The Ivy League has announced that it is canceling football and all other sports for the fall semester as the COVID-19 pandemic continues. Commenting on the decision, Morgan Stanley analyst Simeon Gutman said he sees it as a negative headline and potential temporary headwind for Dick's Sporting (DKS) in the second half of the year. Nonetheless, the analyst sees the sales being postponed rather than lost.
NO FALL SPORTS: The Ivy league, which consists of eight private universities, including Harvard, Princeton, Yale and the University of Pennsylvania, said in a statement that, "Amidst continuing health and safety concerns due to the global COVID-19 pandemic, the Ivy League Council of Presidents has set in place plans for intercollegiate athletics activity in the upcoming fall semester. With the safety and well-being of students as their highest priority, Ivy League institutions are implementing campus-wide policies including restrictions on student and staff travel, requirements for social distancing, limits on group gatherings, and regulations for visitors to campus. As athletics is expected to operate consistent with campus policies, it will not be possible for Ivy League teams to participate in intercollegiate athletics competition prior to the end of the fall semester."
"Practice and other athletic training opportunities for enrolled student-athletes will be permitted provided they are structured in accordance with each institution’s procedures and applicable state regulations. The Ivy League will also issue guidelines on a phased approach to conditioning and practice activities to allow for interaction among student-athletes and coaches that will begin with limited individual and small group workouts and build to small group practice sessions, if public health conditions permit," the statement reads.
"A decision on the remaining winter and spring sports competition calendar, and on whether fall sport competition would be feasible in the spring, will be determined at a later date."
POTENTIAL TEMPORARY HEADWIND: Noting that the Ivy League is the first sports conference to reach a decision to cancel fall sports, Morgan Stanley analyst Simeon Gutman told investors that while this is not a clear indicator of how other sports programs will act, the decision is a negative headline and potential temporary headwind for Dick's Sporting in the second half of 2020. Nonetheless, the analyst believes sales may be postponed rather than lost.
The risk is that this decision marks the beginning of a domino effect that results in widespread postponements or cancellations of sports programs at all levels across the country, he contended. However, Gutman said that the Ivy League's fall sports cancellation does not mean other conferences will follow suit, and football in particular is not as significant or revenue-generating since the Ivy League competes at the lower caliber FCS level.
Many schools below the college level appear to want their sports programs to continue, and whether or not these students ultimately get to play sports in the fall is likely to be more impactful to Dick’s than what happens at Ivy League or other U.S. colleges, he contended. Net, the analyst views this as a slight negative, but not necessarily one that warrants action by investors yet.
Overall, Gutman believes there are two primary areas of potential sales exposure if broader team sports get canceled, namely team sports and licensed apparel. Dick’s does not disclose its fall sports sales exposure to these categories, but collectively the analyst thinks they could represent about 5%-10% of annual sales, or $500M-$900M. He estimates fall team sports could be about 10% of hardlines sales and fall licensed apparel could be about 10% of apparel sales. Gutman expects only a portion of these sales would be at risk, even in the event of another entire sports shutdown. The analyst has an Equal Weight rating and a $40 price target on Dick's shares.
WHAT'S NOTABLE: Two years ago, the Ivy League and ESPN (DIS) agreed to a long-term relationship to showcase League events through a variety of ESPN platforms, including at least 24 events annually on ESPN's linear networks and more than 1,100 annually on ESPN+.
"ESPN and the Ivy League have reached a comprehensive, 10-year deal for ESPN to become the exclusive national media rights partner for the conference, carrying more than 1,100 events annually from more than 35 sports on ESPN media platforms. The majority of those will be exclusively available on ESPN+, the new direct-to-consumer sports streaming service launching April 12 from The Walt Disney's Direct-to-Consumer and International division in partnership with ESPN. The Ivy League will also have at least 24 events air on ESPN's linear networks each year, including historic rivalries such as The Game: Harvard-Yale football, and new traditions like the men's and women's basketball conference tournaments," a statement released by the Ivy League at time read.
Nike (NKE) is also featured in Ivy League Athletics' website.
PRICE ACTION: In afternoon trading, shares of Dick's have dropped over 4%, while Disney's stock is fractionally down at $116.52. Also lower, shares of Nike have slipped about 2% to $96.97.
