Raphael Stevens

More stories

  • 175 Shares159 Views

    in Business

    Airplane engines are in short supply. The business of fixing older ones is booming

    TULSA, Okla. — Parts and labor shortages. Delayed deliveries of new airplanes from Boeing and Airbus. An engine recall. Premature repairs. It’s all piling up, and aircraft engine shops around the world are overflowing. 
    As travelers boarded planes in record numbers this summer, airline executives waited anxiously for repairs and overhauls of their engines.

    The repair and overhaul of engines has swelled from a $31 billion business before the pandemic to $58 billion this year, according to Alton Aviation Consultancy. It’s a cash cow for engine makers like GE Aerospace and the hundreds of smaller specialists that service GE engines, and others made by Pratt & Whitney and Rolls-Royce.
    American Airlines’ solution is to do more of the work itself.
    “We just have one customer and that’s American Airlines doing our work,” American’s chief operating officer, David Seymour, said. “We can control our own destiny in that area.”

    American Airlines workers perform maintenance on CFM-56 engine in Tulsa, Oklahoma
    Erin Black | CNBC

    At its bustling engine shop at the airline’s 3.3 million-square-foot maintenance facility at Tulsa International Airport, the largest such space in the world, American is on track to increase its overhauls roughly 60% from 2023 to more than 16 engines a month this year. That’s up from five a month in 2022. It’s added some 200 jobs there, as well more equipment like cranes to hang the 2-ton engines during overhauls.
    The work focuses on CFM56 engines, made by a joint venture of GE and France’s Safran. They power American’s older Boeing 737 workhorse jetliners and many Airbus A320s. Those narrow-body airplanes make up the majority of American’s mainline fleet of more than 960 aircraft, according to an annual company securities filing.

    “I can get these engines overhauled and through the shop in less than 60 days versus [outside] shops nowadays [are] 120 to 150 days, in some cases north of 200 days,” COO Seymour said.

    Bottlenecks abound

    American Airlines workers overhaul an engine at a hangar in Tulsa, Okla.
    Leslie Josephs/CNBC

    Much of the bottleneck in engine repairs stems from the industry’s rocky emergence from the pandemic, when companies shed thousands of skilled workers. Airlines that delayed maintenance during the travel slump then raced to get airplanes into shape to fly when demand snapped back, but faced worker and experience shortages and shortfalls of key items from engine components to aircraft seats.
    Meanwhile, Airbus and Boeing are behind on deliveries of new, more fuel-efficient airplanes, forcing carriers, including American, to hold on to older jetliners longer than they planned.
    Airbus this summer reduced its aircraft delivery forecast and announced cost cuts as it grapples with supply chain issues and late-arriving landing gear and engines.
    “I would also call it the surprise factor for 2024,” Airbus CFO Thomas Toepfer said on a July 30 earnings call.
    In addition to supply chain issues, Boeing aircraft have been delayed as the company navigates a safety crisis after a door panel blew out from one of its 737 Max planes midair at the start of the year.

    With many engines needing overhauls about every 7,000 flights, keeping older airplanes longer means more routine maintenance and revamps, adding to demand when they’re due to come into the shop. Those weekslong overhauls are exhaustive: They can cost $5 million apiece and can go for double that for wide-body airplanes, according to Kevin Michaels, a managing director at AeroDynamic Advisory.

    At American’s shop in Tulsa, workers remove hundreds of parts, replacing life-limited components and cleaning and inspecting others, which includes spraying them down with a a fluorescent penetrant so defects can be seen under a black light.

    An American Airlines worker sprays florescent penetrant on engine components to check for defects at a hangar in Tulsa, Oklahoma.
    Leslie Josephs/CNBC

    But key parts are hard to find and they must be flawless. Plus, they’re costly. The dozens of engine compressor blades can go for $30,000 a pop.
    On top of that, some newer engines — which run hotter, take in more air and burn less fuel than older types — are coming into engine shops earlier than expected, frustrating airline CEOs.
    “There’s no business which can digest not using the key assets to generate revenue,” said AirBaltic CEO Martin Gauss.
    The Riga, Latvia-based carrier, an Airbus A220 customer, had to lease planes in recent years to make up for its grounded jets.
    “Unfortunately, passengers are not happy when they can’t fly on new aircraft,” he said. “It is an issue which will be over one day. We thought it would be over by now. I would give it another two years and then we are through it.”
    There’s another problem that’s clogging up engine shops: A Pratt & Whitney engine recall of some of its narrow-body engines. In light of the ongoing issues, some low-cost airlines, including JetBlue Airways and Spirit Airlines, are deferring new jet deliveries to try to save money.
    “It’s kind of a wicked brew that’s had a significant impact on the engine supply chain,” said AeroDynamic Advisory’s Michaels.

