October 27, 2021

Breakingviews: Sports pros play risky offense-only investing game

by Breakingviews.

All good athletes know that defense is as important as offense. Ditto on Wall Street. But several high-profile sports figures backing recent deals in the ticketing and live-events business seem to have forgotten they need to play both sides of the game.

Baseball-team manager Billy Beane of “Moneyball” fame and hoops star Kevin Durant recently teamed up to back a blank-check deal involving SeatGeek, an online ticketing platform. And online gambling firm DraftKings took a stake in competitor Vivid Seats as it was merging with a special-purpose acquisition company launched by Los Angeles Dodgers co-owner Todd Boehly.

On the face of it, there’s room for competitors in the ticketing market. Though live entertainment froze during Covid-19 lockdowns, both firms, which create online marketplaces to buy and sell tickets to sporting and other events, are banking on a huge resurgence and a chance to gain market share.

Vivid Seats projects 2022 revenue will get to 2019 levels while SeatGeek says its revenue will more than double by then. Investors are cheering them on. Vivid Seats’ shares jumped around 30% leading up to and following its listing on the Nasdaq last week. That’ll give SeatGeek a jolt in the derriere, too.

Still, their projections look too rosy. Collectively the two are estimating their 2023 revenue will be three-quarters of the 2019 sales of Live Nation Entertainment’s Ticketmaster, the industry giant. They could be disruptors. But SeatGeek is suggesting its revenue almost quadruples during this period.

Embracing an aggressive playbook isn’t bad if investors also keep an eye on their backs. The way they’ve run up valuations in the sector suggests they’re not. Live Nation fetches an enterprise value of 2.2 times sales – double the average over five years through 2019, Refinitiv data shows. That’s despite the fact its sales aren’t projected to surpass 2019’s levels until the end of next year.

All the ebullience about live entertainment rebounding, combined with market-share projections, explains why Vivid Seat’s enterprise value-to-2022 revenue multiple is twice that of $22 billion Live Nation. The market, it seems, is all offense. As any coach will attest, that’s a recipe for defeat.

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