Sports stocks ended a four-month losing streak in July, rallying more than 10% to post their best month since November 2020. The JohnWallStreet Sports Stock Index saw broad-based gains in the month with 35 of the benchmark index’s components rising in the month, led by betting stocks and newly public esports company Faze Clan.
The benchmark sports index gained 107 points in July to close at 1,141, up 10.3% and besting the S&P 500’s 9.1% performance. That still reflects a nearly 26% drop for sports shares in 2022 but suggests the market sees a path for interest rate hikes to come to an end as mixed economic indicators may compel the Federal Reserve to refocus priorities, according to Jeffrey Roach, the chief economist for LPL Financial.
“The scenario investors can hope for is best illustrated during the mid-1990s. The economy escaped recession as the Fed pivoted from increasing rates to cutting rates when labor markets weakened,” Roach wrote in a market note. LPL is a brokerage and wealth manager of about $1 trillion of assets.
Sports betting has been among the most battered sectors in the stock market due to inflation concerns, which affects the valuations investors are willing to pay. This past month saw a reversal of sentiment, with every sports betting stock in the Sportico index—nine in all—gaining, led by Caesars Entertainment (CZR, up 19%), DraftKings (DKNG, up 18%) and Sportradar (SRAD, up 18%). In the long term, North American sports betting could be an $80 billion market, according to data compiled by equity research firm CFRA. Yesterday, the legislature in Massachusetts, a potentially significant betting market, sent a bill approving sports betting to be signed by the governor, in an unexpected last-minute deal.
The best performing sports stock in July was Hall of Fame Resort & Entertainment (HOFV), a football-themed real estate development adjacent to the pro football hall of fame in Canton, Ohio. The often-volatile stock gained 61% in July in part because it received a privately financed loan of $33 million that will allow it to build the next phase of its Hall of Fame Village, including a waterpark and sports facilities.
The second-best performer was Faze Holdings (FAZE), the parent of Faze Clan, believed to be the largest esports organization in the world. Faze closed a delayed merger with a SPAC on July 20 and managed to avoid the usual post-SPAC merger price plunge. Instead, Faze Clan gained nearly 32%, closing the month at $13.09. Sixteen members of the 40-stock JohnWallStreet index posted double-digit gains in July, including scoreboard manufacturer Daktronics (DAKT, up 29%), World Wrestling Entertainment (WWE, up 12%) and the Atlanta Braves (BATRA, up 11%).
Just five sports stock slipped in July, mostly old-line media ventures including Rogers Communications (RCI), a cable and wireless provider in Canada that owns the Toronto Blue Jays, as well as about 38% of Maple Leaf Sports & Entertainment, a business that owns Toronto’s NHL, NBA, MLS and CFL teams, among other sports properties. Rogers lost 6% in the month despite posting excellent financial results due to cellular network outages in Canada that will result in customer refunds and credits this quarter. Italian soccer club Juventus (JVTSF, down 1%), Comcast (CMCSA, down 6%), Paramount (PARA, down 6%) and AT&T (down 10%) also were lower on the month.
Having sold Warner Communications, AT&T no longer has sports exposure and will be dropped from the sports index at its scheduled rebalancing next month. Also leaving the index will be sports-focused SPAC RedBall Acquisition (RBAC, up 1%), which filed paperwork with regulators late Friday to dissolve the business and return its capital to shareholders. RedBall had seen deals to buy Fenway Sports and SeatGeek fall apart because of market conditions, and its closure has been expected.
The JohnWallStreet Index is still well below its peak of 1,763 hit in mid-November and just mildly over its two-year low of 1,028 touched mid-July. The Sportico index consists of 40 stocks meant to represent the state of professional sports. The index includes teams publicly traded in the U.S., sports betting businesses and major apparel sponsors, as well as media and other businesses with a high reliance on sports for their growth. General consumer sports companies, such as retailers and leisurewear makers, and sports-focused SPACs without a definitive merger agreement aren’t included in the index. To be included in the index, stocks must be traded in sufficient volume on a U.S. exchange and have a minimum market cap of $50 million. Companies that fail to meet the requirements, experience a significant corporate event (think: bankruptcy, sale) or pivot in strategy away from professional sports may be dropped from the index. The index is rebalanced quarterly, with any additions and subtractions to its composition occurring then.