    Windfall for engine makers

    American Airlines worker looks inside engine at maintenance shop in Tulsa, Oklahoma.
    Erin Black | CNBC

    The high demand for engine overhauls has been lucrative for engine suppliers, which make billions from maintaining engines they sell with new airplanes.
    GE Aerospace brought in $11.7 billion from engine maintenance, repairs and overhaul in the first half of 2024, making up 65% of its revenue.
    “When it comes to engines, it’s a razor-razor blade business,” said Michaels, describing how buying shavers in a drug store can mean repeat business for replacement blades for years. “So the money is made in the aftermarket on the engine business.”

    Read more CNBC airline news

    GE Aerospace, which became an independent company in April, said in July that it will invest $1 billion to upgrade its engine shops around the world over the next five years.

    Got spares?

    For many airlines, there aren’t many alternatives to costly engine overhauls with demand on the rise for replacement engines, especially if the carrier has one type of aircraft or a model that only has one supplier.

    An airplane engine at American Airlines’ test cell in Tulsa, Oklahoma.
    Leslie Josephs/CNBC

    Rental rates for engines that match up with both old and new planes have skyrocketed. For example, a CFM56 engine used on the Boeing 737-800 was going for $96,000 a month up from $78,000 in 2017, according to aviation data firm IBA.
    Both Pratt & Whitney and CFM engines that power the newer Airbus A320neo airplanes, meanwhile, have logged lease rates of $127,000 per month, up from $80,000 and $85,000, respectively, in 2017, IBA said.
    Leasing firms like AerCap and Avolon have been snatching up spare engines because of the high demand.
    It is still difficult to get into an engine shop, however.
    Delta Air Lines, like American, overhauls, repairs and maintains its own engines. It also does work for other airlines, but CEO Ed Bastian says the shop is full.
    “If you’re not on an existing contract, you’re not getting in,” he said in an interview in July. “It would be easier to get into a Taylor Swift concert.” More

  • 113 Shares139 Views

    in Business

    Dollar Tree shares slide after discounter cuts full-year forecast

    Dollar Tree cut its full-year outlook, citing increasing pressures on middle-income and higher-income customers.
    Dollar stores, in particular, have felt pinched as their core customer make tradeoffs after a prolonged period of pricier food and everyday costs.
    Dollar Tree same-store sales for the company rose by 0.7% in the quarter.

    A sign is posted in front of a Dollar Tree and Family Dollar store on March 13, 2024 in Rio Vista, California.
    Justin Sullivan | Getty Images

    Shares of Dollar Tree fell about 10% in premarket trading Wednesday after the discounter cut its full-year outlook, citing increasing pressures on middle-income and higher-income customers.
    The retailer said it now expects its full-year consolidated net sales outlook to range between $30.6 billion and $30.9 billion. It expects adjusted earnings per share to range from $5.20 to $5.60. That compares to previous guidance of $31 billion to $32 billion in net sales and $6.50 to $7 for adjusted earnings per share.

    In a news release, Chief Financial Officer Jeff Davis said the company cut the forecast to reflect softer sales and costs associated with converting 99 Cents Only stores. The company also said it has had higher expenses to reimburse, settle and litigate claims related to customer accidents and other incidents at stores.
    Here’s how Dollar Tree did in its fiscal second quarter ended Aug. 3:

    Earnings per share: 62 cents, it was not immediately clear if it was comparable to what analysts surveyed by LSEG expected
    Revenue: $7.38 billion, it was not immediately clear if it was comparable

    Dollar Tree’s report comes about a week after major rival Dollar General slashed its full-year sales and profit outlook, sending its shares tumbling. Dollar General CEO Todd Vasos chalked up weak sales to “a core customer who feels financially constrained.”
    Dollar stores, in particular, have felt pinched as their core customer — shoppers with lower incomes and little leftover money to spend on discretionary items — make tradeoffs after a prolonged period of pricier food and everyday costs. Walmart has won more business from value-conscious shoppers across incomes and newer online players, such as Temu, have also attracted customers with cheap merchandise.
    Dollar Tree includes two store chains, its namesake, which sells a wide variety of lower-priced items like party supplies, and Family Dollar, which carries more food.

