Sports Finance Report: Nike Earnings, Premier League Broadcast Rights, PCs Making A Comeback
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NIKE REPORTS FISCAL Q1 ’18 REVENUES FLAT YOY, NET INCOME DOWN 24%
Nike (NKE) reported fiscal Q1 ’18 revenues remained flat YOY ($9.07 billion), with net income declining 24% to $950 million ($.57/share); attributing the loss in profits to gross margin decline (180 basis points to 43.7%) and a higher effective tax rate. The company posted strong revenue growth internationally (particularly in China, up 9%), but a 3% decline in the North American market weighed down the overall results. NKE launched its “Consumer Direct Offense” strategy during the quarter, designed to increase higher margin DTC sales and plans to spend the balance of fiscal ‘18 focused on global growth. An investor day is scheduled for October where the company will expand on its turnaround plan and partnership with Amazon (AMZN).
Howie Long-Short: For the first time, NKE chose not to report “future orders” (a metric beloved by investors). Future orders are a critical metric that measures wholesale demand. Nike argues that the measure no longer matters as the company is focused on building its retail business. Website revenues did grow 19% YOY and retail locations reported same store sales were up 5% over the same time, but retail still only makes up 28% of company revenues. Perhaps it isn’t coincidental that the decision came as orders weakened.
Fan Marino: Nike Elite Youth Basketball League, the company’s grassroots basketball division, has been served by the FBI with a subpoena as part of its investigation in to corruption within NCAA basketball. While the EYBL was not named in the case, Merl Code, who ran the division prior to leaving for Adidas was. 3 of the 4 schools named thus far (USC, Arizona & Oklahoma State) are Nike schools, so I had been waiting for this shoe to drop. The 4th school, Auburn, has a contract with Under Armour (UAA). Now, it’s only a matter of time until the investigation ensnares them too.
MANU EXEC BELIEVES U.S. TECH COMPANIES SET TO BID ON PREMIER LEAGUE BROADCAST RIGHTS
Sky Sports (SKYAY) paid $6.9 billion for the television broadcasts rights to the English Premier Football League, but their existing 3-year contract expires at the end of the 2018-2019 season. With a steady decline in television viewership, there is no guarantee Murdoch’s company will submit a bid meeting or exceeding the terms of their current deal. Manchester United (MANU) Vice Chairman Ed Woodard remains unconcerned; believing the next deal will fetch 30-40% more, with content hungry tech companies like Facebook, Amazon and Netflix waiting to “enter the mix”.
Howie Long-Short: MANU reported financial results for the full year ending June 30th, with revenues up 12.8% YOY (to ($789.2 million). Growth is being attributed to the Sky Sports contract, which helped to increase broadcasting revenues 38.2% YOY (to $263.6 million) as well as increased revenues from commercials, sponsorships, retail and licensing. The only negative for the company was losing 15% over the course of the year on digital output. As for Woodard’s optimism, I wouldn’t be so confident. Total media rights? Perhaps. For a television deal, I still think his best bet is Murdoch looking to protect his trophy asset.
Fan Marino: Forbes released a list of the world’s most valuable soccer teams, and MANU came out on top with a valuation of $3.69 billion. Barcelona, Real Madrid, Bayern Munich and Manchester City rounded out the Top 5. On the field, the Red Devils won the 2016-2017 Europa League Title. The championship qualifies them for the 2017-2018 Champions League, the most prestigious (and lucrative) competition in European football.
PC GAMING RIGS MAKING A COMEBACK; ESPORTS AND HIT GAME TITLES DRIVING RESURGENCE
The rise of Esports, higher quality laptops (features include: smaller chips, better cooling systems and battery technology) and hit game titles (i.e. PlayerUnknown’s Battlegrounds) are driving a PC gaming rig resurgence. Gaming consoles currently dominate the market; with Sony (SNE) and Nintendo (NTDOY) expected to ship a combined 28 million consoles this year, compared to just 7 million PC gaming units. That gap is expected to close though, as PC gaming rig sales are on pace to grow 6.6% YOY through 2020; despite the gaming industry as a whole expecting a 3.8% annual decline. Console manufactures Sony & Microsoft (MSFT) have begun releasing upgraded versions of their machines to prevent further gamer deflection.
Howie Long-Short: When NTDOY reported their fiscal Q1 (period ending June 30) profits and earnings in July, the company reported profits of $145 million with revenues that had increased 150% YOY (to $1.37 billion). The success of the Switch console (sold 1.97 million in quarter) and mobile games (up 450% YOY to $80 million in revenue), Pokeman Go and Super Mario Run, have driven the stock price up 60% over the last 12 months.
Fan Marino: PlayerUnknown’s Battlegrounds, an online multiplayer survival game, has been downloaded more than 10 million times since March and holds the record for most concurrent players on Steam (multi-player gaming platform). The game consists of 100 players that parachute onto an island, scavenge for weapons and equipment, and kill others while avoiding death themselves. The last player standing is the winner.
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