Site icon Banyan Hill Publishing

How Broadcaster Fox Broke the Super Bowl Indicator

How Broadcaster Fox Broke the Super Bowl Indicator

As financial writers start buzzing about the Super Bowl indicator once again, it’s time for a fresh perspective — with an insight you won’t find anywhere else.

This market myth says that if an AFC team wins, we should expect a substandard year in the stock market. In the long run (since 1967), this indicator has been correct about 75% of the time.

But that long-term average is hiding something significant…

The Super Bowl indicator stopped working in 1995. Before that, the stock market generally did perform better after an NFC win.

Since then, however, it’s been right only about 38% of the time.

Something big happened around 1995 that marked a significant turning point. A little research reveals how a television broadcasting company ruined the Super Bowl indicator…

How a Broadcaster (Fox) Changed the Game Forever

In December 1993, Fox agreed to pay $1.58 billion over four years to televise NFC games.

CBS had owned those rights for almost 40 years and had bid less than $300 million for the package, according to reports at the time.

Cash from Fox and other TV rights deals began flowing during the 1994 season.

No one knew at the time, but Fox was changing the game forever. Since then, rights deals have grown even more lucrative for the league and are now more than $12 billion a year.

Fox’s entry into sports programming opened the door to big money for all teams and leveled the paying field (not a typo). That’s because NFL teams share television revenue. That contributed an estimated $375 million to each team’s top line last season.

In addition, teams share ticket revenue. Home teams receive 60% of ticket sales, while we see the other 40% entered into a “pot” that is split between the teams of the league.

Local revenue includes concessions, parking, stadium partnerships, luxury box sales, and stadium naming rights. Even without this money, every team owner should have enough cash to field a competitive team.

This explains why the Super Bowl indicator broke and became unreliable. So you may be wondering … why did it work before 1995?

Well, that was when competitiveness on the field depended in part on when the team began playing and the state of the national economy.

Before TV Rights Deals Leveled the “Paying Field”

The Rust Belt was home to the NFC teams. The cities in this region were the nation’s cultural centers when the NFL was founded in 1920.

The upstart AFL placed teams in cities where new money was building wealth with technology when it was founded in 1955.

Before television rights generated billions of dollars a year, the NFC teams depended on a booming economy to generate revenue.

When they won the Super Bowl, it meant the steel mills and other businesses in middle America were thriving, and their fans were filling seats in stadiums, providing funds to sign the best players.

An NFC win signified a booming economy, and that set the stage for an up year in the stock market. An AFC win showed the economy wasn’t doing well in Middle America, and stocks struggled in those years.

Understanding the Evolution of Indicators

Uncovering the truth behind the myth of the Super Bowl indicator shows the value of understanding how market indicators work.

Whether it’s a fundamental tool like valuation, a technical tool like momentum — or an esoteric tool like the Super Bowl — it’s important to understand the rationale behind the indicator.

It’s also vital to think about what could cause that rationale to change.

For example, price-to-book value, a popular fundamental indicator, may not be important when intangibles like software or brand value are essential to a company.

Markets are constantly evolving. Investors who keep up with the changes and truly understand them — as we help you do here at Banyan Edge — are the ones who will succeed at navigating the markets and gaining a competitive edge.

Regards,


Michael Carr
Editor, Precision Profits