For the casual fan, the decision by National Basketball Association owners and players to continue quibbling over the new collective bargaining agreement and risk canceling the 2011-12 NBA season may seem ridiculous. But for those companies that rely on revenue related to the league, watching their profits reduced to a dribble has got to be infuriating. The major players that will be most affected by the lockout are clear: Cable companies like Time Warner (TWX) and Comcast (CMCSA) scrambling to fill air time, shoe companies like Nike (NKE) suddenly without their athlete endorsers, food companies with nowhere to sell the cheap, liquified cheese and stale chips in stadium nachos. But there are a number of companies operating on the periphery that could see money they usually count on, traveling away.
Video Game Maker Laid Up
Game maker Take-Two Interactive Software, Inc. (TTWO) is the maker of the most popular NBA related game in the form of its annually updated 2K series released through label 2K Sports. The release of NBA 2K12 on Oct. 4 saw the game sell well in the first week, moving over 318,000 copies worldwide and beating out NBA 2K11′s opening week from last year. However, sales quickly fell off where previous years had remained strong and 2K12 was behind 2K11′s pace by its fourth week in release. NBA 2K12 is currently on a trajectory to sell half the copies of NBA 2K11, likely proving that much of the appeal of the 2K games lies in the game’s connection to the current season. Perhaps Take-Two could come out with an updated version that would allow gamers to decertify the players’ union or play as lawyers and spend hours negotiating over what percentage of Basketball Related Income should be reflected in player salaries. Then again, maybe not.
Sports Bettors Won’t Hold Court
Another major industry indirectly affected by the NBA lockout is gaming. Sports gambling is big business, with estimates on how much money is bet on sports each year exceeding $200 billion. As such, the lack of opportunity to gamble on the NBA is a tragic turn for many more people than just Tim Donaghy. Sportsbooks are a significant source of revenue for major casinos and gaming companies, with $2.4 billion bet at Las Vegas casinos in 2009 for a total revenue of $136 million. Basketball was the second biggest source of the bets with fans plopping down $802.5 million and the casinos walking away with $38.2 million of it. Casino companies like Wynn Resorts, Limited (WYNN) and the Las Vegas Sands Corp. (LVS) will have to hope that fans develop a sudden and insatiable desire to wager on ice hockey or alpine skiing or expect to have the lockout hurt their bottom lines.
Fewer Baskets of Wings
Sporting events can spur a variety of different forms of consumption, and for sports bars that specialize in catering to fans looking to watch the game while getting a bite, the lack of an NBA season could seriously reduce business. As such, companies like Buffalo Wild Wings (BWLD) or BJ’s Restaurants, Inc. (BJRI) could suffer through a colder-than-usual winter quarter without rabid NBA fans drinking their beer and eating their wings and pizza while watching the game. Both restaurant chains are currently in the middle of monster years, with shares in Buffalo Wild Wings up over 42 percent year-to-date and BJ’s over 37 percent in the same period, so it’s possible that their outlook may not be so bleak. Who knows? Perhaps hordes of unemployed basketball players could actually increase sales.
At the Buzzer…
The decision by the players to bring a class action law suit against the owners does not bode well for the chance of a last-minute compromise saving the season. With the prospect of the labor dispute wiping out an entire season, companies that rely on basketball games to help generate profits may find themselves on the floor scrambling for the loose balls of new revenue sources.
I do not expect the NBA lockout to have a material impact on Basketball shoe sales. In 1999, basketball shoe sales were not hurt by the lockout. Kids still played Basketball and needed Footwear. Today, Basketball is a much smaller part of the mix in sneakers. Jordan (70+% share for the Year) is a much bigger piece of the Basketball pie than it was in 1999. Jordan hasn’t played since the last lockout, so there should be no major impact on sales there. The Player endorsed shoe market is much less important today than it was in 1999, so retailers and brands don’t have to count on an individual's highlights to drive sales. Television is much less important to selling sneakers today than it was in 1999. Sneaker sales are much more influenced by the web today. Brands get more exposure for products on YouTube than they do on Sports Center. I also think the brands will find creative ways to get exposure for their products through manufactured events. I expect that the trend in sales of Basketball shoes will remain the same as it has been all year, regardless of the lockout. We may see some release dates moved around, to reflect the change in calendar. Unlike Footwear, we can expect the sales of NBA Licensed merchandise to tank if there is no season, much like we’ve already seen with the NFL. In 1999, NBA sales fell by half. Of courses in those days, Licensed Apparel was much more important to the industry. The NBA lockout in 1999 really precipitated the decline of Licensed Apparel as fashion. I expect NBA product sales to drop by half, if they do not play at all. Total NBA product sales were $3 billion at retail. I estimate Adidas NBA sales to be about $350 million at wholesales.