    Same-store sales for the company rose by 0.7% in the quarter. At Dollar Tree, same-store sales increased by 1.3% and at Family Dollar, same-store sales fell by 0.1%. The industry metric takes out the impact of store openings and closures.
    On an earnings call, Davis said the company saw weaker sales, particularly on the discretionary side of the business. He said it “reflected the increasing effect of macro pressures on the purchasing behavior of the Dollar Tree’s middle and higher-income customers.”
    “Our original second quarter outlook did not anticipate those pressures migrating to Dollar Tree’s customer base to the degree that they did,” he said.
    Along with contending with inflation-stretched shoppers, Dollar Tree has faced company-specific challenges. The retailer announced in March that it would close about 1,000 Family Dollar stores, citing market conditions and store performance. Then, in June, the company said it is considering selling the Family Dollar brand.
    Dollar Tree bought Family Dollar for nearly $9 billion in 2015 and since then, it’s struggled to strengthen the grocery-focused chain and better compete with Dollar General.
    The liability claims also added to the company’s challenges. On the company’s earnings call, Davis said the outcome of claims, particularly older ones, “has become increasingly challenging to predict given the higher settlement and litigation costs that have resulted from a more volatile insurance environment.” 
    “The claims have continued to develop unfavorably due to the rising cost to reimburse, settle, and litigate these claims, which impacted our actuarially determined liabilities,” he said.
    As of Tuesday’s close, Dollar Tree’s shares are down nearly 43% so far this year. The company’s stock hit a 52-week low on Tuesday and closed the day at $81.65. More

  • 188 Shares159 Views

    in Business

    Dick’s Sporting Goods blows past earnings estimates but issues cautious guidance ahead of 2024 election

    Dick’s Sporting Goods beat Wall Street’s expectations on the top and bottom lines.
    The sporting goods store raised its full-year outlook as a result but the forecast appeared muted compared with expectations.
    This time last year, Dick’s profits were under pressure from aggressive markdowns and theft but those issues now appear to be under control.

    A Dick’s Sporting Goods store at the Los Cerritos Center shopping mall on February 21, 2024 in Cerritos, California. 
    Kirby Lee | Getty Images News | Getty Images

    Dick’s Sporting Goods on Wednesday blew past Wall Street’s earnings estimates in its fiscal second quarter and while the retailer did raise its full-year guidance as a result, the new outlook fell flat up against expectations. 
    The sporting goods store comes behind a string of other retailers that issued muted or cautious guidance for the back half of the fiscal year as companies prepare for the presidential election in November and what some fear could lead to a slowdown in consumer spending. 

    Here’s how Dick’s did compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:

    Earnings per share: $4.37 vs. $3.83 expected
    Revenue: $3.47 billion vs. $3.44 billion expected

    The company’s reported net income for the three-month period that ended Aug. 3 was $362 million, or $4.37 per share, compared with $244 million, or $2.82 per share, a year earlier. 
    Sales rose to $3.47 billion, up about 8% from $3.22 billion a year earlier. Comparable sales climbed 4.5% — ahead of the 3.6% that analysts had expected, according to StreetAccount.
    In a statement, CEO Lauren Hobart said comparable sales were driven by both transactions and tickets — indicating more people are coming to Dick’s stores and spending more while they’re there.
    For fiscal 2024, Dick’s is now expecting diluted earnings per share to be between $13.55 and $13.90, up from previous guidance of $13.35 to $13.75 per share. At the midpoint, Dick’s only raised its earnings guidance by about 18 cents, even though its fiscal second-quarter earnings came in 54 cents higher than expected. At the low end, Dick’s earnings guidance falls a bit short of the $13.79 that analysts had expected, according to LSEG. 

