Sports seems well-insulated from trade wars. After all, local fans go to the games and domestic broadcasters pay for media rights. But a Sportico review of the public statements of executives in sports-related businesses show that tariffs are going to have a direct effect on a number of businesses, and perhaps some indirect effect on all of them. Wall Street is worried.
“After President Trump was elected, investors got very excited about all the nice things he’d promised and forgot about stuff that would be bad for stocks,” wrote Wall Street Journal columnist James Mackintosh Sunday morning.
Last week’s stock market drop showed they’re remembering the bad stuff. The Dow Jones U.S. Total Stock Market Index, which tracks every U.S. traded stock, fell to just above its pre-election level, after American stocks had rallied just three weeks ago to 7% higher after the election. Sports stocks aren’t faring as badly: The Sportico Sports Stock Index remains up 7% since Election Day, though it’s down 12% from its post-election peak, also in mid-February.
Why are stock investors worried?
Tariffs mean direct higher costs on imported goods, for one.
Some of those affected are what you might expect. Topgolf Callaway Brands, the maker of golf equipment with some parts sourced in China, told investors in late February its expects tariffs to be a $5 million “headwind” on its earnings before interest, taxes, depreciation and amortization – EBITDA, a measure of profitability – which translates to a $34 million top-line cost to sales. Topgolf Callaway expects to generate about $2.3 billion in revenue this year. Similarly, Amer Sports indicated it expects its Wilson division will probably be most affected, given the sourcing of balls and racquets from China. China-sourced goods sold in the U.S. are about 11% of Amer revenue, meaning the China tariffs translate to $112 million on its total $5.1 billion sales. In both cases, the tariff bill isn’t large compared to total sales – but both Topgolf and Amer stocks are down the last month, 17% and 13% respectively.
Interestingly, apparel and sneaker maker stocks aren’t faring as badly: Nike, Under Armour and On Holdings are about even, as a group, compared with a month ago. Their executives have been telling investors they are largely insulated from China tariffs. Nike, for instance, says most of its U.S.-sold goods are made in Vietnam, while Under Armour says about 3% of its U.S. goods are sourced in China.
A review of the most recent investor calls and presentations by management of the 40 companies making up the Sportico Sports Stock Index found not every company is worried about tariffs, but those thinking about them expect some unexpected impacts, like on the price of soda and hotdogs at games. Concessions firm Aramark told analysts in early February expected taxes on Canada, Mexico and China-sourced supplies would be about three-tenths of one percent of its sales– about $56 million – “before any actions taken to … moderate, either through pricing or menu engineering,” said Aramark CEO John Zilmer.
Yet there are signs the tariffs may not be all bad news. Daktronics, a South Dakota scoreboard maker perhaps best known for supplying the Intuit’s Dome nearly acre sized display, says Chinese semiconductors it uses for its products were already taxed under the Biden administration, so the broader tariffs “hits our competitors harder than us, because we’ve already been paying some tariffs,” CEO Reece Kurtenbach said on Wednesday. Live Nation president Joe Berchtold even used lack of tariff exposure as a pitch to analysts to buy the stock on a call Wednesday. “We don’t have tariff issues. There’s no cost with that,” he said.
A second impact from tariffs is more indirect, but more consequential to some – the effect on the strength of the U.S. dollar. The dollar has been weakening against most other currencies. The totality of reasons are complex, but basically foreign exchange moves can be understood by a rule of thumb: The strength of a country’s currency reflects the strength of its economy – a strong economy brings a stronger currency because interest rates are higher in strong economies and global foreign exchange flows toward better returns. The weaker dollar hurts businesses that buy goods in foreign currencies, like sporting good makers’ supply chains. Topgolf Callaway, for instance, expects a $60 million top-line hit on the weaker dollar this year, 12 times the direct tariff bill. North of the border, Canadian NHL clubs may take a hit because the Canadian dollar is weakening against the U.S. dollar, due to the expected economic impact of U.S. tariffs. About a quarter of NHL revenue is generated in Canadian dollars, but every player is paid in U.S. dollars.
Still, a weaker dollar helps companies that sell in strong currencies and report in dollars. Think Sportradar, Genius Sports and U.S.-based European soccer team owners who collect money in euros, which has strengthened against the greenback. It also helps exporters who can sell U.S. made goods more cheaply abroad.
The third tariff impact on sports is also the biggest unknown: How consumers change their spending habits. The past few years have shown American consumers hate inflation and with good reason – the consumer price index rose 22% between December 2019 and November last year. But sports-related costs to consumers didn’t rise nearly that much. A Sportico analysis of the CPI data used by the government showed the two sports-specific costs included in the CPI, sports tickets and sporting goods, rose much slower. Ticket costs rose 6.3% and sporting goods 8.8% since 2019. Cable and streaming costs, which is broader than just sports, rose 17.7% from 2019 – still lower than overall inflation.
Whether sports can insulate itself from the broader inflation likely to be caused by tariffs has some executives worried. Bowling alley operator Lucky Strike Entertainment told analysts last month it sources $25 million of product from China, equaling about a $1 million hit from new tariffs, not very significiant to its overall business.
“But tariffs really hit consumer sentiment – that’s what keeps me up at night,” Lucky Strike chief financial officer Robert Lavan told analysts in February. “The onesies and twosies on inputs are never great, but ultimately I am much more concerned about what that will do from a macro perspective.”
