the most profitable corporations are likely to experience the least impact, as the new 21% corporate tax rate is just 3.5% (top rate of 35% with a 50% subsidy is 17.5%) above what they’re used to paying; whereas a struggling company paying less than 35% could see a significant increase.

Howie Long-Short: It’s estimated that U.S. Corporations spend “hundreds of millions” annually on entertaining clients at sporting events, so a short-term decline in team revenues could be on the horizon. While that’s not going to please team owners, it should result in some premium seating at reduced pricing for real fans. If you’ve ever wondered why corporations spend so much on tickets, check out this study. It was determined after evaluating 5 million tickets with an average price of $366/ticket (owned by 400 companies), that there’s a ROI of 1,998%!

Fan Marino: While on the topic of government legislation, MLB is urging Congress to pass a bill that would keep minor league players (considered seasonal employees, not protected by the MLBPA) exempt from federal labor laws, after several MiLB players filed lawsuits claiming receipt of as little as $1,100/mo. in compensation. That’s right, a league that generated $10 billion in 2017 revenue is lobbying to pay future talent less than minimum wage. MLB owners are ruthless; they want their prospects to work for free and then try to limit big money deals to 3 years. The MLB player cash grab is over.

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NFL Merchandise Sales +40 YOY, Remains Biggest, Fastest Growing League

NFL TV ratings were down another 10% for the 2017 season, indicating the league may not be as popular as it once was; but, Fanatics sales figures tell another story. The company reported that NFL fans spent 40% more on team apparel (jerseys, shirts, jackets etc.) YTD, then they did in Q1 ‘17. CEO Doug Mack also put to rest any talk that the NFL is losing popularity. Despite being Fanatics’ biggest league partner in terms of merchandise sales, it’s the company’s fastest growing league partner (YOY).

Howie Long-Short: The NFL acquired 3% of Fanatics in May 2017 for $95 million, at a $3.17 billion valuation; which was more than 2x revenue at the time. Noteworthy, as retailers Dick’s Sporting Goods (DKS) and Hibbett Sports, Inc. (HIBB) currently have market caps ($3.68 billion, $444 million) worth roughly half of what they generated in 2017 sales ($7.92 billion, $973 million). That’s of no concern to NFL owners though, one was quoted as saying he could see Fanatics growing “anywhere from 8-10x”.

Fan Marino: NFL draft season is upon us (draft is April 26-28). It’s a particularly heavy QB class, with 6 players (Darnold, Rosen, Allen, Mayfield, Rudolph, Jackson) having the chance to be selected on Day 1. The NYJ, looking for a QB since ’69, gave up 3 2nd round selections (to Indianapolis) for the right to move from the 6th spot to the 3rd spot. One would think that would guarantee the team a QB, but ProFootballTalk isn’t so sure; Mike Florio believes Saquon Barkley (RB, Penn State) is the guy the team is targeting. As a Jets fan, I know where this is going (WATCH).

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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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