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Coca-Cola Invests in BodyArmor, To Challenge Gatorade (PepsiCo)
Coca-Cola (KO) has made a minority investment in the sports drink BodyArmor, as it once again (think: Powerade, Honest Brand) looks to shake up Gatorade’s dominance within the performance drink category (think: hydration). Marketed as a healthier, natural alternative to sugary sports drinks, BodyArmor uses coconut water (lower in sodium, higher in potassium than filtrated water) and excludes artificial colors/high fructose corn syrups from its formula to distinguish its product in a crowded market of enhanced waters, teas and energy drinks. Beyond the equity investment, KO’s bottling system will take over BodyArmor distribution responsibilities, expanding the company’s reach internationally (namely China). Financial details of the pact were not disclosed, but it’s expected that the deal offers Coca-Cola a clear path to full ownership, with the price point to be determined based on “sales and other performance measures”.
Howie Long-Short: Gatorade, a subsidiary of PepsiCo. (PEP), currently controls +/- 75% of the $8 billion domestic sports drink market, but sales are on the decline with consumers becoming more health and wellness conscious. BodyArmor, which has gained in popularity over the last few quarters (it had just 3% market share in ’17), remains a distant 3rd (behind Gatorade, Powerade) with just 6% of the market share. CEO Mike Repole has projected the company will own 10% of the market by 2019. PEP intends on presenting BodyArmor as a premium product when compared with Powerade (which controlled 17.5% of market in ‘17).
The deal makes KO Body Armor’s 2nd largest shareholder, surpassing Keurig Dr. Pepper Inc. (KDP). With KO on board, BodyArmor no longer has the need for KDP to assist with distribution (as they’ve been doing); it’s unlikely KDP will retain its equity in the company, management isn’t interested in owning minority stakes.
It’s been said that BodyArmor “is on track to reach almost $400 million in retail sales this year”, which would place the value of the company between $1-2 billion if you look at the multiples some others within the beverage industry have sold for. For information purposes, KDP acquired 15.5% (since diluted to 12.5%) of the company back in ’15-’16, when the company’s value was said to be less than $200 million. BodyArmor did $253 million in ’17 sales.
Fan Marino: Back in April, BodyArmor introduced its largest ad campaign to date (included 1st TV ad), a comedic series portraying market leader Gatorade as out of touch with the needs of the modern athlete. Conceived, written and co-directed by shareholder (and Emmy/Oscar winner) Kobe Bryant (10% stake), the multi-media campaign places athletes in outdated situations; akin to high performance athletes continuing to drink Gatorade during competition (think: Kristaps Porzingis using carrier pigeons to communicate with family in Latvia, video here). The campaign positions BodyArmor as the sports drink for today’s health conscious athlete, while noting the lack of innovation from Gatorade since its inception in 1965.
All BodyArmor spokes-athletes have equity in the company. In addition to Kobe Bryant, the list of athlete-shareholders includes; Mike Trout, Porzingis, James Harden, Diggins-Smith, Andrew Luck, Rob Gronkowski, Buster Posey, LeSean McCoy, Richard Sherman, Sydney Leroux, Anthony Rizzo, Dez Bryant and Dustin Johnson.
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Adidas To Become First Brand to Live Stream High School Football on Twitter
Adidas (in collaboration with Intersport) will become the first brand to “live stream high school football games on Twitter”, when it kicks off its “Friday Night Stripes” series on September 7th. The 8-game showcase will feature weekly match-ups between nationally ranked programs nationwide. Live streams of the game feed will include a twitter timeline featuring “real-time conversation about the action.”
Howie Long-Short: Game coverage will be accessed by visiting @AdidasFBallUS, so Adidas should see their Twitter following rise. That should suit ADDYY well, as the company has done a good job (at least relative to NKE) converting brand sales once customers are on their site. It’s worth pointing out that H1 footwear sales rose +20% (see: retro) and apparel did even better, on the back of a strong World Cup (sold record 8 million jerseys).
Stephen Wilmot (WSJ) made a strong argument that ADDYY shares are undervalued. Even after an 8% jump on August 9th (following earnings), Adidas is trading at just 23x prospective earnings; compared to Nike’s 29x. That’s despite Adidas growing sales (16% vs. 3% in U.S.) and profits faster than their rival, not having to deal with any potential #MeToo backlash or increase employee wages. Shares closed at $119.02 on Tuesday.
For those wondering, Intersport creates sports marketing platforms. While you may know them as the company behind the 3x3U basketball tournament for college seniors (held at Final Four), they own one of the most infamous pieces of video footage in sports history. Intersport was the only production company rolling on January 6, 1994 when Nancy Kerrigan was attacked with a police baton. The company has said it’s earned 7-figures from licensing the footage, receiving $10,000-$15,000 (or $250/second) each time it’s used.
Fan Marino: Fans of youth sports are going to experience a sharp increase in the number of games available to a broadcast audience over the next several years, as OTT platforms give rights holders the ability to reach niche audiences directly. How long before high school kids start complaining they aren’t being fairly compensated for their name, image and likeness?
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What is JohnWallStreet?
JohnWallStreet, located at the intersection of sports and finance, is a destination for the educated sports fan.
While we won’t be publishing “hot takes” on LeBron’s relative greatness to Jordan, we will be offering up the most relevant sports related business news, in easily digestible bites, with commentary from both the sports money and sports fanatic perspectives.
We’ll cover publicly traded professional teams & stadiums (MSG, RCI, BATRA, MANU), television networks (DIS, FOXA, CMCSA, CBS, TWX, MSGN), apparel & footwear companies (NKE, UAA, ADDYY, FL, LULU), equipment companies (GOLF, ELY, FIT), ticketing companies (EBAY, LYV) content and facilities providers (CHDN, DVD, ISCA,TRK, LMCA). If it trades on Wall Street, and has a sports angle, it’s in our wheel house.
Howie Long-Short and Fan Marino will be providing their expert opinions on each story. They have slightly different areas of expertise. Fan Marino is a firm believer that the SEC is the premier football conference. Howie Long-Short knows it as the Securities & Exchange Commission. Fan Marino lives and dies with the college selection of 5 star, blue chip recruits. Howie Long-Short spends his days analyzing blue chip stocks. Howie Long-Short knows that Black Monday occurred on October 19th, 1987. Fan Marino swears it happens every January after Week 17. You get the point.
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