For the first time ever, March Madness is cancelled.
That’s an extraordinarily big deal. Yes, I’m a basketball fan and a former player, so it’s probably a bigger deal for me than for most. Simply consider that through World War II, the Korean War, the Vietnam War, the 1973 oil crisis, 9/11, and the 2008 Financial Crisis, college basketball teams from across the country always played in a tournament to decide the national champion. Every. Single. Year.
Come hell or high water, March Madness never got cancelled.
Until 2020 and COVID-19. And now, for the first time in 81 years, we will not have a national college basketball playoff tournament.
The societal and cultural implications of this are huge. I’m wiping away tears as I write this piece. But, this is InvestorPlace.com, and accordingly, we are going to look at the financial implications of this unprecedented cancellation.
They’re huge, too. Hundreds of billions of dollars are spent each year on March Madness ads, and sponsors pour in billions of dollars to have their brand visible to one of the biggest viewing audiences in the sports world.
Now all that’s gone… and that’s really bad news for these five stocks that will be hurt big as a result of March Madness getting cancelled:
All of these stocks have already been hit hard. Will they keep falling? Or will they rebound?
As always, it’s a case-by-cases basis. Without further ado, then, let’s take a deeper look at five stocks that are mourning the cancellation of March Madness.
On the men’s side, two broadcast giants have the TV rights to March Madness and host all the games on their networks. The first of those broadcast giants is ViacomCBS.
Viacom owns CBS, one of the four networks that hosts all of the Men’s NCAA March Madness games. For those rights, ViacomCBS pays several hundred million dollars a year. They also sell several hundred million dollars a year in video ads.
Now, none of that is happening. Sure, some agreement will be worked out between ViacomCBS and the NCAA so that the former doesn’t have to pay the latter a ton of money for something that isn’t happening.
But losing that much ad revenue hurts. And that hurt is reflected in the stock price. VIACA stock is down over 50% over the past month.
At current levels, the stock looks pretty cheap. Multi-year high 3.9% dividend yield. Multi-year low 0.4-times forward sales multiple. Those valuation levels seem unwarranted, especially considering COVID-19 is a temporary problem, and that all of these major sporting events — March Madness included — will be back next year.
The other broadcasting giant that owns the TV rights to Men’s NCAA March Madness games is AT&T.
AT&T owns Turner Sports, who in turn owns TBS, TNT, and TruTV. Those are three of the four networks which televise March Madness games every year. Much like ViacomCBS, AT&T pays a bunch of money to have these rights, and then sells a bunch more money in video ads.
From this perspective, AT&T stands to lose a lot of money because March Madness has been cancelled. That’s largely why the otherwise very stable and strong AT&T has seen its shares drop 11.7% over the past month.
This sell-off is overdone. AT&T stock now features a 6.03% dividend yield, and trades at 10-times forward earnings. Those are dirt-cheap valuation levels. Yet, most of AT&T’s business should be relatively stable amid the coronavirus outbreak (we all still need wireless and cable coverage, especially if we are all staying home more often). Meanwhile, major sporting events will come back next year.
Big picture, then, AT&T stock should bounce back from its March Madness sell-off.
On the women’s side, ESPN is the network which hosts most of the women’s NCAA March Madness games. Indeed, for the first time ever, ESPN planned to nationally televise all 63 games of the women’s tournament this year.
ESPN is owned by Disney, so ESPN losing out on potential ad revenue from the cancellation of March Madness is a bad thing for them. So is the postponement and/or cancellation of essentially all things sports related, including the NBA, NHL, MLB, and various pro golf tournaments.
This bad news is clearly reflected in DIS stock price, which has dropped almost 33% year-to-date.
Sure, part of this drop is also because people won’t be going to movies (which will hurt Disney’s box office performance) or theme parks (which will hurt Disney’s parks business). Consumers will also spend less on leisure items, like Disney toys and games.
This is a very strong media and entertainment company that has sat atop the media and entertainment world globally for several decades. Disney has the innovation, leadership, and resources to stay atop that world for the next several years, too. The coronavirus outbreak is just a blip in that long-term picture.
Disney stock will bounce back once coronavirus headwinds pass.
A less obvious loser of the March Madness cancellation is athletic apparel giant Nike.
Traditionally, Nike dominates the March Madness tournaments. The company’s signature swoosh logo is all over the place from team jerseys to shoes. The company also runs ads during many of the commercial breaks.
That means March Madness gives the Nike brand huge visibility for a few weeks. Presumably, that increased visibility leads to increased sales volume. One can assume that without that visibility in 2020, Nike won’t get a March Madness sales boost.
Is that really a big deal? Not really. Nike sells $40 billion worth of athletic apparel across various verticals, and basketball sales in March is a very small piece of that $40 billion pie.
Yet, NKE stock is down 31% over the past month.
Sure, that drop has a lot more to do with the coronavirus’ impact on consumer spending than it does with March Madness getting cancelled. Still, this is a world-class company which dominates the secular growth athletic apparel market, and the stock is trading at a multi-year low 25-times forward earnings multiple.
Long-term, then, NKE stock will bounce back.
Last, but not least, on this list of stocks mourning the cancellation of March Madness is global beverage giant Coca-Cola.
Every year, Coca-Cola is one of the tournament’s largest sponsors. As one of the tournament’s largest sponsors, Coca-Cola ads are everywhere during March Madness.
No March Madness this year means no March Madness ads for Coca-Cola.
But, can’t the company just re-allocate those ads into other channels? Like onto news channels and into digital feeds, which is where consumers will be spending their time over the next few weeks.
Yes. The company can. So, when I see KO stock down 22% over the past month, I see an overdone sell-off.
Long term, KO stock will rebound from here, as consumer demand for the company’s beverages and snacks rebounds once the coronavirus pandemic passes.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized as one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he did not hold a position in any of the aforementioned securities.