3 Ways Sports Postponements Could Potentially Impact Investors
The NBA's Milwaukee Bucks decided not to participate in their most recent playoff game in order to protest police brutality and to show solidarity with the family of Jacob Blake, the man shot seven times in the back by a police officer in Kenosha, Wisconsin. The decision sparked a chain reaction. All three scheduled NBA games were later postponed, along with all three WNBA games, five out of six MLS games, and three of the night’s scheduled MLB matchups.
That is a big story in sports, but it may seem to have little to do with business outside of that, or the economy in general, or the stock market. However, in some ways, it does. There are three immediate and possible future impacts on the economy and markets of yesterday’s events in the sports world:
1: The Immediate Impact on Affected Stocks
The most obvious impact for market watchers will be weakness today in stocks that are directly affected by the postponement of games. That would include the likes of those focused on sports betting, such as Draft Kings (DKNG) and Penn National Gaming (PENN), and on broadcasters such as Disney (DIS) that owns ABC and ESPN.
All of those stocks were down in pre-market trading this morning, as of this writing, and will presumably trade lower all day. That will definitely be the case if, as many sports journalists are predicting, the NBA boycott is extended today and possibly spreads in other leagues, most notably MLB.
There is even talk of the NBA season being canceled altogether, and of the protest spreading to the NFL, which is scheduled to start its season early in September. The possible impact on these companies, already weakened by the coronavirus-related shutdown, is big. That said, assuming that they can survive on the assumption that sports do return before too long, investors should probably be looking for opportunities in these stocks if the selling looks overdone.
2: The Economic and Fiscal Impact
This is probably the thing that seems the least important to investors at the moment, but it shouldn’t be ignored.
The salary cap this year in the NBA is over $100 million per team, and the 30 MLB teams average nearly $59 million in salaries. That is an awful lot of money that won’t be getting paid, and therefore won’t be getting taxed or circulated in the economy.
Normally, that might not matter too much, but in an economy that has just undergone the biggest single quarter drop in GDP and where unemployment is still elevated, any damage to the recovery is a worry. In addition, while the tax revenue from those salaries is only a drop in the ocean of a government debt of close to $27 trillion, the very size of that debt makes any shortfall in revenue an issue.
3: The Potential for Broader Disruption
This is the least likely scenario, but should it materialize, it would have by far the biggest impact.
America is not a country where collective action by workers is common and there hasn’t been anything approaching a general strike in modern times. If there was ever to be one though, an issue like this where a large majority of Americans believe change is needed, could be the catalyst.
Once again, the already weakened economy is an issue here. It wouldn’t take too much disruption to cause a very real setback in the recovery. If even a relatively small percentage of Americans stopped work in support of change, the damage could be huge. From a market perspective, it may not even take an actual strike to produce a reaction. Just the threat of one could be enough to prompt some significant selling in a stock market that looks priced based on an expectation for a continued strong recovery.
Now, that being said, let’s not get too carried away here. The most likely outcome of all this is that the NBA protests will continue while other sports will likely resume, and the disruption will remain limited and localized. These are, however, strange times. A lot of people are very angry about a lot of things. As we've seen over the past four years, many of our norms are being challenged. That leads to a situation where escalation of something like this is always possible, and investors should at least be aware of the possibilities and follow the story closely.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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