Sports Finance Report: NBA Owners Crying Poverty, Yeezy (Adidas) Jumps Over Jumpman

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 equities analyst 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.

NBA OWNERS CRYING POVERTY; SAY 9 OF 30 TEAMS LOST MONEY DURING ’16-’17 SEASON

ESPN (DIS) released confidential NBA financial records indicating 9 of the league’s 30 teams lost money during the 2016-2017 NBA season; despite the teams combining to generate $530 million in net income. While the league has a $24 billion TV contact that is equally shared amongst its 30 franchises; each team negotiates their own local media rights deals, giving a significant financial edge to the teams in the largest markets (The Lakers received $149 million from Time Warner (TWX) for ’16-’17 season, while the Grizzlies received a league low $9.4 million). With total league revenues determining the salary cap (and floor), local revenues keep teams profitable, and that has small market owners concerned. If the large market teams can pay significant luxury tax penalties while remaining profitable, they can theoretically hoard stars and alter the competitive balance within the league.

Howie Long-Short: There is no need to pass around a collection basket for NBA owners. For starters, the net income figures used in this report only reflect “basketball operations”. Several teams own their own arenas. Non-basketball related revenues generated are not included in the calculations. More importantly, the value of these franchises continues to rise with each sale. Leslie Alexander just sold the Rockets for $2.2 billion, 15x (after inflation) what he paid for them just 25 years ago. It is important to remember that no one loses money owning a professional sports franchise.

Fan Marino: The small market owners are worried about the size of local media rights deals altering the league’s competitive balance? What competitive balance? 4 teams have a chance to win the 2017-2018 NBA Championship (BOS, CLE, GSW, SAS). While we are talking about competitive balance, you want the worst team to have the #1 pick. Lessening those odds to prevent tanking is a bad idea.

ADIDAS OVERTAKES JORDAN BRAND; YEEZY’S FAIL TO MOVE NEEDLE

Research firm NPD Group reported that Adidas (ADDYY) has overtaken Jordan Brand as the 2nd best seller of U.S. sport footwear (NKE, which they track separately from Jordan Brand, remains number one). ADDYY sales rose 41 and 45% respectively over the last 2 quarters, increasing the company’s market share to nearly 13% (NKE has 44%, Jordan Brand has 9.5%). The rapid growth is stunning when you consider the company had just 4% of the market and forced its CEO out, as recently as 2015. NPD Group’s Matt Powell said “I’ve never seen a brand in the sneaker industry grow this fast.”

Howie Long-Short: Basketball shoe sales were down 40% for the month of August, with UAA sales down 50%, Jordan Brand sales down 33% and NKE sales down mid-single digits. That trend didn’t seem to effect Adidas though, their basketball sneaker sales rose 40%. When you’re hot, you’re hot.

Fan Marino: “Yeezys jumped over the Jumpman”, but it has little to do with Kanye’s signature line. His sneakers are produced in such limited numbers, their sales don’t move the needle on the company bottom line. The Superstar, NMD and Stan Smith are driving the Adidas resurgence.

MILITARY GRADE FOAM BEING USED IN FOOTBALL PADS ON NFL, COLLEGE AND YOUTH LEVELS

XTECH Protective Equipment has revolutionized football equipment; utilizing military grade XRD foam to create state of the art shoulder pads. The 6 year old company manufactures and distributes pads marketed as the lightest weight, most protective product on the market. Super Bowl Winning Coach Brian Billick is an investor in the company, which now boasts of players on 28 NFL teams wearing its product including; Khalil Mack, Eli Manning and Odell Beckham Jr.

Howie Long-Short: XTech has an exclusive contract with XRD Impact Protection for using its foam in NFL, college and youth football pads. XRD is owned by Rogers Corporation (ROG), a technology company focused on creating innovative solutions for power electronics, advanced foams for cushioning and protective sealing, and high frequency printed circuit materials. The company reported net sales of $201.4 million for Q2 ’17 (up 27.9% YOY) and gross margins of 40% (a record), up 180 basis points.

Fan Marino: Players like the pads because they can hit hard without feeling anything. Don’t take their word for it? Watch Founder Bob Broderick slam his bare hand with a helmet.  http://www.northjersey.com/videos/sports/2017/04/14/video-broderick-hand-slam/100469010/

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.

Want the best of JohnWallStreet sent to your inbox? Sign up here!

BroBible Newsletter - The best sports and culture news directly to your inbox

* indicates required