Dear Daily Crux reader,
There's a stealth bull market in an unusual "commodity" that not one in 100 investors is aware of.
It has nothing to do with mining or agriculture. It's far less volatile than things like copper or crude oil. In fact, it's unlike any other commodity you've probably ever owned… But it's likely to make some stock market investors very rich.
What is this unusual commodity? And what's driving this little-known bull market?
For answers, we sat down with Paul Mampilly, editor of The Palm Beach Letter, who recently discovered this unique opportunity.
Read on for the details…
Good investing,
Justin Brill
Managing Editor, The Daily Crux
www.thedailycrux.com ––––––––––––––––––––––––––––––––––––––––––
The Daily Crux: Paul, you recently told your readers about an unusual commodity bull market that almost no one has heard of… Can you explain?
Paul Mampilly: Sure. Well, first I should explain that this isn't a "true" commodity like gold or copper or soybeans… those types of commodities are much riskier.
They typically go through cycles… big price booms followed predictably by huge busts. They don't earn profits or pay dividends like the stocks and bonds we usually recommend in The Palm Beach Letter. In fact, we typically advise our safety and income-oriented readers to avoid commodities entirely, besides some core savings in precious metals.
This commodity is different. It isn't mined from the ground or raised on a farm, and it produces real profits for its owners.
But it does share at least one trait with true commodities… it trades based purely on supply and demand. And because this commodity is very scarce and demand has been steadily increasing, we've seen prices quietly rising for over 20 years now in a stealth bull market.
So what is this unusual commodity?
It's sports broadcasting… or more specifically, the rights to broadcast big time sports live on television.
Crux: We've never heard any other investment advisor talk about this idea… If this is such a great bull market, how has it managed to slip under the radar of the investment world?
Mampilly: Probably the biggest reason is that while almost everyone is familiar with this "commodity" – whether it's football, baseball, basketball, hockey, golf, or a number of others, it's virtually impossible to turn on the TV without seeing a live sports broadcast these days – the business itself operates behind the scenes, so few people have actively considered it from an investment perspective.
Investors who have considered it have had only a few ways to invest in it in the U.S., and most of these stocks are relatively small and not that liquid… so larger funds and managers – who typically drive investment news – haven't been able to get involved.
In Europe, there are many more ways to invest, but almost all of those stocks are illiquid, as well. But things could be changing. For example, you may have heard that Manchester United, the world's most popular soccer team is doing an initial public offering (IPO) in the U.S. soon. I have not studied the company in detail, but Manchester United possesses valuable TV rights around the world. So I expect we'll begin to see more and more ways to buy into this idea.
Crux: Can you tell us a little about what's driving this bull market?
Mampilly: There are a number of factors.
Like I mentioned earlier, the market for live sports broadcasting is pure supply and demand.
There are 41 sports channels in the United States alone. Every single one of them would like to feature live sports on their channel 24 hours a day if possible. But there are currently only four or five sports that most people want to watch. So there's practically unlimited demand for these sports live on TV.
Why is there such incredible demand for live sports broadcasts? It's because live sports have become the only way to get TV viewers to watch ads. These days, almost everyone has a digital video recorder (DVR) or TiVo to record their favorite shows… and they fast-forward through the commercials to save time. This is great for viewers… but terrible for the broadcasters and advertisers.
But live sports are different. People want to watch these events while they're happening. It's urgent. They want to know how Tiger Woods is doing at the U.S. Open right now. Most people don't want to watch an event after they already know the result.
What this means is unlike most other programs these days, relatively few people use their DVRs to record live sports broadcasts. So advertisers are willing to pay top dollar to show their ads during these broadcasts… And broadcasters are willing to pay top dollar to secure the rights to show sporting events on their networks.
Of course, inflation is also helping to push prices higher… Like other commodities, you'll see prices rise when the value of currencies fall.
On top of all this is the fact that the business itself is incredibly resistant to economic weakness… Folks watch sports regardless of what's going on with the economy. In fact, you often see sports viewership increase during a bad economy as people look to save money by staying home rather than going out to events.
All of these factors have combined to create a near-perfect environment for a powerful bull market.
Crux: How much longer do you think this bull market could continue?
Mampilly: To borrow a sports analogy, I think we're in the 4th or 5th inning of this game. So we've got plenty of time to profit from this trend. In fact, as we explained in detail in our latest issue, we think the trend is actually beginning to accelerate… So this could be one of the best buying opportunities in history.
