Market Pulse
Monday, July 10, 2023
Welcome to this week’s Market Pulse, your 5 minute update on key market news and events, with takeaways and insights from the Sidekick Investment Team.
This week we've taken a slightly different approach, and picked 3 interconnected stories. Given that it's Wimbledon at the moment, we felt what better time to do a sports related Market Pulse than now...
Read the full Market Pulse below, or if you want to access it on the go, download the Sidekick app.
Adrian (Portfolio Manager), and the rest of the Sidekick team.
It’s important to note that the content of this Market Pulse is based on current public information which we consider to be reliable and accurate. It represents Sidekick’s view only and does not represent investment advice - investors should not take decisions to trade based on this information.
We often define "Sports" narrowly: you're either an athlete or a fan. In reality, the sports world extends far beyond that, and investors are increasingly taking notice. One person who can't stay away from sports teams is the Canadian actor turned savvy investor Ryan Reynolds. The Deadpool star made headlines last week when he invested in Formula 1 team Alpine [1], building upon his previous successful investment in Wrexham Football Club [2].
His involvement shows how the sports industry is increasingly merging with media and technology, creating an attractive theme of "investment with a sports focus." But despite Mr Reynolds making it seem effortless with his exceptional storytelling abilities, a blanket investment approach to sports does not guarantee success.
Take listed European football teams, for example. Despite being one of the most iconic assets in sports, Manchester United has lost a cumulative £287.4 million since 2018 [3]. The shares fared better this year after news broke that its owners were looking to sell [4]. Still, before 2023, United's stock traded mostly sideways since its 2012 IPO, whilst the global equity index, MSCI World almost tripled.
Similarly, Juventus in Italy is down -63% since its IPO, Borussia Dortmund in Germany is down -46% and Benfica Lisbon is down about -20%. As of 2019, Ajax Amsterdam was the only European-listed football club that beat the MSCI World Index since its IPO. However, the pandemic came, and the stock lost 50% of its value. It's yet to recover.
To some extent, it makes sense: these are unpredictable businesses where a lot of the success and brand value rests on the outcomes of competition. UEFA Champions League winners could walk away with 85m EURs [5] each year. That could add 12% to United’s top line and turn the loss into a profit. For smaller clubs winning the competition would change their fortunes for years to come.
In addition, sports teams are often owned by wealthy individuals. These owners are sometimes driven by their desire to compete rather than solely focusing on financial considerations. For many of them, the benefits they gain from owning a team are intangible. But as a minority investor, you would have been better off spending money on matchday tickets. At least you would have gotten something back.
The hottest show in town is in full swing this week [6]. But, for those of us who don’t own a debenture, attending the Wimbledon tennis tournament requires either luck in a long-odds ticket ballot or queuing for hours – if not days [7].
Debentures are loans raised by sports venues, often from loyal fans. While the name suggests a traditional financial instrument (the FCA regulates it), debentures primarily offer buyers access to events rather than cash returns. Buyers pay a one-time fee and receive complimentary tickets. At the same time, the funds raised typically go towards improving or maintaining the venue and its facilities.
Despite the substantial upfront cost, there are rewarding opportunities available. For instance, the 2021-2025 Centre Court Debenture Series provides yearly access to prime seats near the Royal Box with an initial price of £80,000 for a period of five years. It means that, on average, debenture holders pay £1,230 per day for the 13-day championships.
The advantage is the ability to sell tickets for days one cannot attend or sell the debenture itself. In the current inflationary environment, this can yield profitable returns. Currently, quarter-final tickets on Centre Court start at £3,250 [8], and the most recent debenture transaction in March went for £115,000 [9]. That's an impressive return.
Okay, there's some debate around the legitimacy of eSports as an actual sporting competition. Still, the International Olympic Committee has discussed their inclusion in future Olympic events at least once [10]. eSports (Electronic Sports) is competitive gaming, mainly organized around professional multiplayer video games like League of Legends or Counter-Strike.
These competitions have been part of video game culture since the 1980s. Still, they gained significant popularity in the last decade due to the internet and online streaming platforms like Twitch and YouTube. Major tournaments and games have emerged, drawing large audiences online and in physical venues.
The largest live eSport event brought together 173,000 people in 2017 in an arena in Katowice, Poland. The US Super Bowl record attendance is just shy of 105,000. The League of Legends Mid-Season Invitational in Paris in 2018 had 60M unique online viewers, 30M shy of the Super Bowl in the same year [11].
The eSports market was worth $1.3 billion in 2022 and is estimated to grow 10-20% per annum by 2025 [12], but not everyone will benefit equally. Initially, the competition organizer would pay a licensing fee to the game publisher and then monetize their investment through ticket sales, sponsorships, advertising, and media rights.
However, as eSports matures, media rights and advertising have become significant revenue streams, and game publishers are increasingly choosing to leverage this asset by running leagues and tournaments directly. That's why when we come across an investment opportunity in eSports, we first ask who owns the intellectual property (IP).
[1] https://www.ft.com/content/efe48dfc-c1a3-4631-a5d5-5e83fe33e04b
[3] https://ir.manutd.com/~/media/Files/M/Manutd-IR/documents/manu-20f-2022-09-24.pdf
[4] https://www.ft.com/content/4aa95354-e03d-472d-9c1f-9decba2c17b6
[6] https://www.bbc.co.uk/sport/live/tennis/65584743
[7] https://www.ft.com/content/f4c3c7c7-9dd2-4b4d-9c2c-a5b244f3baf7
[9] https://www.wimbledon.com/en_GB/debentures/debenture_trading.html
[10] https://esportsinsider.com/2018/05/internatiional-olympic-committe-esports-summit
[11] https://www.lineups.com/esports/biggest-esports-live-events-in-history/
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