• Portfolio Mgmt Team

Market Commentary

Down. Set. . . Hold on I think I'm gonna be sick


To play or NOT to play...? For anyone that says, 'it's just a game,' please consider this:

For the fans, College Football is 'just a game,' but for the organizations, municipalities, and participants it's a four billion dollar business! The decisions of the "Power 5" conferences and University Administrators on whether or not games are played will impact different industries in different ways. While other parts of the economy might benefit in the short term from not playing, it doesn't seem as though the broader economic impact of football is being considered.


The schools with the biggest stadiums, highest-paid coaches, and best television contracts stand to lose the most, right? Actually, no, not individually anyway. It's reported that ESPN, a subsidiary of Disney (DIS), stands to lose about $850 million in advertising revenue if there's no college football season. Viacom (VIAC), which owns CBS Sports, and is likely to be the most affected by a profitability standpoint, will potentially lose about $250 million if the SEC decides not to play. Comcast (CMCSA), which owns NBC Sports, is anxiously awaiting Notre Dame's decision, and will likely be the biggest beneficiary of the Big10 cancellation if the Irish decide to play their ACC slate as agreed. FOX stands to lose $200 million if the Big10, Pac12, and BigXII all opted to sit this season out. However, the BigXII has said they intend to play. In total, we estimate advertising revenue losses would exceed $1.3 billion.


A revenue loss of $1.3 billion doesn't happen in a vacuum, it's likely each media company would broadcast something else and not have to pay out on the lucrative contracts these conferences have negotiated. The total profitability of the companies might not be as adversely affected as you'd anticipate. However, there are a lot of jobs that rely on a college football season occurring. Think of every broadcaster, cameraman, producer, editor, sound engineer, and so on. Broadcasts vary, but it takes roughly 25,000 employees to televise college football Saturdays. Without football, will these employees be retained and skills reallocated within the organization? The impact of no college football probably hurts the lower wage employees of these media companies much more than the shareholders.


Compare that to the high revenue-generating teams which would lose roughly $120 million each, and if you add the 65 teams that make up the "Power 5" conferences together, the total revenue lost is just shy of $4 billion. These schools and athletic programs will have to figure out new ways to generate revenue. The University of Oklahoma has asked season ticket holders to consider opting out of attending the games, but making a contribution in the amount of their season ticket costs to the "Sooner Relief Fund." This news comes after the Athletic Department announced a $14 million budget cut. What we fail to remember sometimes is that Norman, OK, a town of roughly 100,000 people, will be going without the $14 million "economic stimulus" from the University.


Another adversely affected revenue-generating activity would be tailgating. I'm going to give you the math because I couldn't find definitive numbers to back this up. About 50 million fans attend college football games each year, roughly 20% of fans tailgate for NFL games, so we'll assume the same for college, it's estimated that each tailgater spends about $200 on average at each tailgate party. Knowing the 50 million is a total attendance number we can estimate 10 million tailgaters attend events and spend $200 for a total of $2 billion of lost revenue to the companies that make tailgating happen. A lot of these are small businesses in college towns, especially the families that sell parking in their yards to supplement income, rent tents and/or spaces for tailgaters, caterers, and all the campus clubs that rely on alums to come through and spend money to help support their staff budgets. Companies, like Newell Brands (NWL) which owns Coleman, an outdoor/adventure brand that sells tents, grills, tailgate chairs, etc will have to hope fans do more camping this fall if there's no football. YUM Brands (YUM), the corporate parent of Pizza Hut, KFC, WingStreet, and Taco Bell, could see an impact on top-line revenue as well.


Many of these large state schools are in smaller towns, like Athens, Georgia, State College, Pennsylvania, and the one we're most familiar with, Fayetteville, Arkansas. Using Fayetteville as an example, not only will the athletic program miss out on the estimated $95 million of revenue produced by football, but the local economic impact of each home game is roughly $5 million. Those sales taxes will be missed, as will the revenue to local establishments that allow the town's thriving economy to continue thriving. While the numbers seem small, there are 65 "Power 5" college campuses, and each one is already hurting financially. The areas around them are also struggling to figure out what to do with empty bedrooms usually occupied by students, empty restaurants, empty bars, empty bookstores, empty coffee shops, empty clothing stores, and other shops. When you reduce on-campus enrollment and cancel "game days" you're expecting these establishments to keep their doors open somehow. And if they can't, where do all those employees find work? Especially when the big city shops nearby are also limiting hours, reducing staff, and trying to find a way to survive.


Decisions like this have ripple effects throughout the economy: Hotel rooms not rented, the missed income from extra hours of work for police and security, parking attendants, stadium ushers, the millions spent on programs, concessions, souvenirs, team merchandise, etc. The individuals impacted no longer earn the income they would have been able to go and spend on a myriad of other goods and services. The proprietors of those goods and services are no longer able to hire workers, buy inventory, and so on, virtually eliminating the multiplier effect.


That ripple effect may manifest itself in the small college towns that rely heavily on revenue generated by students and sporting events to buoy their local economies. Those municipalities may suffer financially and likely seek support from State or Federal agencies. If no support is available, could we see a spike in municipal bond defaults...a historically "safe" asset class that also provides some tax benefits?


There's no way to fully know what the ramifications of canceling football are until after we do it, and see how society responds and adapts. If everyone decides they'll spend Saturdays on home projects, ESPN (DIS) and CBS (VIAC) might hate it, but Lowes (LOW) and Home Depot (HD) will love it. If everyone decides to take up smoking and drinking to cope with the depression of not having football, do Altria (MO) and Budweiser (BUD) prosper at the expense of life and health insurers like MetLife (MET) and Aetna (owned by CVS). That's an obvious oversimplification, but you get the picture. The economic impact of football is not insignificant. In games, as in life, there are always winners and losers.


Playing football matters more than anyone seems to be talking about.

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