As England's fate in the Rugby World Cup hangs in the balance, sport will be on the minds of many of our readers. Whether the host nation crashes out or progresses, investors can win big by placing the right bets. Worldwide passion for sport is akin to religious fervour, creating copious demand among consumers to attend live matches, watch games on the telly and splurge on merchandise. Brands are also willing to pay top dollar for exposure during major events and tournaments, benefiting both advertisers and broadcasters. We've selected a strong line-up of companies that may be worth a punt.
Marketing maul
Sports marketing remains one of the fastest-growing segments of the advertising market. Athlete agency and marketing group TLA Worldwide (TLA) manages around 700 sports stars - including cyclist Chris Hoy and swimmer Rebecca Adlington - and broadcasters in fields such as basketball, baseball, golf and athletics. The group recently organised the International Champions Cup, which culminated in French club Paris Saint-Germain winning in the US and Spanish titan Real Madrid lifting the cup in China and Australia. Elsewhere, Mission Marketing (TMMG) recently launched Mongoose, a sports marketing agency.
Asset manager Providence recently mounted a takeover of leading agency group Chime (CHW) with the support of advertising behemoth and Chime shareholder WPP (WPP). Lord Coe sits on Chime's board, and its sport and entertainment agencies - which offer services such as sponsorships, branding, rights sales and athlete management - contribute about 45 per cent of total revenue. The group counts Manchester City football club, the US PGA (Professional Golfers' Association), and gym chain Fitness First among its clients, and expanded overseas by acquiring US and UK motorsport group JMI in 2014. Management expects the recent Ashes series and the ongoing Rugby World Cup - it's handling Land Rover's sponsorships and managing 82 players - to underpin a double-digit rise in operating profits this year. And Chime continues to win branding, hospitality and other types of contracts ahead of next year's Summer Olympics in Brazil.
WPP has placed other bets on sport marketing. It recently launched ESP - a sports and entertainment agency brand - and took a majority stake in data-driven sports marketing agency Two Circles, which counts Liverpool football club and England and Wales Cricket Board among its clients. The strategy fuelled a 6 per cent rise in adjusted half-year pre-tax profit in the key advertising and media investment management to £330m.
The broadcasting scrum
Look no further than this year's Premier League rights auction to see the vast amounts of money involved in sport. BT (BT.A) and Sky (SKY) shelled out a total of £5.14bn to secure three years of live broadcasting rights to top-flight English football - a 71 per cent rise compared with the previous auction. Pay-TV, broadband and landline provider Sky had little choice but to stump up the cash as its live sports coverage is a critical component of its offering. It agreed to pay £1.4bn - an 83 per cent increase - for 126 matches a season.
In the 18 months to end-June, Sky inked a total of 35 deals for sporting content. It secured exclusive live coverage of The Open golf championship and bolstered its boxing offering by agreeing to show 120 nights of live boxing over the next six years. This year's bout between Floyd Mayweather and Manny Pacquiao was the group's highest grossing pay-per-view fight in the UK and Ireland, Germany and Austria. And it has secured exclusive live coverage of all 472 matches in Italy's Serie B football league for the next three seasons, and retains the rights to a third of Serie A matches.
Sky has also responded to a new generation of sports fans' dislike of stringent contracts: it has introduced a monthly Sky Sports pass for its NOW TV service after the introduction of a weekly pass helped to nearly triple the number of sports passes sold in 2014.
Meanwhile, BT has strived to offset sliding landline revenues by investing in TV and high-speed broadband services. In 2014 it launched BT Sport, a free TV channel for its broadband subscribers featuring Premiership Rugby and both Premier League and Champions League football coverage. A focus on high-quality sport content helped BT add a record 60,000 TV customers in the first quarter ended June, increasing the channel's total audience to 1.2m. It also contributed to higher broadband and TV sales, fuelling an 11 per cent rise in the consumer division's operating profits to £204m.
Sport content can be a mixed bag for broadcasters. ITV (ITV) posted flat first-half advertising sales and a 4 per cent decline in its main channels' audience share, partly due to the absence of a marquee sporting event such as the FIFA World Cup. Management had expected exclusive live broadcasting rights to the Rugby World Cup to win back viewers, but if England are knocked out prematurely that may not happen. More positively, ITV will jointly broadcast next year's Six Nations Rugby with the BBC and has exclusive rights to show England's qualifying matches for the Euro 2016 football competition. Moreover, ITV4 offers exclusive coverage of events such as the Isle of Man TT - an annual motorcycle race - and the French Open tennis tournament.
Media companies have tapped into heady demand for sport in other ways. STV (STVG) has teamed up with WPP-owned GroupM to develop a series called The Dressing Room that looks inside teams' changing rooms across the nation. The Scottish broadcaster also launched an online streaming service last summer to coincide with the World Cup; 480,000 streams were viewed during the tournament.
Betting on the Bench
Other options for investors include apparel retailers Sports Direct (SPD) and JD Sports (JD.), and gambling companies such as 888 (888) and Sportingbet owner GVC (GVC). It's also possible to invest directly in teams such as Manchester United (US:MANU), Borussia Dortmund (Ger:BVB) and Aim-traded Celtic (CCP). There's also Goals Soccer Centres (GOAL), which operates 46 five-a-side football venues in the UK and one in California and is eyeing further expansion. And surging interest in cycling fuelled an 11 per cent rise in sales of bikes and biking accessories at Halfords (HFD) and helped the retailer zip past the £1bn sales mark in the year ended March.
FAVOURITES:
Vislink (VLK) remains one of the most exciting companies in the sector. UK Moto GP broadcasters are currently using the software group's technology to transmit live, high-quality video from wireless cameras on motorbikes to the television studio. Vislink also teamed up with GoPro (US:GPRO) to develop and launch HEROCast, enabling its partner's wearable cameras to broadcast live, HD wireless video for the first time. The tie-up promises to transform how audiences watch sport, providing the point of view of athletes such as Lionel Messi and Lebron James.
OUTSIDERS:
Irish broadcaster UTV (UTV) owns leading sport radio station talkSPORT, which reached a record weekly audience of 3.3m during last year's FIFA World Cup. But the group faces a mixed advertising backdrop in the UK and Ireland, and its flagship TV channel, UTV Ireland, has suffered teething pains since its launch in January. Moreover, management is in talks to potentially sell the group's TV businesses. Investors may wish to hold off until the picture clears.
IC VIEW:
We see substantial value in the shares of WPP, BT, ITV, STV, Mission Marketing and Halfords, all of which are buy tips. We're also bullish on Sports Direct and JD Sports, but see limited value in 888's shares. Investors should exercise caution given the challenging dynamics of the sector: factors such as England's performance in tournaments, the weather, economic growth, consumer confidence and advertising budgets can affect how companies in the sport industry fare. Yet global passion for sport shows no sign of dissipating, raising the prospect of handsome returns. Brave and strategic investors may well get on the scoreboard.
