Twenty-First Century Fox Inc (FOXA) Outbid ESPN on the Worst Deal Ever

Advertisement

Call it the Trump effect. In October of 2016, The Washington Post ran a story indicating that “Donald Trump’s chances of winning are approaching zero.” In retrospect, this headline will go down as one of the worst in history. Similarly, Twenty-First Century Fox Inc (NASDAQ:FOXA) made an investment blunder that may also live in infamy. Current shareholders and prospective buyers of FOXA stock should take note.

Twenty-First Century Fox Inc (FOXA) Outbid ESPN on the Worst Deal Ever
Source: ©iStock.com/Totojang

By now, most have heard of the U.S. Men’s National Team’s (USMNT) World Cup failure.

Against lowly Trinidad and Tobago, the USMNT put up an unbelievably lethargic performance. Even after quickly falling behind 1-0, the team showed no sense of urgency. But a loss would have likely secured a ticket to Russia (which hosts the tournament), so long as results in other games were favorable.

They were not.

Thus begins a searing session of soul-searching following the World Cup failure (the USMNT eventually fell 2-1).

Head coach Bruce Arena will be axed, and so too will a number of ineffective executives and irrelevant players. But in the background, those holding onto FOXA stock will need to do some soul-searching of their own.

Fox Sports, which is under the Twenty-First Century Fox umbrella, sparked a massive bidding war with Walt Disney Co (NYSE:DIS). At stake was the biggest prize of them all — the broadcasting rights to the 2018 and 2022 World Cup tournaments. After successfully hosting the 2015 Women’s World Cup, which saw our women’s side emerge victorious, Fox Sports felt justified in dropping $400 million.

To be fair, the statistics favored Twenty-First Century Fox in a big way. Fox Sports rival ESPN, which is owned by Disney, forecast a “near-certain” 93% chance the U.S. would qualify.

Then again, former Secretary of State Hillary Clinton had almost identical tailwinds.

FOXA Stock Is Deeply Vested Into the World Cup

Mark Twain popularized the phrase “lies, damned lies, and statistics.” This is now the second time in less than a year that statistics badly skewered a major American event. The luxury for shareholders of FOXA stock is that they have time to consider their next move.

Twenty-First Century Fox is not enjoying a good run this year. Never mind the perspective that the 7% year-to-date loss for FOXA stock isn’t that big of a decline; it actually is. Comcast Corporation (NASDAQ:CMCSA), which owns NBC, is up over 8% YTD. Even Disney shares, which are suffering horribly from laggard ESPN, is performing better (-5% YTD).

Furthermore, FOXA stock took a good-sized hit immediately following the USMNT’s World Cup failure. Shares dropped nearly 2.5% against the prior day’s session. If the entertainment giant doesn’t figure out a way to salvage this disaster — and I’m not sure it can — we’re likely to see more red ink.

In the grand scheme of things, $400 million doesn’t seem like a lot for Twenty-First Century Fox. But like all businesses, Fox Sports is in the broadcasting game to make money. That’s going to be problematic after the World Cup debacle.

On the Fox Sports website, the company bragged that it will offer “unprecedented coverage” of the tournament, meaning it will feature “more soccer matches on broadcast television than the last four World Cups combined.”

But without the USMNT at center stage, what’s the point? Seriously. Aside from the quadrennial cycle, Americans largely have difficulty focusing on soccer in an extremely-crowded sports segment. Sports viewership is on the decline — and not just for our version of football. So Twenty-First Century Fox needed the World Cup. Shareholders of FOXA stock needed it.

World Cup Failure Is Intractably Catastrophic for Fox Sports

With gritted teeth, I’m sure, Fox Sports put a brave face on the World Cup failure. Apparently, the company will continue with its “unprecedented coverage,” albeit without the USMNT. Some pundits are saying that the disaster is mitigated because of time-zone differences and our frayed relations with Russia. This, however, is just crazy talk.

First off, the tournament does not span the entire width of Russia; rather, it is held in the western, “European” part. The worst time zone difference are from games in Ekaterinburg, which is 9 hours ahead of Eastern Standard Time. World Cup 2018 is only modestly more inconvenient than watching a tournament held in mainland Europe.

Second, and more importantly, the World Cup brings people together. Restaurants will host viewing parties, which would have ramped up substantially had the USMNT made a deep run. Nike Inc‘s (NYSE:NKE) jersey sales, in turn, would have flown off the racks. Folks that otherwise wouldn’t talk to each other would share stories and analyses. All of that potential is gone and, along with it, advertisers who now don’t give a hoot.

Make no mistake about it: the World Cup failure is inexcusably horrific, and FOXA stock could pay a steep price. Remember, Twenty-First Century Fox has made some financially insane moves, most notably the Bill O’Reilly axing.

Here’s the thing: O’Reilly is a divisive figure. Many people love him, but a great many hate him with passion. Nobody hates the World Cup. If anything, it’s an excuse for non-soccer fans to go drinking. FOXA stock is down 13.5% since O’Reilly’s firing.

Will the World Cup failure fare better? Again, I truly doubt it.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.


Article printed from InvestorPlace Media, https://investorplace.com/2017/10/twenty-first-century-fox-foxa-worst-deal/.

©2024 InvestorPlace Media, LLC