    Dick’s maintained its sales guidance of $13.1 billion to $13.2 billion, which also fell flat compared with the $13.24 billion that analysts were looking for, according to LSEG. The company did raise its projections for comparable sales growth and is now expecting them to grow between 2.5% and 3.5%, up from previous guidance of 2% to 3%. The high end of the guidance is ahead of the 3% growth that analysts had expected, according to StreetAccount. 
    Last week, the company disclosed in a securities filing that it was the victim of a cyberattack and “certain confidential information” was breached. Dick’s said that it activated its “cybersecurity response plan” as a result and engaged with external experts to investigate and isolate the threat.
    In its filing, Dick’s said it didn’t have any knowledge of the breach disrupting business operations and based on the information it had, it didn’t believe the incident was material.
    This time last year, Dick’s shocked investors when it said that theft – along with aggressive markdowns for languishing inventory – would impact its full-year profit expectations, sending its stock down 24%. At the time, profits were down about 23% but given Wednesday’s earnings beat, it appears as if those woes are now behind the company. 
    A number of other retailers – including Target and Walmart – said over the last couple of weeks that shrink, or lost inventory from a range of factors including theft and damage, had moderated. One of the top issues that retailers said they were facing throughout 2023, shrink appears to be in the rearview mirror for some after making investments into operations, technology and a reduction in the use of self-checkout machines. 
    Over the last few weeks, a range of retailers put out second-quarter numbers that beat expectations but issued guidance for the last two quarters of 2024 that were either muted or poor compared with the company’s performance. Retailers have been bracing themselves for the upcoming election in November and the impact it could have on consumer spending. Beyond the election, there’s also uncertainties tied to the Federal Reserve’s expected rate cut and the impact that could have on discretionary spending. 
    Dick’s is slated to discuss its results with analysts and share more insights on its guidance at 8 a.m. ET. More

  • 200 Shares139 Views

    in Finance

    Nvidia $279 billion wipeout — the biggest in U.S. history — drags down global chip stocks

    Global semiconductor and associated stocks fell on Wednesday, following a steep plunge in Nvidia’s share price in the U.S. overnight.
    On Tuesday, around $279 billion of value was wiped off of Nvidia. That was the biggest one-day market capitalization drop for a U.S. stock in history.
    Nvidia shares continued sliding in post-market trading Tuesday, falling 2%, after Bloomberg reported that the company received a subpoena from the Department of Justice as part of an antitrust investigation.

    People walk past the logo of Samsung Electronics in Seoul on July 7, 2022. South Korea’s Samsung Electronics Co Ltd turned in its best April-June profit since 2018 on Thursday, underpinned by strong sales of memory chips to server customers even as demand from inflation-hit smartphone makers cools.
    Jung Yeon-je | Afp | Getty Images

    Global semiconductor and associated stocks fell on Wednesday, following a steep plunge in Nvidia’s share price in the U.S. overnight.
    In the U.S., chipmaker Nvidia plunged more than 9% in regular trading, leading semiconductor stocks lower amid a sell-off on Wall Street. Economic data published Tuesday resurfaced jitters about the health of the U.S. economy. Nvidia shares continued sliding in post-market trading Tuesday, falling 2%, after Bloomberg reported that the company received a subpoena from the Department of Justice as part of an antitrust investigation.

    Around $279 billion of value was wiped off of Nvidia on Tuesday, in the biggest one-day market capitalization drop for a U.S. stock in history. The previous record was held by Facebook-parent Meta, which suffered a $232 billion fall in value in a day in February 2022.
    Nvidia’s value chain extends to South Korea, namely, memory chip maker SK Hynix and conglomerate Samsung Electronics.

    Samsung shares closed 3.45% lower, while SK Hynix, which provides high bandwidth memory chips to Nvidia, slid 8%.
    Tokyo Electron dropped 8.5%, while semiconductor testing equipment supplier Advantest shed nearly 8%.
    Japanese investment holding company SoftBank Group, which owns a stake in chip designer Arm, fell 7.7%.

    Contract chip manufacturer Taiwan Semiconductor Manufacturing Company declined more than 5%. TSMC manufactures Nvidia’s high-performance graphics processing units which power large language models — machine learning programs that can recognize and generate text.
    Taiwan’s Hon Hai Precision Industry — known internationally as Foxconn — lost nearly 3%. It has a strategic partnership with Nvidia.
    The selling in Asia filtered through to European semiconductor stocks. Shares of ASML, which makes critical equipment to manufacture advanced chips, fell 5% in early trade. Other European names such as ASMI, Be Semiconductor and Infineon, were all lower.
    —CNBC’s Lim Hui Jie contributed to this report. More

  • 175 Shares189 Views

    in Finance

    Robinhood lets Brits lend shares for extra income in bid to grow international footprint

    Stock trading app Robinhood on Wednesday launched a new feature in the U.K. allowing retail traders to lend out any stocks they own outright in their portfolio to interested borrowers.
    Shares lent out via the Robinhood app will be treated as collateral, with Robinhood receiving interest from borrowers and paying it out monthly to lenders.
    Share lending is risky — not least due to the prospect that a borrower may end up defaulting on their obligation and be unable to return the value of the share to the lender.

