Winning and losing affects revenues for many businesses both directly and indirectly associated with sports teams and individuals.
Our business at Sportsrisq is to recognise how those sports results have a financial impact on companies and help them manage it accordingly.
We have taken a look at some examples of companies that may be affected by England’s performance in the Rugby World Cup, which starts tomorrow, and identified some trading and arbitrage opportunities in the spread betting markets.
Correlations between England’s on-field performance and the share price performance of particular companies represent arbitrage opportunities for traders.
These opportunities are enhanced because there is increased liquidity due to England being the host nation.
Our predictive models, which are based on both historical and market data, indicate that England currently have an 82.3 per cent likelihood of escaping the so-called Pool of Death.
England have a 58.7 per cent chance of reaching the semi-final, a 35.3 per cent likelihood of a final appearance and a 13.5 per cent chance of walking off with the Webb Ellis Trophy on 31 October.
Based on previous form, the following companies may be of particular interest to traders.
SPORTS DIRECT INTERNATIONAL PLC
It was reported that England's early exit from last year’s football World Cup in Brazil cost Sports Direct around £20m in lost profits as a lack of knockout stage excitement led to shortfalls in replica shirt sales (see share price chart below). Despite some naysaying pundits’ predictions, Sports Direct revealed a healthy 15.6 per cent rise in pre-tax profits in April 2015.
While an extended involvement for the England team in the competition is largely priced in already, the real risk here is an early exit for the men in white.
DOMINO’S PIZZA GROUP PLC
Last year’s football World Cup helped the FTSE 250 chain deliver a 10.1 per cent profit rise to £24.5m in the six months to June 29 2014. The macro trends created by major sport events would suggest companies such as Domino’s should see a spike in profits – something typically fully priced into stock given the regularity of these tournaments. That said, if England fail to survive the Pool of Death the likely drop in viewing figures will negatively affect Domino’s and similar home delivery firms. Conversely, the company will likely see a boom if England reach the final and millions of new fans tune in.
Tournament broadcaster ITV has already gone on record this summer to say that the advertising market is in good shape, reflecting both an improving economy and strong demand for slots around the Rugby World Cup.
Leading media buyers say there will be a large increase in the value of advertising if England reach the later rounds of the Rugby World Cup. These types of programmes are sold as “specials” so advertisers bid on the slots in the week before the match.
Also, the lucrative catch-up TV market will be an added source of revenue for the broadcaster as they vary the advertising slots from the first run. The closer England get to the World Cup, the greater this number will be.