Stocks of corporate partners of the four US major leagues have made a significant run over the last 12 years, enjoying the same faster-than-the-wider-economy growth as the market value of sports teams and player contracts between 2000-2015.
Looking at historical data of the publicly-traded league partners back to 2005 shows that investing in Official Corporate Partners is a sound long-term investment strategy.
It’s this idea that last year led Nick Fullerton, a financial trader and president of SportsETFs, to create the ProSports Sponsors Index, an equal-weighted index consisting of the 73 Official Corporate Partners of the core four US sports leagues. The index has beaten the S&P by well over one per cent since its inception in July 2017.
The fiscal strength of the companies within the ProSports Sponsorship index best explains the fund’s outperformance, Fullerton says: “If you look at the companies that partner with leagues, they are typically blue-chip companies that still want to grow. So they’ve got a growth component but they’ve also got a value component, in that they have enough free cash flow to earmark a big chunk of their marketing budget to sports. They’re typically strong cash flow, well-known brands.”
It’s reasonable to assume companies that invest in marketing would outperform their peers over time, particularly when the target audience is as “loyal, dedicated and passionate” as sports fans are. “There is no other group or medium that brings so many people together for these brands,” Fullerton adds. Powerful league marketing arms, with a multitude of platforms to reach the consumer, produce highly visible brand campaigns that boost consumer awareness, leading to an increase in sales. Hyundai and Kia have both gone on recent record attributing corporate sales growth to long-term sports marketing partnerships.
In 2015, Hyundai debuted as an Official Corporate Partner of the NFL and sold more cars in the US than ever before. While difficult to determine how much of the sales growth should be directly attributed to increased spending in sports, it’s clear that the strategy has given the brand a big boost in awareness. Whitney Wagoner, director of the Warsaw Sports Marketing Center at the University of Oregon, noted that the NFL is the dominant space for American sports on all metrics and cites NFL partnerships as a potential paradigm shifter for companies.
In 2017, two years after the start of their NFL partnership, Hyundai ranked top among NFL fans for awareness among automotive companies, with 67 per cent of fans willing to consider Hyundai for their next car purchase. Similarly, Kia has indicated that its NBA sponsorship “has driven dramatic increases in consumer awareness, perception, and consideration” among the metropolitan consumers they’re looking to reach. According to McKinsey & Company, this category of sponsorship can generate returns upwards of 30 per cent.
The ProSports Sponsors ETF trades under the symbol FANZ, on the BATS exchange. It is the first thematic index to track the performance of NFL, NBA, MLB and NHL Official Corporate Partners – providing a vehicle for sports fans to invest in something they understand intuitively.
Companies in the ETF are equally weighted, so the leagues are essentially doing the vetting and stock picking for the fund by their choice of commercial partners. It’s large-cap intensive (greater than 85 per cent), with the balance of the companies having market caps under $10bn. No team sponsors are included
Eighty-four per cent of the companies tracked are American. Companies span multiple sectors, with consumer discretionary (37%), financials (16%), consumer staples (15%) and technology (15%) most heavily represented. Having opened at $20.05 on 11 July 2017, during the MLB All-Star Game, the index has matched or beaten the S&P since.
Among its five sub-indexes [NFL, NBA, NHL, MLB and Media], ice hockey sponsors have performed the best. Fullerton speculates that the sub-index’s tendency to lean towards the consumer discretionary sector has served it well over the last decade – a period that saw the NHL increase its sponsorship partners to 40 while increasing the proportion of consumer discretionary brand partners. Considering the B2C nature of pro sports, it’s logical that consumer-facing companies would see the greatest sales growth among sponsorship sectors.
The fund’s expense ratio is 69 basis points: higher than some large cap ETFs, but aligned with comparable thematic products. Fullerton points to the difficulty in maintaining a current list of official partners, as the information is not readily available to the public, as the impetus for a higher ratio.
League-wide corporate sponsors have been largely successful over the last 15 years, but that doesn’t mean there haven’t been failed corporate partnerships deals within the sports world; they just tend to be “one-off” sponsorship partners. One-off deals tend to fail because their message is never absorbed by the customer – they lack the ongoing activations required to successfully bring partners/products to life, so in today’s media environment they’re quickly forgotten.
Five-million-dollar Super Bowl ads are no different. While the spots score high in likeability and entertainment value, Super Bowl commercials trail all other advertising in every other metric used to rate effectiveness [Advertising Benchmark Index]. Super Bowl ads have not proven to generate impact ROI.
In many ways, Official Corporate Partnerships are a case of the “rich getting richer”: large (often mega-cap) enterprises investing billions in high-profile marketing campaigns that target engaged prospective buyers. It stands to reason those companies would outperform competitors unable to generate comparable impressions and ultimately, returns.
While past performance is no guarantee of future success, pro sports leagues have proven to be capable at vetting corporations before doing business with them. Sports fans, general investors and financial advisors could do worse than following their lead.