Investors Can 'Get Game' Through These Sports Industry Growth Plays

Booming demand presents growth opportunities in otherwise risky and volatile market

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May 03, 2016
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Have you ever daydreamed about owning a professional sports team? Sports franchises, however, aren’t publicly traded, which makes their ownership the past-time of restless billionaires (when they're not running for president).

That’s where the following investment opportunities come into play. First, we examine the biggest and safest in the industry: Madison Square Garden Company (MSG, Financial).

With a market cap of $4.01 billion, Madison Square Garden will continue to outperform the broader markets, as increasingly confident consumers spend more discretionary income on sports and entertainment.

The company’s MSG Sports unit features live sporting events including professional boxing, hockey, professional and college basketball, track and field, wrestling, the NFL Draft and more.

Since its 2015 spinoff from parent MSG Networks (MSGN, Financial), which is the operator of regional sports networks MSG Network and MSG+, MSG has reduced losses. In fact, in the most recent quarter, the company beat analyst estimates on EPS by over 40%.

Madison Square Garden is scheduled to report earnings for the quarter ended March on May 6. Analysts expect MSG to report a loss of 32 cents, but that ostensibly disappointing performance needs to be placed into context. Madison Square Garden has been investing heavily in expansion plans, especially to the West Coast, which should bear fruit in future quarters.

MSG has already gained 94.93% year to date, compared to a 1.26% loss for the S&P 500 (SPY). But there’s plenty of room left for growth in the stock.

MSG shares now trade at $162.75; the one-year analyst price target on the high-end for the stock is $240, for a gain of nearly 48%. That capital appreciation looks like a slam-dunk in a volatile and turbulent market that’s expected to deliver paltry gains (at best) or crash (at worst) this year.

Entrepreneurial activity

While some devote only a fraction of their portfolios to investments in sports, there are others who’ve dived head on into this sector, earning billions. Notable case in point: Serial entrepreneur Robert F. X. Sillerman has been credited with setting up successful media companies worth over $6 billion.

In a bid to become a leading social publisher, Sillerman’s DraftDay Fantasy Sports (DDAY, Financial) recently agreed to acquire Rant through its Wetpaint publishing business, already a popular option for entertainment news. This move is significant because Rant is a leading digital publisher for topics like sports, entertainment, pets, cars and food. According to Adweek, Rant's flagship property RantSports.com was ranked #1 by Quantcast for target digital ad buying for the 2015 holiday season.

Sillerman has a proven track record of delivering market-beating returns to investors. He previously founded media major CKx Inc., which owned popular franchises including Amercian Idol and the Elvis Presley estate. Sillerman also formed Viggle, an application-based “entertainment rewards” technology platform that seeks to incentivize viewers to watch television and movies.

With a market cap at just over $10.6 million, DDAY is currently undervalued compared to publishing "unicorns" such as BuzzFeed and Vox Media. Comcast’s (CMCSA, Financial) NBCUniversal unit in 2015 invested $200 million in BuzzFeed, an equity investment that valued the up-and-coming "new media" star at $1.5 billion, double its valuation of a year before.

NBCUniversal plowed another $200 million into Vox that year, pushing Vox into the category of unicorn startups valued at over $1 billion each. The upshot: Comcast has been in a big hurry to go digital.

One of the surest ways to make money over the long haul is to buy the stocks of companies that are tapped into accelerating trends; the booming sports and entertainment business fits this description.