The SportsFolio Journal - October 2020
Well, sports is not just the same without fans, is it? NFL ratings were down, and fake crowd noise wasn’t a hit in NEL Week 1. It’s still early and there is some work to be done around what percent of the decline is attributable to cord-cutting (which may not be a decline as much as a measurement problem) or a declining interest in sports in general. That said, there is something about this artificial noise thing that is just not the same. Maybe we are into sports, at least partially, because others are into sports? The best manifestation of that idea is naturally the fact that tens of thousands of people decide to spend their day at the stadium, court, or wherever the game is played when they could have done any other thing to entertain themselves: movies, books, video games, or playing the sports themselves. Not being at the stadium to watch a game is mostly not their choice, but when we look at the stands and see very few fans or no fans at all, perhaps our brain codes it as “There must be nothing to see here, because most aren’t seeing it.” That is not exactly fair, but scientists have long known that our brains like to take shortcuts. COVID-19, besides all the unfortunate suffering it has created, also gave us a natural lab to test lots of hypotheses, not just in healthcare, but also in economics and more generally in human behavior. Will fan lockouts end when COVID-19 ends? Or is this a permanent shift in sports consumption? We may not know for a while.
In the meantime, there are some concerns over the next season. MLB’s view: “2021 Would Be ‘Devastating’ Without Fans.” NBA’s view: “Next season will not start until at least January.” This curveball that is called coronavirus is here to stay with us for a while and we feel it’s better to acknowledge that and plan accordingly rather than set unrealistic expectations that we may not be able to meet.
Last month, we expressed some concerns about football. It is a high-contact sport (unlike baseball), and is not played in a bubble (unlike basketball). That makes it the highest risk sports experiment to date and it also happens to be the most lucrative sport of all. This is a difficult situation for everybody involved, but the early signs are not great. News from Notre Dame is heartbreaking, the Titans and the Vikings have closed down this week, and the Chiefs-Patriots game is postponed to Monday night, with Cam Newton testing positive for COVID-19. We wish a speedy recovery to all and urge the football minds to re-think the approach here a little bit.
Is capitalism still the best way to go forward? We believe it is, but we have long advocated that a gentler, humane version of capitalism is the only way to go. It is hard to ignore the warning signs surrounding hardcore capitalism where it’s a dog-eat-dog world with no regard to stakeholders (not shareholders), and the latest sign of corporate trouble came with one of the latest and shiniest SPAC deals: Nikola Corporation, the electric truck company.
What’s in a name? Nikola Tesla, the Serbian-American inventor is now the inspiration for two companies, with possibly largely diverging futures. Tesla, of course, is riding high, and Nikola initially seemed to be on a similar path with its stock hitting high 70s not a long time ago. Then came this report by Hindenburg Research and things all went downhill from there, culminating with Trevor Milton, the founder and executive Chairman of Nikola resigning.
There are many questions. What level of due diligence was done by GM when they partnered with Nikola? Were they too eager to pull the trigger on the deal, because the future belongs to electric and they felt they needed to have a strong horse in the game? How can the games Nikola seemed to have played be played for so long without anybody noticing? There will be a lot to discuss on this, but to us, it all crystallizes in a single video: Nikola One in Motion.
Hindenburg Research uncovered (among many other things) that “Nikola had the truck towed to the top of a hill on a remote stretch of road and simply filmed it rolling down the hill.” You heard that right: the truck was rolled down the hill! Nikola’s response: "Nikola never stated its truck was driving under its own propulsion in the video."
That, right there, is the problem. The truth is not just a literal recitation of facts. The truth requires context. While Nikola may have never said that the truck was driving under its own propulsion, that’s what a reasonable person would believe and that type of spin-doctoring is simply not acceptable. As a society, we absolutely have to get past corporate greed, start acting in accordance with values such as truth, honesty, transparency and honor, insist that others act the same way and put the long term over the short term. That is the only true recipe for success and if we continue to take shortcuts, it will catch up to us eventually. It may take a while, but the cows always come home.
Sports & Money
DraftKings is riding high. MJ became an investor and an advisor to the board, which took the stock to the $40 mark at a then-record volume. The stock changed hands over 50 million times, with the previous day volume being under 8 million. MJ is arguably the GOAT, and the traders paid attention when they heard his name. MJ being a legend and a team owner with some gambling blemishes in the past probably didn’t need DraftKings as much as DraftKings needed him, but that’s for another day. In any event, the stock did not stop there, and with some other pieces of news (most notably the ESPN deal and team deals with the NY Giants, the Rockies, and the Eagles) it went up another 50% or so from there during the month. The ESPN deal was perhaps the most significant and resulted in another 50-million volume day which became the new record. The comparisons for Amazon/Tesla/Netflix have already started for DraftKings.
Rational expectations or irrational exuberance? On one hand, the race seems to be on for the US sports gambling positioning, with big players making big moves, the latest being Caesars agreeing to buy William Hill, the UK bookmaker, for $3.7 billion. William Hill’s retail business was in trouble, and Caesars needed something to compete, so it was a somewhat obvious match. On the other hand, the legality of the market is still very much in question in our opinion and the sports gambling space seems to be a prime candidate for a race to the bottom, with operators needing to spend more and more to continue to acquire customers. We expect a reckoning to happen at some point, with a lot of people realizing they overpaid. The timing of these types of events is never easy to guess, but to us, it is not a matter of if, but when.