How businesses gain from the ‘World Cup effect’
Whenever a major sporting event is being held, it’s inevitable that some businesses will seek to profit from local, regional, national or global interest. For the opening leg of cycling’s Tour de France, for example, hospitality and food/drink retailers in Yorkshire will have gained more custom because of the millions of people watching the various stages of the Grand Depart.
The same has been done for the 2014 World Cup, where some of the biggest brands in the world have tried to gain sponsorship deals for the tournament itself, the 32 teams competing and even with some of the players participating. At the same time, global broadcasters will have gone all out to try and maximise advertising revenue on the back of higher than normal viewing figures.
Around the world
Inevitably, brands with a global profile are likely to benefit more than most from the World Cup effect, but how? Using broadcasters as an example, they are likely to make more money from advertising and sponsorship because the World Cup is seen as ‘Event TV’ and also because viewing figures are likely to be higher than they would usually be at this time of year.
With viewing figures higher, advertisers will be willing to pay a little extra just so more people can view their adverts and eventually buy their products or services. The same can be applied to advertising on radio, in print media and even online, especially on news and sports websites, but who else stands to gain from the World Cup effect?
Sportswear companies are among those at the front of the sponsorship queue. The likes of Nike, Puma, Adidas and even relative newcomers like Warrior Sports will have deals with either providing the ball, kits for any of the teams playing or individual deals with players taking part. If a team or player they sponsor does well, the chances are that they could see sales spike upwards.
You might also think that sportswear retailers would do well out of the World Cup. However, as revealed recently, shares in Sports Direct, the largest high street sports retailer in the UK, have fallen in value over the course of June. Nevertheless, they seem to be in pretty good shape following a strong 2014 overall, owing to other big events such as Wimbledon and the Tour de France.
Eat, drink and be sporty?
The other sector where businesses are in a good position to profit from the World Cup is food. Supermarkets expect to see sales of alcoholic drinks and snacks rise, while pubs, clubs and bars where live games are being screened brace themselves for higher footfall. Initially, this was expected to be the case whenever England played, but their early exit changed that.
As a result, some supermarket chains and pub owners are likely to be out of pocket due to lower-than-anticipated sales. Basically, any feel-good factor around the football for these businesses is likely to have evaporated like English hopes of glory did.
Below are some of the winners from Brazil 2014. They may not lift the trophy to wild acclaim from millions of fans but their shareholders won’t worry about that….
Nike has a powerful marketing strategy that consists of a large number of celebrity endorsements as well as setting in new trends and new sponsorship deals.
Although not a FIFA partner like Adidas, Nike supplies kits for 10 World Cups, including Brazil, England, France and Portugal. It’s P/E indicates high growth prospects as well as a reasonable valuation.
FIFA’s official partner as well as the sponsor of major teams, Adidas will have a significant exposure during this global event. Since 2009, the brand’s share price experienced a stronger growth than Nike’s share price. From 26 in early 2009 to over 85 in December 2013.
Its high P/E (ttm) ratio of 34 also indicates confidence in Adidas’s growth. Adidas sponsors the German, Spanish and Argentinian national teams, amongst others.
Although a subsidiary of the much bigger AB InBev, AmBev remains the largest brewery in South America. With the World Cup taking place in South America, it’s no surprise that this company is likely to experience a strong increase of sales.
AmBev is listed in the Bovespa as well as the NYSE.
On the NYSE, the share price over the past five years increased by over 390%. Its P/E of 19 also makes the share relatively attractive.
The world’s largest brewer with a portfolio that includes Budweiser (World Cup Sponsor), Corona, Stella Artois, Beck’s, etc. All major brands sold in the UK. 19 also makes the share relatively attractive.
The UK broadcaster will share the World Cup’s fixtures with the publically funded BBC.
ITV’s share price has increased by 78% over the year and by 384% over the past 5 years.
ITV launched a large-scale business reorganisation that resulted in a reduction of the company’s debt and an increase of profits considering that ITV recorded a loss of 2.7 billion in 2008.
Industry analysts currently recommend buying and holding ITV shares.
LATAM Airlines Group
With the World Cup taking place in a Latin American country, it’s expected that fans will use local airlines to travel – not only within Brazil but also from neighbouring countries. With the largest fleet in South America, one can only expect a rise in revenues during the World Cup timeframe.
Although not performing as well as other companies, LATAM Airlines performance is in line with the Airlines industry and its share price has increased by 84% over the past five years.
Cielo is the largest Brazilian credit and debit card operator. With over 600,000 extra visitors expected for the World Cup on top of the regular tourists, this company is likely to see a high increase in profits, especially considering the popularity of electronic transactions among foreign visitors.
Since mid-2009, the share price of the company has increased by over 160%. Its P/E (ttm) is just over 20, which indicates healthy prospects.