In this episode of MarketFoolery, Mac Greer and Motley Fool contributor Dan Kline discuss the recent uptick on Wall Street and Congress closing in on a stimulus package and how it could impact various industries. Learn how the private sector is working together to manufacture face masks and ventilators to deal with the coronavirus. Finally, how the postponement of Summer Olympics is going to affect businesses and the sports schedule and how sports are dealing with the current situation generally and much more.
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This video was recorded on March 24, 2020.
Mac Greer: It's Tuesday March 24th. Welcome to MarketFoolery. I'm Mac Greer, and joining me from Florida is Motley Fool contributor Dan Kline. Dan, how are we doing?
Dan Kline: I'm doing well given the circumstances, going a little crazy but working a lot, and by all accounts doing fine. How are you?
Greer: I'm good, Dan. Strange times. And let's get right to it, because we're taping this around noon on Tuesday; noon Eastern. And at the time of our taping, I want you to brace yourself, the stock market is up and it is up big. Now, we have a lot of optimism, Dan, that Congress may be closing in on a $2 trillion stimulus. A stimulus that would include direct payments as well as loan and assistance programs for business. Now, we don't know all the specifics, Dan, but we do know right now the market really seems to like the potential. The Dow up around 7%, investors feeling optimistic. Are you feeling optimistic?
Kline: Yeah, it's not even so much about the details, it's about kind of putting a floor on this. If we know that Boeing and Southwest and JetBlue and other major industries aren't going to be driven out of business by this, that suggests that normalcy could eventually return. Obviously, there's a lot of devil in the details, but right now this is just kind of creating some belief for people that eventually there will be a way out of this that there's a government backstop, be it loans, be it direct payments that's going to help people pay their bills, but also keep these companies open, because these are all major, major employers.
I mean, a lot of people will frame this as sort of a government giveaway, but what are you supposed to do? The goal is to keep people at work, and that is leading to a ton of optimism.
Greer: And, Dan, let's talk more about that, you just mentioned some of the big airlines. And I'm wondering when it comes to the bailout piece of this, to what extent do you think the government will essentially be in the business of having to pick winners and losers, having to decide who gets what and how much?
Kline: Yeah, so we've seen none of the details of exactly how this is going to work. But let's assume these are loans and that they're at least somewhat secured against the assets of the company. So, the reality is, I don't want to see failing companies get loans that keep them in business for another year or two when they would have died even if coronavirus had not been an issue, but I don't see, so far, a lot of mechanisms to stop that from happening. Obviously, there has to be some sort of means testing, looking at balance sheets, looking at what the company was doing, but most of the names we've talked about, I mean, obviously Boeing has had its struggles, but it was a fairly solid business before this. All of the airlines we've mentioned, JetBlue, Southwest, those were on firm financial footing.
So, it's going to be the companies in some of the more struggling industries. We talked about retailers last week, some of those were going away anyway. That's probably true of some of the hotel brands that have had their struggles. Maybe some overbuilt casinos. So, yeah, we need to see the rest of this and some of this money might go to things that don't deserve it. When you work this fast, that almost has to happen.
Greer: Okay, Dan, now you're in Florida and I know from our recent conversation that you love a good cruise. So, I want to get your thoughts on how this might shake out for the cruise industry, and specifically, the big pure plays. Now, we have Carnival (CCL 12.44%) which owns Princess and Holland America, among others. We have Royal Caribbean (RCL 15.78%); we have Norwegian (NCLH 15.36%). Are the cruise companies going to get some relief from this stimulus? And if not, can they stay in business?
Kline: So, I don't think they are, because they're largely not U.S. companies. Some of their subcontractors might, maybe some of their workers will be covered in different aspects of this. Obviously, a lot of their workers are not American, though, of course, their office personnel largely are U.S. citizens.
But I can only speak to Royal and Carnival, I haven't looked into Norwegian's finances. But both Royal and Carnival do have significant borrowing capability, they do have a lot of money on hand. They have capital projects they can push off in a time where it's going to take a while for demand to recover, they probably don't need to build this many new ships. So, assuming this ends in four to eight weeks and people can get back out on the ocean, they will probably make it through. I looked at all the numbers yesterday and it looks encouraging.
The challenge for them is will people come back. And as I've mentioned to you, I have cruises booked, I fully intend to cruise this summer unless the situation remains this dire, but this is an industry that's very, very vulnerable to public perception, and people, it's hard to know if they will think this is safe even when the rest of the world has returned to normal.