    In this photo illustration, the Robinhood Markets Inc. website is shown on a computer on June 06, 2024 in Chicago, Illinois. 
    Scott Olson | Getty Images

    Online brokerage platform Robinhood on Wednesday launched a share lending program in the U.K. that would allow consumers there to earn passive income on stocks they own, in the company’s latest bid to grow market share abroad.
    The stock trading app, which launched in the U.K. last November after two previous attempts to enter the market, said that its new feature would enable retail investors in the U.K. to lend out any stocks they own outright in their portfolio to interested borrowers.

    You can think of stock lending like “renting” out your stocks for extra cash. It’s when you allow another party — typically a financial institution — to temporarily borrow stocks that you already own. In return, you get paid a monthly fee.
    Institutions typically borrow stocks for trading activities, like settlements, short selling and hedging risks. The lender still retains ownership over their shares and can sell them anytime they want. And, when they do sell, they still realize any gains or losses on the stock.
    In Robinhood’s case, shares lent out via the app are treated as collateral, with Robinhood receiving interest from borrowers and paying it out monthly to lenders. Customers can also earn cash owed on company dividend payments — typically from the person borrowing the stock, rather than the company issuing a dividend.
    Customers are able to sell lent stock at any time and withdraw proceeds from sales once the trades settle, Robinhood said. It is not guaranteed stocks lent out via its lending program will always be matched to an individual borrower, however.
    “Stock Lending is another innovative way for our customers in the UK to put their investments to work and earn passive income,” Jordan Sinclair,  president of Robinhood U.K., said in a statement Wednesday.

    “We’re excited to continue to give retail customers greater access to the financial system, with the product now available in our intuitive mobile app.”

    Niche product

    Share lending isn’t unheard of in the U.K. — but it is rare.
    Several firms offer securities lending programs, including BlackRock, Interactive Brokers, Trading 212, and Freetrade, which debuted its stock lending program just last week.
    Most companies that offer such programs in the U.K. pass on 50% of the interest to clients. That is higher than the 15% Robinhood is offering to lenders on its platform.
    Share lending is risky — not least due to the prospect that a borrower may end up defaulting on their obligation and be unable to return the value of the share to the lender.
    But Robinhood says on its lander page for stock lending that it aims to hold cash “equal to a minimum of 100% of the value of your loaned stocks at a third-party bank,” meaning that customers should be covered if either Robinhood or the institution borrowing the shares suddenly couldn’t return them.
    Robinhood keeps cash collateral in a trust account with Wilmington Trust, National Association, through JP Morgan Chase & Co acting as custodian, a spokesperson for the firm told CNBC.
    Simon Taylor, head of strategy at fintech firm Sardine.ai, said that the risk to users of Robinhood’s share lending program will be “quite low” given the U.S. firm is behind the risk management and selecting which individuals and institutions get to borrow customer shares.

    “I doubt the consumer understands the product but then they don’t have to,” Taylor told CNBC via email.
    “It’s a case of, push this button to also make an additional 5% from the stock that was sitting there anyway. Feels like a no brainer.”
    “It’s also the kind of thing that’s common in big finance but just not available to the mainstream,” he added.
    The new product offering might be a test for Robinhood when it comes to gauging how open local regulators are to accepting new product innovations.
    Financial regulators in the U.K. are strict when it comes to investment products, requiring firms to provide ample information to clients to ensure they’re properly informed about the risk attached to the products they’re buying and trading activities they’re practicing.
    Under Britain’s Financial Conduct Authority’s consumer duty rules, firms must be open and honest, avoid causing foreseeable harm, and support investors’ ability to pursue their financial goals, according to guidance published on the FCA website in July last year.
    Still, the move is also a chance for Robinhood to try to build out its presence in the U.K. market, which —apart from a select number of European Union countries — is its only major international market outside of the U.S.
    It comes as domestic U.K. trading firms have faced difficulties over the years. Hargreaves Lansdown, for example, last month agreed a £5.4 billion ($7.1 billion) acquisition by a group of investors including CVC Group.
    The company has been battling issues including regulatory changes, new entrants into the market, including Revolut, and the expectation of falling interest rates.
    Unlike Robinhood, which doesn’t charge commission fees, Hargreaves Lansdown charges a variety of different fees for consumers buying and selling shares on its platform. More

  • 163 Shares189 Views

    in Business

    Steph Curry says he wants to be an NBA owner in the future

    Tune in to CNBC all day on Sept. 5 for coverage of the Official 2024 NFL Team Valuations

    NBA sharpshooter Steph Curry said he would like to own an NBA team one day.
    The four-time NBA champion just signed a new contract with the Golden State Warriors through 2027.
    Curry told CNBC he’s learned many lessons from the Golden State Warriors’ owners.

