Four stocks to watch as the world’s tennis tournament revs up

The Australian Open is the very first tennis Grand Slam event of the year, kicking off the world’s competitive tournament and the first of four Grand Slams, (the French Open, Wimbledon, and the US Open). But for the 24 sponsoring companies, it’s their first shot at taking their branding and businesses to new heights for the year; especially as momentum is hot in tennis following last year’s event that gained a record number of televised viewers for the women’s final.

For investors it could be worthwhile reflecting on some of the larger sponsoring companies, and those that are listed. Even though the Australian Open ends on January 29 the companies heavily involved would want their earnings and profits to materially be boosted, vis-à-vis television replays, online press and online photos. So it could be worthwhile tracking some of these companies to see how they potentially benefit, especially ahead of quarterly, half year and full year results.

Some companies have disclosed the financial boost to their bottom lines from the Australian Open, others do not. So we dissect what you might perhaps like to keep an eye on.  But we do know investors may be expecting the sponsoring companies to serve up earnings and profit growth in 2023, particularly as they are involved in the world’s first round of tennis tournaments post the COVID19 lockdowns.

Here are some companies to watch as the world’s competitive tennis tournament for the year is underway;  

Kia (000270) is the major partner of the Australian open, so it’s hard to miss Kia’s branding as its featured courtside and ads feature during tennis matches. Kia reportedly signed a $107 million deal with Tennis Australia, extending its 22-year partnership to 2028. That made it the biggest sporting sponsorship deal in Australian history. The deal includes about $21.5 million a year in cash as well as access to 130 Kia vehicles for players and officials to travel from the airport to Melbourne Park and other events. Ten of those vehicles are electric.

But investors might be asking themselves, how is this going to boost Kia’s business? Well it might boost sales, but earnings growth and cashflow growth will be watched closely. Overall earnings growth and profit growth are widely expected to be similar to 2022’s numbers. The reason for this is, as we’ve been reporting, we believe markets will more likely favour metal companies perhaps over EV makers while prices seem supported higher in copper, aluminium and lithium for example.

Ralph Lauren (RL) is the official outfitter of the Australian Open, meaning they outfit all on-court officials, as well as ball kids, lines people, chair umpires and executives. It’s estimated that Ralph Lauren paid $6-$7 million for 2023 sponsorship. Ralph Lauren expects the 900 million daily homes reached by the Australian Open across over 215 territories will help cement the brand in the minds of tennis fans, but also continue to push forward the brand’s efforts to create “sporty elegance.”

Ask yourself, in 2023, how many consumers may feel compelled to go out and buy Ralph Lauren garments while interest rates are rising. The issue is the majority of RL’s business revenue is from America and Europe - both regions are facing rising interest rates. Whereas, on the positive side, 21% of RL’s revenue comes from Asia, so given where China’ economy is expected to provide stimulus while it’s reopening, Asian RL sales may jolt higher. In 2023 Ralph Lauren is widely expected to report earnings growth of 16% and gross profit growth of 65% Headwinds include higher interest rates and wages pressuring their balance sheet, but working in RL’s favour is that cotton prices have fallen 25% from their August high. So let’s see how much their costs come down.

Mastercard (MA) is the official payment partner for the Australian Open 2023 and is a sponsoring the event for the 17^th year. Mastercard signage is courtside and around the precinct, much like the major sponsor Kia. Mastercard is also the point of sale at retail outlets in the precinct and also has onsite customer activation.

It is not known how much money changed hands in the partnership, but given interest rates have been rising, 2023 is widely expected to be more favourable for Mastercard’s income and revenue. Earnings growth of over 60% is expected in 2023, according to consensus.

Nine Entertainment (NEC) is the Australian Open’s (AO) broadcast partner and is televising the event. Nine will remain the broadcast partner for the Australian open until 2029. The listed business in Australia is making $85 million a year from the AO, with the deal reportedly worth over $425 million till 2029.

For 2023, thinking about the listed entity, Nine generally makes 53% of its total revenue from Broadcasting. Overall profit growth of 82% is expected in 2023 following the return of advertising dollars post the pandemic. However, if Australia’s central bank, the Reserve Bank of Australia does begin cutting interest rates later this year, as widely expected, then Nine’s profit could slightly pick up.