Sports Finance Report: Vegas Prepares For NBA Teams To Start Tanking

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Vegas Prepares for NBA Teams to Start Tanking

With the 2nd half of the NBA season underway and a draft class that will include Deandre Ayton, Michael Porter Jr. and Marvin Bagley III (+ Luca Doncic, Real Madrid), prospective lottery teams (there are 7 that are already 20+ games below .500) will soon turn their focus to the 2018 NBA Draft. Commissioner Adam Silver hasn’t figured out how to prevent teams from “tanking” (or talking about it, Mark Cuban was recently fined $600,000 for publicly admitting that “losing is our best option”), but Las Vegas odds-makers are already accounting for it; lowering the betting limits on games played between teams out of playoff contention and raising the possibility that future games could be pulled off the board. It’s important to remember that because gamblers are betting against a spread, a team’s desire to simply lose games is somewhat nullified.

Howie Long-Short: Legalized sports betting may be inevitable but, at least some analysts believe that States expecting a fiscal windfall should temper their expectations. Moody’s Investor Service notes that just 2% of Nevada’s gambling revenue comes from sports betting and that over the last 12 months, Nevada casinos have earned just $215.3 million on sports bets. Global Market Advisers, a casino consulting firm, points to the “low level of hold” (5%-7% of the amount bet is held as revenue), “low profit margins” and the “prohibitively high state tax rates (see: Pennsylvania) as reasons why the revenue potential is often overstated. Moody’s projects New Jersey will bring in $108 million in revenue (4% of the state’s gambling revenue), over the state’s first 12 months of taking sports bets.

Fan Marino: Tip: Professional handicapper Ron Boyles says to take a tanking team getting a “boatload of points” over a “playoff-bound team”. Why? Gamblers tend to overestimate a team’s incentive to lose, creating a situation where the underdog gets “more points than they normally should.”

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Rays RSN Extension Reportedly Worth More Than $1.3 Billion

The Tampa Bay Rays are reportedly closing in on a local television contract extension with Fox Sports Net, worth an average of $82 million/year, through ’33 season; more than 4x the annual average of their expiring contract ($20 million). Despite poor attendance figures, Florida’s A.L. baseball team has historically drawn solid T.V. ratings. The club finished the ’17 season ranked 18th among league teams, after finishing 13th the year before; making the team’s games the most-watched cable programming on prime-time television within the Tampa Bay/St. Petersburg market, during both seasons. Under the terms of the expiring deal, Fox will pay $35 million for rights to broadcast games during the 2018 season.

Howie Long-Short: Assuming the deal is completed, the Royals (existing deal expires in ’19) and Marlins (existing deal expires in ’20) would be among the teams to benefit next from baseball’s booming local TV market. Project Wolverine (Marlins) projected T.V. revenues would exceed $50 million by 2021, a figure many doubted possible considering they’ll receive just $17 million, $18 million and $20 million over the last 3 years of their existing deal; but, while that figure remains ambitious (the team is last in the league in ratings), it no longer appears out of reach. Tampa’s new deal starts at $50 million/season in 2019.

Fan Marino: The Marlins held historic fire sales after the ’97, ’05 and ‘12 seasons, but according to the metric WAR (wins above replacement) no team has ever “traded more WAR from the proceeding season” than the 2018 Marlins. The team traded last season’s NL MVP Giancarlo Stanton (Yankees), Marcell Ozuna (Cardinals), Christian Yelich (Brewers) and Dee Gordon (Mariners).

Assuming the FCC approves the $52.4 billion sale of FOXA assets to Disney (DIS), expect Rays games to appear on ESPN’s new $4.99/mo. OTT service ESPN+ (launches late March, early April) no later than Opening Day 2020.

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Harley Davidson to Produce Electric Motorcycles in ‘19

Harley Davidson (HOG) will start production on electric motorcycles in 2019. Dubbed “Project Live Wire”, the e-motorcycle is expected to resemble a concept bike the company introduced back in 2014. While HOG’s 2017 revenue declined 60.2% YOY (to $2.4 billion), the one segment of the motorcycle business that has been growing is the female demographic (according to Motorcycle Industry Council); so, it makes sense to invest ($25-50 million/year) in the development of lighter bikes (with smaller engines) and EVs, preferred by women. HOG will have little competition in the U.S electric street bike market, none of their big-name competitors (Honda, Kawasaki, Suzuki, BMW & KTM) offer a comparable product.

Howie Long-Short: The big-name competitors referenced (HMC, KWHIY, SZKMF, BAMXF and VIE: TKMI) don’t offer 2 wheel EVs, but HOG will have competition in the U.S. market from a series of smaller companies. Energica (BIT: EMC), publicly traded on the Borsa Italiana, Alta Motors and Zero Motorcycles, are all playing in the space. Alta Motors is privately held, but Telsa (TLSA) participated in the company’s $27 million Series B round (June ’17). Zero Motorcycles appears to have raised over $85 million, but all of it is private money.

Fan Marino: The Trump administration is causing headaches for HOG shareholders as recommended quotas on imported foreign metals has the EU prepared to retaliate; with tariffs on U.S. products sold in Europe. Should the recommendation pass, the European Commission has said it would take “measures to defend EU industry”; including the implementation of tariffs on U.S. agriculture products, bourbon and HOG bikes. Why HOG? The European Commission is looking to hurt House Speaker Paul Ryan, who hails from Wisconsin; the location of HOG headquarters.

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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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