The SportsFolio Journal - September 2020

Sports

The NBA is having a good bubble. The Trail Blazers ran out of gas, but the Thunder took the Rockets to game 7, and Denver came back from a 3-1 deficit to win the series against the Jazz, benefiting from a couple of great performances by one of the rising starts in the league, Jamal Murray.

Even more importantly, the players are realizing, more than ever, that they have an extremely powerful platform. After another inexplicable shooting, they almost walked out but decided to continue to play. Clippers coach Doc Rivers said, “At the end of the day, it’s not the NBA’s job to solve the world. It's the NBA's job to be part of the world.” Reasonable minds can disagree whether or not the NBA should have taken it further, but one thing is clear:  the players are showing that they are not afraid of using their platform to push social change. 

Meanwhile, up North, the CFL is having some issues. The Federal government denied CFL’s request for a $30M loan, and the league canceled its 2020 season. Down South, looks like the Chiefs will be playing their home games at 22% capacity. More broadly, it looks like it is game on for the NFL. This is a risky move, and we are concerned about the health of the players. 

Money

It looks like the SPAC boom is deflating a bit.  Even Jason Robins, after a successful SPAC move, came out and said, “it may not be a good fit for every company”. 

The financial markets, despite reaching new highs, are still desperately looking for direction, and the ebbs and flows in the SPAC space seem to be reflecting that uncertainty. On the one hand, the low rates are here to stay, with the Fed announcing a historic shift in policy. Everything else equal, that makes stocks more attractive relative to fixed income assets. On the other hand, there is still a view that the stock market returns may be depressed for long periods. In the US, we are used to the idea that the stock market, on average, will return around 5-7%, but long periods of unimpressive returns, or even persistent losses, depending on when you start counting, have happened in other countries, i.e. Japan. Its Nikkei index hit 38,916 on December 29, 1989. It stood at about 23,000 at the end of August. You read that right. If you invested at the peak in 1989, you are still waiting to just get your money back. 

Can this happen to the U.S.? We certainly hope not, but at the same time, if you asked investors in 1989, probably not too many of them would say the Nikkei would go nowhere for the next 30 years. Long periods of pedestrian returns have happened in more countries than you might think. 30 years from now, it is at least plausible that one might look back and say it was obvious that the US stock market would peak in 2020, with the world (and the U.S.) wrestling with COVID-19, climate change, lack of meaningful innovation, issues in healthcare, the rise of certain types of leaders around the world, deep polarization across party lines, income inequality, high unemployment,  racial injustice, and an increasing ignorance of the truth. Yet, none of these seem to bother the stock market for now. The world seems to be at a turning point and we hope it chooses the right path. It must. 

Sports & Money

The biggest news of this cycle was the IRS memo concluding that the daily fantasy sports industry is subject to the wagering excise tax. Bloomberg covered it here. The IRS memo can be found here

It seems to have caught the DFS industry by surprise. Jason Robins pushed back in the earnings call, stating “And our view is deeply flawed in its analysis. And our position continues to be, which we believe has been reaffirmed to state legislators and courts throughout the country that DFS is not wagering. And we believe that arguments at the federal level are incredibly strong. And that many courts and legislatures have affirmed that.” Daniel Wallach clearly took issue with the IRS memo as well, firing up a series of Twitter posts, and following that up with some coverage in the Conduct Detrimental podcast. 

We have a lot to say about this matter, and we are in the process of writing it up in the form of a blog post. Look out for it in the Full Court Press blog in the coming weeks. For now, suffice it to say that we believe that the IRS is right and DFS is wrong.