    Four-time NBA Champion Steph Curry is already planning for life after basketball.
    The 10-time NBA All-Star spoke to CNBC’s “Squawk on the Street” on Tuesday about the rest of his basketball career, his various businesses and goals for after his playing career ends.

    The 36-year-old Curry has a media company, Unanimous Media, and a youth golf tour, Underrated, among other ventures. He told CNBC he is also interested in NBA team ownership one day.
    “For me, that’s definitely on the table,” said Curry. “I think I could do a pretty good job of helping sustain how great the the NBA is right now and what it takes to run a championship organization.”
    The star shooter just inked a one-year, $62.6 million contract extension that keeps him playing for the Golden State Warriors through 2027. That contract will expire when Curry is 39 — and the guard who led the U.S. men’s basketball team to an Olympic gold medal in Paris last month said he still has a lot of NBA basketball ahead of him.
    “I know I have a lot more to accomplish on the court before I move into other roles in the league,” he said.

    Stephen Curry #30 of the Golden State Warriors drives to the basket in the second quarter against Dyson Daniels #11 of the New Orleans Pelicans at Chase Center on April 12, 2024 in San Francisco, California. 
    Kavin Mistry | Getty Images

    Curry said seeing former NBA superstar Michael Jordan’s past ownership of the Charlotte Hornets, and the possibility that the league could expand in a couple years, piqued his interest in ownership.

    NBA Commissioner Adam Silver said in July that the league will look at expansion after its media deal was completed. The league inked a new 11-year agreement worth about $77 billion in July. The deal starts after the upcoming season.
    Curry’s longtime rival and Olympic teammate LeBron James has also expressed interest in team ownership, specifically if Las Vegas is awarded a franchise.
    Curry said he’s gotten a first-hand look at how to run a world-class organization, saying Golden State Warriors owners Joe Lacob and Peter Guber have set a standard for how to treat players.
    “The investment that it takes to create that first-class experience so we feel taken care of allows us to hoop at a high level,” he said. More

  • 150 Shares189 Views

    in Business

    NFL season expected to spur record $35 billion in legal sports wagers

    Tune in to CNBC all day on Sept. 5 for coverage of the Official 2024 NFL Team Valuations

    The American Gaming Association expects $35 billion to be legally wagered this NFL season, a fresh record.
    That would mark more than 30% growth over the $26.7 billion Americans wagered over the course of last year’s season of the National Football League, according to the AGA.
    Licensed sportsbooks like DraftKings, FanDuel and ESPN Bet are working to claim a bigger share of the action.

    Joe Milton III #19 of the New England Patriots scrambles from the pressure of Kyu Blu Kelly #36 of the Washington Commanders during the third quarter of a preseason game at Commanders Field on August 25, 2024 in Landover, Maryland.
    Scott Taetsch | Getty Images Sport | Getty Images

    Football is back, and it’s expected to bring with it record-breaking betting.
    U.S. adults will wager $35 billion this NFL season, according to projections from the American Gaming Association.

    That would mark more than 30% growth over the $26.7 billion Americans wagered over the course of last year’s season of the National Football League, according to the AGA, and would set a fresh record. Since last NFL season, Maine, North Carolina and Vermont have allowed sports betting operators to launch in their states. And court decisions have permitted Hard Rock International to relaunch sports betting in Florida.
    Today, sports betting is live and legal in 38 states and Washington, D.C.
    And yet stocks in the gambling companies aren’t following the same growth trajectory. Shares of DraftKings, Penn, Caesars, MGM Resorts and Entain, which jointly own BetMGM, are all negative year to date. Flutter, owner of FanDuel, is up 19%, after listing on the New York Stock Exchange this year. It posted second-quarter earnings that trounced expectations for revenue and profit, giving shares a lift.
    Churchill Downs is positive on the year and Rush Street Interactive has posted notable gains of 109% year to date.

    Competition heating up

    Each of the licensed sportsbooks is working on strategies to claim a bigger share of the action, trying to attract new customers and convince established players to show more brand loyalty.

