My thoughts, analysis, and email from James Lots has happened since I posted about 3 weeks ago so I'll try and be as brief as possible but I highly doubt it, so enjoy and I hope you can take a thing or two from my analysis.
With all this uncertainty volatility has been through the roof the past few weeks. I think today’s large gain is a big rally in a bear market and the worst is yet to come due to an exponential increase in cases, horrific unemployment levels, and a significant decline in GDP, which is 70% consumer based. All that said I still strongly believe major sports will resume this year. I can't speak for all major sports, but I will for the NBA which is what I closely follow and assume the other leagues will have a similar timeline. From reporting I’ve read; the NBA has proposed resuming play in July with condensed schedule of both the season & post season, without fans in attendance. The TV networks will air games and the NBA will fulfil its billion-dollar deal with them. Since games are going to be played without fans, home court is almost insignificant, and therefore they are planning to host games at neutral venues in cities with limited cases of the virus. They will have players and team personnel frequently tested which are becoming more available and results are expected to be determined much faster.
In my opinion the key is to just slow the rate at which the virus is spreading so healthcare workers can manage with limited capacity. This virus will continue into next year until there’s a vaccine which has been reported to take more than a year. Ultimately, I think these circumstances will soon become a norm that we will all have to deal with in our daily lives and manage to the best of our ability. I would assume the US will manage this by a state to state and city to city basis focusing on isolation in hot spots. We will simply have to take extra precautions such as working more remotely, washing hands often, and limiting visits to elderly, which I hope everyone is doing now.
In my opinion if you were long and held until now, I hope you averaged down or will average down. Otherwise if you sold like myself, I would say there's no real rush to buy shares immediately but I recommend you should begin accumulating which is what I have been doing and will continue to do because I’m not trying to predict the bottom here. I recently bought two small blocks (10k shares) at an average cost of 0.335. As I mentioned before I feel quite strongly about US sports resuming in the summer, as confident as I was about the virus becoming much worse in late Feb and as confident as I am now about in continuing to get worse in the US.
As for the score I wouldn’t be surprised to hear about layoffs, and eventually a dramatically reduced betting handle in addition to declining advertising revenue from the core business. I would think if they had any good news to share, they would have already. That said I will continue to accumulate until the Q2 earnings call in late April which remember is for the three-month period ending Feb 2020, just prior to major leagues being postponed. I would expect some growth from Q1 which was somewhat weak. It won’t be until the July Q3 earnings call that we see the dramatic declines across the board that we are currently experiencing.
I emailed James on Friday, March 20 asking for an update on how the coronavirus has impacted the business. His response is below:
"In terms of your question, the Company does not provide financial guidance and so we aren't able to comment specifically, other than to say that we are responsibly and prudently responding to the situation. In terms of liquidity, as of our most recently reported quarter (November 30, 2019), the Company had $32.1 million in cash and a $5 million demand credit facility which remains undrawn."
Financially I think the score is well positioned to manage this hardship until the summer by cutting some of the workforce, particularly content writers. One thing for the future I have mentioned in previous posts but haven’t seen it talked about on the board is I-gaming, which would have been great for offsetting some of the loss of sports betting revenues. Last I heard from Levy it was on the road map and is included in our deal with Penn National. I-Gaming (blackjack, poker, roulette) figures are fairly large and can be a substitute for sports betting, especially now.
Full disclosure I sold 90% of my shares (62k shares) at the end of Feb at an average price of 0.65 and recently purchased two small blocks (10k shares) at an average price of 0.335. I will continue to accumulate until the April earnings call if my confidence in the leagues resuming in the summer doesn’t change. I also do not intend on buying back in fully until I hear more on Canadian legalization, which could easily be pushed until next year now.