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6 NFL Stocks to Kick Off the Season - 12591 views
BALTIMORE (Stockpickr) -- Football’s really back -- finally. The NFL regular season kicks off on Thursday, at 8:30 p.m., when the New Orleans Saints meet the Packers at Green Bay. It’s been a tumultuous road to the gridiron for the most valuable sports league in the world, with a lockout that threatened to curb football for the 2011 season -- a move that would have had bigger implications than just for the fans. After all, billions of dollars are at stake here.
But now that the season’s about to start, investors have opportunities opening up in a handful of NFL stocks.
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Normally, the NFL is a billionaire’s club. With the least valuable NFL team ringing in at around $839 billions (the Minnesota Vikings, according to Forbes), the price of buying a team is outside of what most investors’ portfolios can handle. (The exception may be the Packers, a publicly-owned franchise, but don’t get too excited -- the team’s shares can’t pay dividends or appreciate in price.)
There is still a way to get exposure to the billions of dollars that the NFL brings in each year. It’s all about finding publicly traded stocks with hefty income statement exposure to the NFL. Obviously, these aren’t pure plays on football, but each of these names does have meaningful revenues from the sport.
With that, here’s a look at six NFL stocks to kick off the season.
You may not realize it, but Disney (DIS) actually has considerable ties to the NFL. The $59 billion owner of Mickey Mouse also happens to be the owner of ESPN, the home of Monday Night Football. ESPN is the crown jewel in Disney’s cable network business, contributing three quarters of the division’s revenue. That means that the sports network contributed around 20% of Disney’s total revenue last year -- and ESPN is absolutely built on football.
ESPN pays $1.1 billion per year to carry 17 Monday Night Football games, the most that any network pays to carry the sport. The payoff is a massive audience for football broadcasts and, more important, considerable NFL content that the network is able to use across a number of other shows. As long as that content keeps attracting viewers, ESPN gets to keep collecting affiliate fees from its cable providers and hefty premiums from advertisers.
Ultimately, Disney is facing considerable upside from the start of this football season -- particularly when paired with the other elements of the company’s diversified entertainment business. From film studios to theme parks, Disney has proven adept at leveraging its intellectual property for significant returns.
With NFL content making up part of those IP coffers, investors have reason to be excited. Shares of this firm are looking cheap given the equity selloff that started this summer.
Disney is one of TheStreet Ratings' top-rated media stocks.
Another name that’s benefiting from contracts with the NFL is DirecTV (DTV). The satellite television provider has made its NFL Sunday Ticket subscription service the lynchpin of its advertising efforts this year, offering a free one-year subscription to the service for new customers who sign up. Like ESPN, DirecTV pays a hefty fee for rights to broadcast out-of-market NFL games to its customers -- the firm pays more than $700 million annually for the rights.
The decision to include the premium package in its new subscriptions could end up being a very lucrative one for DirecTV. Not only is the offering pulling new customers from cable and rival satellite TV providers, but it’s also the source of huge potential recurring revenue for DirecTV when those subscriptions renew next year (the retail price is a whopping $385).
Margins have been expanding in recent years for DirecTV, a welcome change from 2008’s profit squeeze. A big part of that margin boost has come from courting subscribers who tend to be bigger spenders on TV services -- the company’s expanding Latin American business unit is another source of that profitability growth. Investors should expect more of the same in fiscal 2011.
2011 has been a strong year for shareholders of Under Armour (UA) -- the mid-cap athletic apparel firm has seen its shares climb by nearly 24% since the first trading day of January, stomping the negative performance of the S&P 500 over that same period.
The firm has had a relationship with the NFL since 2006, when the Baltimore-based sportswear maker became one of just three authorized footwear suppliers for the league. The move meant that UA was able to market its NFL-branded apparel to consumers -- and that athletes using the firm’s products wouldn’t need to hide logos before games.
Under Armour has been adept at getting attractive endorsement deals signed with big-name prospects (as opposed to players who are already superstars). That focus on emerging names has meant that UA dramatically limits its endorsement costs without losing out on the cachet of having popular names endorse its wares.
All the while, technology has been UA’s focus in its product line -- its apparel is designed to increase performance, and it’s heavily marketed as such.
Financially, Under Armour is looking strong. Growth has continued to come at a quick pace for the firm, and UA’s balance sheet has remained with a net cash position. The NFL season should bring about increased visibility for this brand as players use its products on and off the field.
Electronic Arts (ERTS) owes one of its most successful video game franchises to the National Football League -- I’m talking about the firm’s Madden NFL title, which hits the market in a new iteration every year. That annual revamp (which has been going on since 1990) means that the Madden NFL franchise is able to collect substantially more sales than competing titles that come out on a less regular basis.
The firm’s estimated $300 million deal with the NFL and the NFL Players Association means that EA has exclusive rights to use NFL teams and players in the game -- an added element of realism that’s contributed to the $3 billion in total sales that the franchise has grossed for EA.
Madden NFL may be one of the most notable names on Electronic Arts’ shelf, but it’s hardly the only lucrative video game franchise the developer can lay claim to. Other successful series, such as FIFA, the Sims, and Need for Speed, have all helped to cement EA as one of the biggest video game producers in the world.
While the traditional console and computer game business remain important parts of EA’s strategy, the company is pouring new resources into developing internet services and mobile game that take advantage of popular platforms such as the iPhone and Facebook. While these new initiatives only combine to make up around 15% of total sales, that number is up from just 10% just a couple of years ago. The shift may be just what the company needs to make up for decelerating top-line numbers.
Comcast and General Electric
It may be a bit premature to talk about the Super Bowl, but you can bet that NBC is already thinking about the implications of the most-watched game of the season. After all, the network, owned by Comcast (CMCSA) and General Electric (GE), has the rights to televise the game on Feb. 5, 2012.
NBC is paying just $600 million per year in its contract with the NFL, the cheapest deal of the major networks -- and an incredibly lucrative one in that it includes this year’s Super Bowl rights. The deal ends this year, meaning that NBC is going to have to renegotiate its agreement with the NFL for next year’s season, likely ending the amazing price that the network is been enjoying.
In total, NBC passes up approximately $17 billion in sales and $2.3 billion in profits to its corporate parents. While the network’s football contract with the NFL contributes a small portion of those consolidated profits, it’s a major piece of the network’s overall programming. The Super Bowl alone should account for around 15% of the network’s revenues in 2012.
To see these football stocks in action, check out the NFL Stock 2011 portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.
At the time of publication, author had no positions in stocks mentioned.
Jonas Elmerraji, based out of Baltimore, is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.