Sports are just one of many industries hard hit by the novel coronavirus. The impact goes beyond just the sports teams themselves. Sports is an economy on its own. Many industries depend on the popularity of professional leagues like the NFL and NBA, as well as college basketball and football, for their continued success.
This includes the ad-supported broadcast and cable television industries. As viewers move towards streaming apps for scripted entertainment, live sports is one of the few ways broadcasters have an edge against “disruptors” like Netflix (NASDAQ:NFLX). But, with sports on hiatus until the pandemic subsides, major broadcasting names are taking a hit.
It’s not all bad news for these ad stocks. The NFL plans to start their 2020 season on schedule in September. The NBA also plans to return later this year. However, it remains to be seen whether the 2020 NCAA football season will be canceled. Things remain up in the air for the 2020-2021 NCAA basketball season as well.
Even if only college-level sports are cancelled this fall, it could still be bad news for sports broadcasters. College football generates billions in television revenue. Without popular sports like this on the air, it’s going to be tough for national and regional-level sports broadcasters.
There are many ad stocks that could be affected by a continued sports hiatus. Here are three names that could see the largest impact:
Will continued cancellations of sports hurt these stocks going forward? Let’s dive in and find out.
Disney (DIS)
As I discussed last month, DIS stock has its fair share of coronavirus headwinds. But beyond troubles in the company’s theme park and theatrical motion picture business is the impact of sports cancellations on their ESPN unit.
ESPN has already seen revenue losses due to the pandemic. With the NBA suspending its season, the sports broadcasting giant lost around $600 million in ad revenue. If the NBA doesn’t return this fall, the network could see additional losses.
But potential revenue losses go beyond professional basketball. If college football winds up being cancelled this fall, expect more pain for their top and bottom lines. The same could be said about college basketball, which is another key sport on the network’s television and streaming platforms.
To top it all off, subscription revenue could take a hit as well. Both in terms of subscriber revenue from cable TV, as well as subscriber revenue for ESPN+.
U.S. households could be using the coronavirus as good reason to cut the cord. Given the sports network generates most of its revenue from “affiliate fees” paid by the cable companies, the potential ad revenue losses could pale in comparison to potential losses from cord cutting.
With this in mind, Disney stock could experience more trouble, even as other things return to normal post-pandemic.
Fox Corporation (FOX)
After selling its content business to Disney, FOX stock has become a pure play in broadcasting. Not only via its ownership of the Fox broadcast network and major Fox affiliates, but also via their ownership of national sports channels like FS1.
Granted, Fox is more than just sports programming. But it does make up a big part of their overall audience. In short, it makes sense the company disclosed in a March 31 SEC filing that the pandemic could materially impact their underlying business.
But with the NFL starting on schedule, how bad could things be? Sure, the NFL is Fox’s flagship sports programming. Yet, with the television ad market depressed, Fox may not be able to generate as much revenue as they have in prior football seasons.
FOX stock has recovered from its March lows below $20 per share. But, trading around $25 per share today, it’s still far below prior highs above $35 per share. It may be temping to dive into beaten-down ad stocks like this. But with sports still up in the air, it may be not a great time to buy.
Sinclair Broadcast Group (SBGI)
Sinclair Broadcasting owns and/or operates scores of local television stations from coast to coast. As many of their 191 stations are Fox or CBS affiliates, that means heavy exposure to the near-term fortunes of the NFL. But the company’s exposure goes beyond just broadcast stations.
Recent deals have left SBGI stock tied to the fortunes of regional sports networks, or RSNs. Last year, the company partnered with Entertainment Studios to buy Fox Sports Networks from Disney. Also, they purchased an equity stake in the YES Network, which airs New York Yankees games.
To top it all off, Sinclair owns a piece of the Marquee Sports Network, a Chicago-area RSN in partnership with the Chicago Cubs. Unfortunately, this venture launched just weeks before the coronavirus put Major League Baseball on hiatus.
This is bad news in terms of ad revenue. But, like with ESPN, Sinclair could see a larger impact from a decline in affiliate fees. And not just from its stable of regional sports cable networks. In recent years, broadcasters like this company have boosted TV stations revenue via retransmission fees paid by cable operators.
In short, this could be one of the top ad stocks affected by sports cancellations. Keep this in mind, even as SBGI stock trades nearly 50% from where it was back in February.
Thomas Niel, InvestorPlace contributor, as written single-stock analysis since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.