For example, take the National Football League's (NFL) latest contract as confirmation that this bull market is fully intact.
Football is the most popular sport in America right now.
NFL games have the highest average attendance per game and the highest average television viewership of any domestic sports league in the world.
The NFL's current television contract runs from 2006 to 2013. The TV networks involved paid $20.4 billion for the rights to broadcast NFL games. That's $2.55 billion per year.
But in 2011, the NFL signed a new deal with the TV networks. The new contract runs from 2014 to 2022. The TV networks involved paid $39.6 billion, or $4.95 billion per year, for the rights to broadcast NFL games.
We're seeing this trend across all the major sports franchises. For example, recent TV contracts for the NHL, MLB, NCAA, and NBA have increased 150%, 103%, 80%, and 62% respectively over previously negotiated contracts.
These recent contracts are confirmation that there's an important bull market in the price of live sport broadcasting rights happening right now. It's also a sign that this bull market is booming globally.
Will these contracts continue to increase in price?
Well, let's look at some recent sporting events. The recent 2012 NBA finals received the highest TV ratings since 2004. And NBC reported ad revenue was up 40% from last year's NHL finals.
And right now the 2012 UEFA Euro Cup is in progress. It's a prestigious soccer tournament held once every four years. The top soccer teams from Europe compete in a month-long tournament for bragging rights of the best European soccer team. ESPN reports viewership of the Euro Cup is up 79% in the U.S. from the last tournament in 2008.
This is good news for owners of sports TV rights. That's because advertisers will continue to pay top dollar for ad spots and broadcasters are going to push prices even higher to secure the rights to show these sporting events on their networks.
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Crux: Are there any serious risks to this trend? What could derail it?
Mampilly: Frankly, I don't think anything short of a second Great Depression could derail this thing… and even that may not be enough.
Like I mentioned before, the trend has been incredibly resistant to bad economies. We can see this clearly in the past few years… The bull market made it through the 2008 financial crisis fully intact. In fact, it's weathered every other crisis or problem we've had in the past 30 years just fine.
Of course, there are no guarantees in the market… But this trend looks like a safe bet from here.
Crux: How can ordinary investors benefit from this trend?
Mampilly: Well, as I mentioned earlier, there have been relatively few options for U.S. investors, and most of them are small and illiquid. But some new options are on the way.
In addition to the Manchester United IPO I mentioned, there's also an IPO of Formula 1 racing coming in the next six to 12 months… This is another super-popular sport with worldwide rights. You'll want to do your own research of course, but these two companies could be ideally positioned to profit from this trend.
Another possibility is Churchill Downs (Nasdaq: CHDN). It owns the rights to the popular Kentucky Derby race.
Now, horse racing is a sport that has thus far not participated in the roaring bull market for TV sports rights. But last month, the 2012 Kentucky Derby drew 14.8 million viewers, the third most-watched Kentucky Derby in 23 years.
From everything that I see, there's no reason why horse racing shouldn't also benefit from this huge bull market to broadcast live TV sports. Again, we've not yet looked at this stock in detail, but Churchill Downs should be able to renew its next contract at a much higher price.
Another way to play this idea would be to buy one of the big broadcasting companies that has a stake in sports broadcasting. A great example here would be News Corp (Nasdaq: NWS). The stock has had a lot of negativity surrounding it for a number of reasons, but it owns Fox Sports, which has partial TV rights to show NFL games.
We believe one stock is far and away the best and cheapest way to invest in this trend, but it obviously wouldn't be fair to our paid subscribers to give it away here.
This company owns the rights to a very popular sports franchise. The televised events get TV ratings that are equal to the NBA, Major League Baseball, and the National Hockey League combined… And its TV contract expires in 2013.
I'm expecting the next contract it negotiates to be at least 50% higher than the current one. When they announce this new deal, this stock will soar.
If any of your readers would like to access our full recommendation, this is the perfect time to try The Palm Beach Letter. Our publisher is currently offering a big discount for new subscribers.
Crux: Fair enough. Thanks for talking with us today, Paul.
Mampilly: You're welcome. Thanks for inviting me.
Editor's Note: If you'd like to find out all about the stock Paul mentioned – and get instant access to all of The Palm Beach Letter's investment ideas and insights – click here. Right now, they're offering a strictly limited "anniversary special" to celebrate their first year of publishing. This means you can tryThe Palm Beach Letter entirely risk-free… and at a substantial discount.
Sunday, 24 June 2012
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