Editor’s Note: Welcome to a daily column breaking down the day’s biggest stories in sports finance. It comes to us via our friends at JohnWallStreet, publisher of a free e-mail newsletter (you can sign up here). It’s sports business with a financial spin. Howie Long-Short and Fan Marino will be providing their expert opinions on each story. They have slightly different areas of expertise. Fan Marino is a firm believer that the SEC is the premier football conference. Howie Long-Short knows it as the Securities & Exchange Commission. Fan Marino lives and dies with the college selection of 5 star , blue chip recruits. Howie Long-Short spends his days analyzing blue chip stocks. Howie Long-Short knows that Black Monday occurred on October 19th, 1987. Fan Marino swears it happens every January after Week 17. You get the point.
CFB Programs to Generate $175 Million+ from “Guarantee” Games in ‘18
NCAA college football programs will take in more than $175 million in payouts from one-time “guarantee” games during the non-conference portion of the 2018 season. The +/- 12 schools participating in marquee neutral site showdowns (think: Washington/Auburn, Miami/LSU) will share more than $50 million in appearance fees, while the wealthiest and most dominant programs will spend $1 million+ on each of the 45+ games scheduled against lower quality competition; games designed to pad records (and add extra home dates to the calendar). Colorado State will take home the largest payment for a “guarantee” game this season, $2 million for their Sept. 15th game at Florida; a term negotiated as part of Jim McElwain’s $7.5 million buyout enabling him to join the Gators in ’14.
Howie Long-Short: Neutral site showdowns take place because of financial windfalls available to those who participate (the recruiting exposure doesn’t hurt either), not because they provide an opportunity to add a quality win to the playoff resume; if it were simply about SOS, we’d see more home and home series. Alabama received $5 million for playing in the ’17 Chick-fil-A Kickoff, 12x what the school earned for participating in last season’s Sugar Bowl (playoff) and National Championship games (excluding ancillary benefits). As for this past weekend, Washington and Auburn took home $4.1 million and $4.2 million, respectively; LSU earned $4.75 million. Miami (private) did not disclose any financial information.
While 14 teams will take home payments of at least $1.4 million for a single road game, no Group of 5 school will earn more from their non-conference schedule than Kent State; the Golden Flashes will collect $3.65 million for games at Illinois, Penn State and Mississippi. Of course, those on the receiving end of “guarantee” game payments (like Kent State) use the money to help fund their entire athletic departments.
Fan Marino: The University of Akron was scheduled to take on Nebraska, in Lincoln, on Saturday evening, but lighting forced the game’s postponement; “logistical challenges” prevented the game from being rescheduled, resulting in its cancellation. It’s unclear at this point if either team will add a 12th game (you need 6 wins to be bowl eligible), but perhaps the bigger concern from Akron’s POV is the $1.17 million payment the school was scheduled to receive for playing the game; NU deputy AD Bob Burton said it was “to be determined” if the Ohio school would receive the payment. It’s worth noting that South Dakota State University received its contracted payout ($425,000) for their season opener at Iowa State, another contest that was canceled due to inclement weather.
Dick’s Blames Under Armour for Missing Sales Expectations
Dick’s Sporting Goods failed to hit Q2 topline expectations (reporting sales of $2.18 billion, expectation was $2.23 billion) and CEO Edward Stack attributed the short-fall to “significant declines” in Under Armour (UAA) sales. Stack said it was the sneaker and apparel company’s decision to “expand distribution” into more low-priced retailers (think: Kohl’s) that created the headwind; a challenge the company expects to get “figured out” in 2019 (they’ll add new product to shelves). Athleisure as a category continues to perform well for DKS, the company reported athletic apparel (excluding UAA) delivered double-digit growth; eCommerce and private brands also posted double-digit growth during the 2nd quarter.
Howie Long-Short: DKS comparable sales were down -1.9% YoY, with the company’s hunting (i.e. guns) and electronics business responsible for nearly half of that decline. It’s important to note that the decline in the company’s gun business is systematic and not a byproduct of policy change following last February’s Las Vegas shooting. Even with comp sales down, the company blew past Q2 earnings estimates ($1.20 vs. $1.06). DKS shares tumbled by as much as -14% in pre-trading on the morning of Wednesday August 29th (earnings released after close in 8.28), but have since recovered, finishing last week +3% ($37.44) from the closing price on 8.28. Shares are up +27% YTD.
Under Amour (UAA) posted financials on July 26th. While the company’s U.S. business failed to gain much momentum (+1.6% YoY) - despite expanded distribution - international sales surged (+28% YoY) during Q2 ‘18 and the company managed to reduce excess inventory. Q2 wasn’t a “victory” for UAA though, as the company reported a quarterly net loss of $95.5 million and announced it would be committing another $80 million (in addition to the $130 million it already committed) to its long-term restructuring efforts. Despite the heavy spending on its turnaround (focus going from men to women/kids, $80-$100 price point) and the continuing headwinds (think: leisure over performance), UAA shares are up +36% YTD (though, down -2% since DKS reported); they’ll open on Tuesday at $20.45.
Fan Marino: Though shoppers have been bypassing DKS for low-priced retailers in search of UAA goods at a bargain, Stack did note that he was pleased to see the company has been receiving more “premium” merchandise from the Baltimore-based athleisure manufacturer. Products “like the HOVR sneaker, and sneakers and clothing from Under Armour’s new line with Dwayne Johnson” can help differentiate DKS from their low-priced competitors, but how do they compete with Under Armour who is selling the products DTC on their website?
Speaking of The Rock, according to a study by Spotted, his endorsement deal with Under Armour is the “best-matched celebrity-brand partnership in the fashion and retail sectors”; earning a perfect score of 100. The report added that “partnership was not only a spectacular alignment of brand celebrity personality match, audience match, overall brand values and consumer approval, but it also scored low in terms of risk.” Under Armour’s relationship with Steph Curry also rated highly (#14 overall).