    NFL kickoff is an opportunity to launch new and improved technology or innovative wagers that entice players. Sportsbooks tailor their promotions to reach new customers.
    “The NFL season is our biggest acquisition period of the year,” said Christian Genetski, president of FanDuel, the nation’s leading sportsbook.
    FanDuel is the only one to partner with YouTube to roll out a “Sunday Ticket” offer. Players who wager $5 get a three-week trial to watch out-of-market NFL games with “Sunday Ticket.” FanDuel hopes allowing fans to watch their favorite teams will lead to more wagering.
    FanDuel also said it has tweaked its app design and added more bets to its Same Game Parlay. It’s upgraded features so fans can wager at “the speed of sports,” the company said.
    With more than 95% of sports wagers now happening online, speed matters. That’s especially true when it comes to micro-betting: wagers made on specific plays as the game unfolds.
    Fanatics, Michael Rubin’s e-commerce empire that includes sports merchandise and memorabilia, launched its sportsbook last year in four markets. Since then, Fanatics Sportsbook acquired PointsBet’s U.S. operations and technology, which is now fully integrated. And its sportsbook is now live in 22 states.
    It’s a pretty impressive ramp for a newcomer to the industry.

    Pavlo Gonchar | Lightrocket | Getty Images

    Fanatics Sportsbook relies on the existing database of 100 million sports fans for customer acquisition throughout the year and rewards them with products from the merchandise and collectibles businesses.
    And just before the start of the 2024 football season, Fanatics hosted a blockbuster fan activation called Fanatics Fest NYC where customers could meet athletes and celebrities and celebrate their passion for sports.
    Fanatics Sportsbook CEO Matt King told CNBC the customer response was effusive.
    “We’ve seen incredible positive sentiment and resonance with our proposition of being the most rewarding sportsbook, both in terms of the economic value of what we give back as well as, frankly, the unique things we can do,” King said.
    King said unique player rewards build into the crescendo of the sports calendar, what he described as the “sports equinox” — that time during the fall when nearly every sport is being played on overlapping schedules.
    DraftKings said the NFL is its most popular league by both handle and number of bets it accepts.
    The sportsbook, which recently pulled back on a plan to tax customers in high-tax states, is offering a “No Touchdown” prop bet this season, meaning bettors will now be able to wager on whether a top player does not score a touchdown.

    New offerings

    With its shares off 28% this year and its digital business in the red, there is a spotlight and scrutiny on Penn Entertainment. This is its first full NFL season to show off ESPN Bet, its $2 billion investment on a rebranded sportsbook in partnership with the Disney-owned sports juggernaut. It first launched in November last year, smack in the middle of NFL season.
    Since then, the platform has grown its customer database to 31 million members, an 80% gain. Penn’s leaders are optimistic about its media integration with ESPN.
    “People are active in our app, and our goal over the next several quarters is to drive higher loyalty and retention and better monetize the significant engagement activity through improved product and expanded offerings,” Penn CEO Jay Snowden said on an Aug. 8 earnings call.

    The ESPN Bet app on a smartphone arranged in New York, US, on Thursday, Feb. 22, 2024. 
    Gabby Jones | Bloomberg | Getty Images

    BetMGM just launched the first single wallet for mobile play in Nevada, where customers can transport their accounts from Las Vegas back to their home states. Mobile wallets eliminate the friction of multiple transactions.
    “Our players can now immerse themselves in the excitement of MGM Resorts’ Las Vegas destinations or statewide while seamlessly continuing to place wagers in other BetMGM markets,” BetMGM CEO Adam Greenblatt said in a statement.
    Tune in: CNBC reveals the Official 2024 NFL Team Valuations Thursday, Sept. 5 on air and online. More

  • 150 Shares199 Views

    in Business

    Soaring sports team values create new pressure for owners on taxes, succession

    Professional sports owners and leagues are increasingly focused on how to insure smooth ownership transitions.
    Succession and taxes have become especially important in the National Football League, where the average age of team owners is now over 72 and team values are all surging.
    CNBC’s Official 2024 NFL Team Valuations list, ranking all 32 professional franchises, will be released Thursday.

    A detail view of a NFL shield logo paint of the field during a preseason game between the Los Angeles Rams and the Houston Texans at NRG Stadium on August 24, 2024 in Houston, Texas.
    Ric Tapia | Getty Images Sport | Getty Images

    Sports team owners benefiting from soaring team values are also facing new pressure from two of the oldest certainties in American wealth: death and taxes.
    With the average age of team owners rising, and team values skyrocketing into the billions, owners and leagues are increasingly focused on how to insure smooth ownership transitions to the next generation of buyers. While today’s owners have highly sophisticated tax and succession plans, even the best plans can blow up over family disputes or unexpected tax changes.

