Lost Business from NBA Lockout Flagrantly Foul

Joel Anderson |

NBA, basketball, revenue, labor dispute, union, owners, players, restaurants, service industry, gaming, sports betting, video games, For the casual fan, the decision by National Basketball Association owners and players to continue quibbling over the new collective bargaining agreement and risk canceling the 2011-12 NBA season may seem ridiculous. But for those companies that rely on revenue related to the league, watching their profits reduced to a dribble has got to be infuriating. The major players that will be most affected by the lockout are clear: Cable companies like Time Warner (TWX) and Comcast (CMCSA) scrambling to fill air time, shoe companies like Nike (NKE) suddenly without their athlete endorsers, food companies with nowhere to sell the cheap, liquified cheese and stale chips in stadium nachos. But there are a number of companies operating on the periphery that could see money they usually count on, traveling away.

Video Game Maker Laid Up

Game maker Take-Two Interactive Software, Inc. (TTWO) is the maker of the most popular NBA related game in the form of its annually updated 2K series released through label 2K Sports. The release of NBA 2K12 on Oct. 4 saw the game sell well in the first week, moving over 318,000 copies worldwide and beating out NBA 2K11's opening week from last year. However, sales quickly fell off where previous years had remained strong and 2K12 was behind 2K11's pace by its fourth week in release. NBA 2K12 is currently on a trajectory to sell half the copies of NBA 2K11, likely proving that much of the appeal of the 2K games lies in the game's connection to the current season. Perhaps Take-Two could come out with an updated version that would allow gamers to decertify the players' union or play as lawyers and spend hours negotiating over what percentage of Basketball Related Income should be reflected in player salaries. Then again, maybe not.

Sports Bettors Won't Hold Court

Another major industry indirectly affected by the NBA lockout is gaming. Sports gambling is big business, with estimates on how much money is bet on sports each year exceeding $200 billion. As such, the lack of opportunity to gamble on the NBA is a tragic turn for many more people than just Tim Donaghy. Sportsbooks are a significant source of revenue for major casinos and gaming companies, with $2.4 billion bet at Las Vegas casinos in 2009 for a total revenue of $136 million. Basketball was the second biggest source of the bets with fans plopping down $802.5 million and the casinos walking away with $38.2 million of it. Casino companies like Wynn Resorts, Limited (WYNN) and the Las Vegas Sands Corp. (LVS) will have to hope that fans develop a sudden and insatiable desire to wager on ice hockey or alpine skiing or expect to have the lockout hurt their bottom lines.

Fewer Baskets of Wings

Sporting events can spur a variety of different forms of consumption, and for sports bars that specialize in catering to fans looking to watch the game while getting a bite, the lack of an NBA season could seriously reduce business. As such, companies like Buffalo Wild Wings (BWLD) or BJ's Restaurants, Inc. (BJRI) could suffer through a colder-than-usual winter quarter without rabid NBA fans drinking their beer and eating their wings and pizza while watching the game. Both restaurant chains are currently in the middle of monster years, with shares in Buffalo Wild Wings up over 42 percent year-to-date and BJ's over 37 percent in the same period, so it's possible that their outlook may not be so bleak. Who knows? Perhaps hordes of unemployed basketball players could actually increase sales.

At the Buzzer...

The decision by the players to bring a class action law suit against the owners does not bode well for the chance of a last-minute compromise saving the season. With the prospect of the labor dispute wiping out an entire season, companies that rely on basketball games to help generate profits may find themselves on the floor scrambling for the loose balls of new revenue sources.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
BJRI BJ\'s Restaurants Inc. 35.53 -0.83 -2.28 572,688
BWLD Buffalo Wild Wings Inc. 144.82 -4.87 -3.25 726,872
LVS Las Vegas Sands Corp. 57.48 0.59 1.04 3,187,334
TTWO Take-Two Interactive Software Inc. 45.36 -0.75 -1.63 2,000,628

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