If you’ve spent any time watching professional sports, whether live or on television, you’ve no doubt heard a variation on this phrase hundreds of times: “this is brought to you by brand X, the official sponsor of the league.” Now, there’s an exchange-traded fund that tracks those sponsors.
The ProSports Sponsors ETF
which made its debut on Tuesday, only holds companies that partner with one of the four major U.S. sports leagues: the National Football League, the National Hockey League, Major League Baseball, and the National Basketball Association. This is separate from team sponsors; for example, Citigroup Inc
and the New York Mets, who play at Citi Field.
Sport sponsorship is a big business. According to PricewaterhouseCoopers’s 2016 Sports Outlook report, money spent on sponsorships is projected to reach $18.7 billion in 2020, a level that would represent compounded annual growth of 3.9% from 2015. (A previous Sports Outlook report estimated a five-year annualized growth rate of 4.5%.) Among the most notable partnerships, Anheuser-Busch InBev
in 2015 paid $1.4 billion for Bud Light to be the official beer of the NFL through the 2022 Super Bowl.
The thesis argued by the fund is that there’s a correlation between such deals and the performance of the related stocks. (In the case of InBev, the U.S.-listed shares are down 13.5% over the past 12 months; the S&P 500 is up 13.6% over the same period.)
“We thought the idea of investing around sponsorships was interesting not just from a sports perspective, but also from an investing one. You need to be a strong company in order to have enough free cash flow to partner with a league,” said Nick Fullerton, president and co-founder of SportsETFs.
Given the cost of high-profile sponsorships, the companies that do such partnerships tend to be large-cap names. Fullerton said this was also true of the holdings of the ETF. He also speculated that in addition to the balance sheet strength that having a big-league sponsorship can signify, such partnerships could lead to higher sales growth for the brands.
“If you partner with a league, you’re not just getting a strong marketing push, you’re getting in front of the loyal customers who watch the sport,” he said. “Kia’s has really grown since it became the official car of the NBA, and one of the primary reason is its affiliation with pro basketball.”
Official data on this is hard to come by. According to a 2014 report from McKinsey & Company, “linking sales directly to sponsorships is typically challenging,” though “sponsorships have the potential to reach beyond short-term sales to build a brand’s identity” and they “may stimulate indirect sales.”
The fund carries an expense ratio of 0.69%, which is several times higher than what is charged for other funds with a large-cap U.S. stock focus, which will likely have a large overlap in the names they hold, though the proportions will be different.
The ProSports ETF is equally weighted, and it has a heavier tilt toward consumer-related stocks, which do the bulk of the sponsorships. The consumer discretionary sector comprises more than 36% of the underlying index the ETF tracks, while an additional 16.67% is in consumer staples. Financials and tech each comprise 15.15%.
In its first day of trading, the fund opened at $20.05 and last exchanged hands at $19.92. About 22,500 shares were traded.