Harvest Digital Sports & Entertainment ETF – focus on future global industry growth

January 7, 2022

By Harvest ETFs

When many of us think about professional sports, it is often in terms of an evening cheering from the couch or a morning-after water cooler recap of bad calls and missed chances.

But globalization, advances in technology and new forms of sports entertainment have transformed the industry. It has changed how and where fans watch games, the way they buy branded merchandise and how they engage with their favourite teams and personalities. Sports business now includes online gaming, fantasy sports leagues, gaming software development and internet sports gambling. These last two areas, MacDonald stressed, areas that are large and rapidly growing.

That was the message delivered by Paul MacDonald, Chief Investment Officer at Harvest Portfolios Group to advisors in a recent webinar.  Mr. Macdonald updated the Harvest Digital Sports & Entertainment Index ETF (TSX:HSPN), launched in the fall to take advantage of the attractive dynamics of this sector.

Mr. MacDonald discussed the ETF, the sector’s outlook and how the ETF aligns with the Harvest philosophy of creating value through ownership of the best global businesses.

“The game has changed very much,” Mr. MacDonald said. “Sports entertainment is a global industry with strong fundamentals, including new forms of entertainment such as online gaming and internet gambling. Virtual reality and the Metaverse will also have a direct impact on how it develops. However, that evolves, we are very well positioned to take advantage of it.”

The Harvest Digital Sports & Entertainment Index ETF is passively managed, rebalanced quarterly and follows the Solactive Sports & Entertainment Index. It holds 40 global stocks that are publicly traded in North America and Europe and is diversified across five areas of the sporting world.  

Professional sports organizations make up five of the 40 holdings, or approximately 12.5%. They include English soccer team Manchester United Plc as well as Liberty Media Corp. which owns the Atlanta Braves baseball team and Formula 1 Racing.

Another five holdings (approximately 12.5%) are event and ticket companies including the parent of Ticketmaster. Sports equipment and apparel companies include Nike Inc. and Adidas AG are another 10 holdings (approximately 25%). Online gaming and internet gambling companies comprise 20 companies or 50% of the holdings.

Mr. MacDonald said the rapid legalization of online gambling in the U.S. is leading to a surge in betting.

“If you’ve watched an NFL Football game recently and wondered why Jamie Foxx is on every second commercial pitching iGambling for MGM Sports Betting, it is because of deregulation.  It is truly phenomenal what is happening.”

Mr. MacDonald said in 2019 five US states allowed online betting. By the end of 2021 there are 32 states with more on the way. The value of US sports betting in 2019 was $19B which tripled by the end of 2021, he said. It is expected to double again in 2022.

He noted that eGaming has undergone a transformation as technological advances have improved the user experience and attracted more players.

“Back in the 1980s if you had a Nintendo, you called up a friend and said: ‘Come on over.’  In the 1990s you went online to play with half a dozen people at a time. Now gaming is global.”

A game called Defence of the Ancients (Dota) has millions of online players, corporate sponsors and virtual goods for sale. A recent international online tournament sold out with a purse of US$40m.

More than 12 million players recently logged in to a game called Fortnite in which US rapper Travis Scott made a virtual appearance giving a concert. Scott appeared as a skyscraper-sized avatar moving through the game where he revealed a new song.

“The 12 million players watched that live and it was followed by 180 million views on YouTube,” Mr. MacDonald said.

Mr. Macdonald said the gaming demographic has expanded well beyond the stereotype of teenaged boys. About 30% of players are now female and the 40 and under age group spends an average 7 hours a week gaming, he said. About 55% of the 18 to 26 group spend more time watching video games and esports then they do sports.

Turning to sports equipment and apparel, Mr. Macdonald noted that Nike sponsors 3,500 athletes all of whom are seen wearing Nike shirts, shorts and socks.

In August 2021 when soccer superstar Christiano Ronaldo moved back to Manchester United sales of his numbered jersey soared. In the 12 hours after the announcement the team sold $50m worth of his jerseys and in the first 10 days they sold jersey’s worth $250 million.

Sponsors pay to have their logos on the jerseys. Kohler, the US plumbing supply company that pays US$33 million a year for their logo on the Man U jersey. Adidas has a 10-year contract at US$125 million a year.

“Why are these companies doing that? Because Manchester United has 700 million worldwide fans.”

In summing up the opportunity, Mr. Macdonald said: “These areas are poised for growth. Consumers are in great shape. The near-term catalysts in eGaming and iGambling are significant and secular trends are changing nature of the sports team. As I said at the beginning, the game has changed.”

To find out how your clients can benefit from this strategy call 866-998-8298.

For more on Harvest ETFs click here.

Quoted in this article –

Paul MacDonald, CFA

Chief Investment Officer
Harvest Portfolios Group

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