Investing in Sports: These Stocks Are As Dominant As LeBron James
by Marc Lichtenfeld, Advisory Panelist
Tuesday, July 13, 2010: Issue #1300
With the World Cup over for another four years, the tournament underlined the fact that we live in a sports-crazed world.
Even people who don’t read the sports section of the newspaper or don’t usually take an interest in football/soccer got into the World Cup spirit this year. And back in February, the Winter Olympics were a ratings hit, too.
Last week, LeBron James’ decision to play for the Miami Heat (instead of the New York Knicks where he belongs) was front-page news around the country.
And as I write this, six of the top 10 hottest searches on Google Trends are sports related (take that, Lady Gaga!).
But unless you can hit a ball 440 feet to centerfield, average 20 points a game, or drive a car at 200 mph, it’s tough to make money in professional sports.
Take boxing, for example. I’ve been involved with the sport at the professional level for about 15 years and there’s a saying that the way to end up with $1 million from boxing is to start with $2 million.
But what about when it comes to investing in sports? What are the best ways to profit from its mass appeal?
Can You Turn the Popularity of Sports into Cash?
Given the popularity of sports, you might think it’s relatively simple to make money investing in it. But it’s actually even tougher. Here are a few examples…
- Auto Racing: Despite the popularity of NASCAR, International Speedway (Nasdaq: ISCA), owner of the Daytona International Speedway, has seen its shares fall 19% over the past 10 years. Another track operator, Speedway Motorsports (NYSE: TRK), has plummeted 42% during the same period.
- Basketball: Investors who held shares of the once publicly traded Boston Celtics earned a paltry annual rate of 2.25% on their capital over the 17 years that its stock traded.
- Baseball: Cleveland Indians shareholders fared much better, earning 48% in less than two years. But that was in 1998 and 1999 when pretty much any stock with a four-letter ticker symbol skyrocketed.
- Poker: Right after the poker boom, shares of the World Poker Tour went public. But the stock lost 88% of its value before it was taken private for just $9 million last year.
- Wrestling: Don’t even tell me that pro wrestling isn’t a sport! I was at Madison Square Garden when Junk Yard Dog and Bruno Sanmartino took on King Kong Bundy and Randy “Macho Man” Savage. (Seriously, I was.) But shares of the ever-popular World Wrestling Entertainment (NYSE: WWE) have declined 24% over the past decade.
Diversify and Play the Hot Sports Trend With These Three Stocks
To make money in the sports world, you want to invest in powerhouse companies. And being diversified doesn’t hurt, either. Here are three sports-related stocks that should be champions in any portfolio…
- Nike (NYSE: NKE)
The swoosh is still in growth mode. The company is expected to increase its earnings by more than 12% annually over the next five years. That’s 20% higher than its average peer. Additionally, it’s sitting on $4 billion in cash with little debt.
Nike remains one of the premier brands in sports, even expanding beyond sneakers, golf and tennis. While watching a Yankees game last week, I noticed pitcher C.C. Sabathia sporting a Nike glove. I didn’t realize that Nike made baseball equipment, aside from footwear.
- Disney (NYSE: DIS)
No, Snow White hasn’t decided to fight in the Ultimate Fighting Championship (although it would be awesome if she did), but Disney owns ESPN – “The Worldwide Leader in Sports.” ESPN is as strong a brand in sports as there is. The network just scored huge ratings with its World Cup coverage and Lebron James’ primetime free agent decision.
Disney also has its sports theme park in Orlando and was smart enough to sell the Anaheim Ducks NHL franchise years ago (although it still has the rights to the “Mighty Ducks” trilogy, which grossed nearly $200 million).
Disney’s earnings are expected to grow by 15% in 2010 and by a very respectable 9% over the next five years. It also churns out over $5 billion a year in free cash flow.
- Lululemon Athletica (Nasdaq: LULU)
The yoga fad is about as hot as a Texas Bikram studio in August (Bikram is a form of yoga practiced in a studio heated to 105 degrees). Lululemon makes apparel and mats for yoga enthusiasts.
The company’s earnings are projected to grow over 28% per year for the next five years. It’s got terrific margins, loads of cash and no debt. While its stock is as expensive as its merchandise, Lululemon should continue its sizzling growth rate.
So before you rush out to buy shares of any sports-based firm, consider that capitalizing on a hot trend or getting involved with strong brands is a much better way to reach your investing goals.
Hoping your longs go up and your shorts go down,
Marc Lichtenfeld
P.S. We’ve hit a milestone here at Investment U. Today is the 1,300th issue of our 11-year old e-letter. So we’d like to take a moment to thank you for spending time with us each day and for your support.
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5 Responses to “Investing in Sports: These Stocks Are As Dominant As LeBron James”
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Marc is a senior analyst at Investment U. His investment career started out at the trading desk of Carlin Equities in San Francisco, CA, where he executed dozens of trades each day for his clients.
And just why, pray tell, does LeBron James “belong” in New York? You’ve got a team president who has a history of being a complete idiot and is talking about bring back Isiah Thomas! You’ve got an aging facility that’s nothing special. You’ve got hypercritical media who’ll be all over him the first time he screws up. He’s already world-famous, so in terms of commercial exploitation of his brand, etc. there’s nothing that New York can do for him that he can’t already get. You don’t seem to realize that in terms of size of town that he’s used to, Miami is a huge step up for LeBron, who’s used to being a big fish in a small pond. He’s no New Yorker, and New York doesn’t “deserve” to win at every sport no matter what provincial New Yorkers may think.
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I was on the same plane with Randy Savage, John Stud and several others leaving El Paso to Dallas one early morning. No I did not go to the matches the night before.
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If Lebron belongs anywhere it’s Cleveland where the city loved him unconditionally until now. That city allowed him to grow into the person/athlete he is today and be close to his roots in Akron.
Point is maybe think twice about making comments about things that will take readers mind off of investing in stocks you mention. If the comment is bad enough one might be inclined to think that you were wrong about the James comment, so you also might be wrong about your investment comments. Take LULU, a company trading for over 10 times book value in a segment that you said yourself was already wildly popular yet somehow is going to maintain a wild growth rate in a weak economy with overpriced clothes. Plus, you use the word “fad” to describe yoga… isn’t a fad something that is temporary in nature? Not sure I want to be in an overpriced stock that is a fad, we know how those turn out.
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ok first, As a native of Cleveland i feel Lebron was just fine with the Cavaliers. Second, Nike’s brand “dunks” is hot, not only because its the new look along with skinny jeans but also because they come in nontraditional colors. Besides jordans… i think thats the only thing sizzling because Journey’s is taking over. And as far as sports are concerned,, just life a portfolio is diversified to decrease risk and increase profit, so should sports. Those industries should promote on a more diverse level catering to other social groups and demographics.
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Couple of comments: Auto racing, those stocks have tanked because they’ve built Taj Mahals & there’s no way they can support the debt. Case in point: the new Drag Strip in Charlotte. The sanctioning bodies have increased their fees, the ticket prices have escalated to the point that people will stay home and watch it on TV. Oh there’s also a saying in Drag Racing. How do you make a million dollars drag racing? Start with two million.
LeBron James: He belonged in Cleveland. After what he did to Cleveland and the Cav’s fans with his ESPN drama, I hope Gilbert puts a team together that shoves it down LeBron’s throat.
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