    “The people who bought sports teams a long time ago have now found that a large portion, if not a vast majority, of their long-term estate is now the value of the team,” said Stephen Amdur, co-leader of mergers and acquisitions and private equity practices at Pillsbury Winthrop Shaw Pittman, who advises many billionaire team owners. “They’re thinking a lot about who is going to hold it for the next generation and what they’re going to do with it.”
    Succession and taxes have become especially important in the National Football League, where the average age of team owners is now over 72 and team values are all surging. CNBC’s Official 2024 NFL Team Valuations list, ranking all 32 professional franchises, will be released Thursday.
    NFL owners face one of two painful choices: They can sell the team while they’re alive, which can create massive capital gains tax bills, or they can pass the team to their families, which can trigger estate taxes or prolonged family battles for control.
    Former Denver Broncos owner Pat Bowlen created a detailed succession and tax plan for the team a decade before his death in 2019. Yet a bitter dispute among family members, both before and after he died, led the team to be sold in 2022 to Walmart heir Rob Walton for $4.65 billion.

    Then-owner Bud Adams of the Tennessee Titans signs autographs during a preseason game against the Minnesota Vikings at LP Field on August 13, 2011 in Nashville, Tennessee.
    Grant Halverson | Getty Images

    Tennessee Titans founder Bud Adams, who died in October 2013, had divided ownership of the team among three branches of his family, which he thought would keep the peace. Instead, the split created a highly public battle over control, leading to an eventual deal within the family. Amy Adams Strunk, Bud’s daughter, is now controlling owner of the team.

    Longtime New Orleans Saints owner Tom Benson touched off years of litigation when he removed his daughter and two grandchildren from his estate and passed ownership of the NFL team and the National Basketball Association’s New Orleans Pelicans to his wife Gayle when he died in 2018. She still maintains control of the Saints.

    Then-New Orleans Saints owner Tom Benson and his wife Gayle before a game at the Mercedes-Benz Superdome on August 26, 2016 in New Orleans, Louisiana.
    Jonathan Bachman | Getty Images

    And perhaps the most poignant cautionary tale in the NFL is the legendary Miami Dolphins owner Joe Robbie, who left the team to his wife and nine children at the time of his death in 1990. A family feud and estate taxes of more than $45 million forced the family to sell a majority of the team in 1994.
    Under current U.S. tax law, estates over $13.6 million for individuals or $27.2 million for couples are subject to a tax of 40%. Since teams in the NFL and NBA are now worth billions, all team owners could potentially be subject to hundreds of millions of dollars in taxes without proper planning. 
    Another wrinkle: It’s unclear whether the estate tax rates would change in 2025, when the current levels are set to expire. So owners have to be planning for the potential for more punitive estate taxes in the coming years.
    Trust and estate attorneys say today’s team owners have a much broader array of tools at their disposal to minimize the tax impact of succession. One of the most popular is the family limited partnership, which makes family members minority stakeholders and leaves the primary owner, as the general partner, with control. By dividing up ownership, the partnership can lower the value of assets (and therefore of the taxable estate) of the general partner.
    Owners can also split ownership among family members through individual trusts, as Chicago Bears owner George “Papa Bear” Halas Sr. did with his 13 grandchildren. They can also transfer an interest in the team into an irrevocable trust through a partnership or an LLC.

    Chicago Bears coach George Halas watches his team play the Los Angeles Rams in the Coliseum on Nov. 2, 1958.
    Bettmann | Getty Images

    “Owners are spending more time on the front end thinking about long-term estate planning to ensure as tax-efficient an outcome as possible,” Amdur said.
    That’s assuming the team stays in the family, of course. While owners often hope to pass their passion and financial commitment to a team on to their children, the next generations often have different interests or financial goals, which could mean offloading some team ownership.
    And there’s now a fresh pool of prospective buyers.
    The NFL last week voted to allow select private equity firms to buy minority stakes in teams, giving owners and their families a chance to draw down cash that they could then reinvest in their teams or invest in nonsports assets to better diversify – all while keeping control.
    “I think it’s an appropriate thing to give the teams that liquidity to reinvest in the game and to their teams,” NFL Commissioner Roger Goodell said in making the announcement. More