Greer: And, Dan, I want to pivot from the public sector, and the potential bailout here, to the private sector. We're really starting to see some interesting partnerships in the private sector. We had an announcement today that Ford will be partnering with 3M and GE Healthcare to begin producing facemask and ventilators, what do you make of news like that?
Kline: Yeah, well that answers some questions for me, because when Ford and other automakers were talking about making ventilators, and as someone who used to run a factory, I thought, "Wait a minute, how do you have the tooling? How do you have even, like, the blueprint for how to make a ventilator? Is it that easy?" And clearly, it's not that hard, but they're going to get assistance from 3M on how to make it, some of the supply chain, how to repurpose things, like, fans they use in certain ventilated seats to work in a ventilator. So, this is industry, sort of, the best-of-the-best coming together to make something that needs to happen happen, and it's very encouraging.
Greer: Okay, Dan, and speaking of the best-of-the-best, let's talk Olympics. It is now official. Now, we expected this, but it's official, the 2020 Summer Olympics has been postponed. Now, on Tuesday, the IOC and Japanese government agreed to postpone the 2020 Summer Olympics, "To a date beyond 2020, but not later than Summer 2021."
Now, Dan, this is not just a sporting event, this is big business, and Comcast (CMCSA 1.18%), which owns NBCUniversal, expecting more than a $1 billion in ad revenue for the Olympics.
Kline: Yeah, about $1.2 billion, and on the last Olympics they made $250 million in profit. They might not make as much on this one, because the last one was in Rio, so you had a more favorable time zone as opposed to being in Japan. But this was the only decision possible. Athletes can't be sticking to their training regimen. So, even if everything was all ready to go and the world is operational by mid-July, you simply don't have the logistics to make this happen. So, postponing, it's going to be challenging. The sports calendar is going to be very difficult. There are, I believe 31, maybe 32 affected sports here, and some of them, like, soccer, have very busy calendars anyway. So, there's a lot of moving pieces, but you had to do this, because there was just no way to make it happen.
And this is largely revenue postponed, not revenue that won't happen, unlike in some of the other major sports where you're simply going to lose games, and because they're an every year thing, there's no way to make that up. This is just going to change the Olympic cycle where there'll be two Summer Olympics closer together which might be good, because it'll create some stories with some athletes that'll be fresher in people's memories.
Greer: And I want to talk more about that, because obviously, the other professional sports have had to either cancel or suspend their seasons. Baseball would be starting in a few days, Dan, and that for me is normally would be very upsetting, except that I'm an Astros fan and that essentially just means that the Astros are not going to get booed everywhere they play now, because they're not going to be playing, for the whole cheating scandal.
But I'm curious, when you look at Major League Baseball, the NBA, NHL, other professional sports that are not happening, do you think there will be long-term effects from all this?
Kline: So, long-term -- and first of all, when you said the Astros, I thought about booing from here, but as a Red Sox fan, I'm a little afraid of speaking too soon. [laughs]
Greer: Oh, that's right, because they have not announced the punishment for the Red Sox, right; yeah, the shoe is yet to drop. Yeah, be careful.
Kline: [laughs] Yeah. So, I will withhold my boo. Look, I think sports are such a part of the American fabric that I hope we have an NHL season, I hope we have an NBA season. Even if it's shortened, the way the NHL has talked about doing a 2014 playoff, which would include every team, including my New York Rangers, that could have qualified had the season played out. I'd like to think we're going to get something. We may not. We may get empty arena all-stars competitions or just weird things to fill TV programming, but eventually when we get to next season, the demand will be enormous. I think we all realize how much we miss sports and how much sports fuels ... I mean, I don't know if you watch ESPN, but other than NFL free agency, they are struggling to find things to talk about.
So, there's all these industries, not to mention the Fall TV season that would be promoted around sports. All this sort of different reasons you buy and watch sports, that's all on hold, an entire advertising business is kind of on hold.
Greer: Dan, I want to talk more about that, because I love that point. Because as we're all quarantined here. Right now, you and I are using Zoom Video and we're recording the audio, of course, but more and more people using Zoom and Skype and all sorts of whiz-bang technology. And so, on one hand, I can see that becoming more and more mainstream, even when we come out of all this. People now know how to use Zoom or they have tools that they didn't have.
On the other hand, I can also see people really appreciating the in-person experience, whether it be sports, whether it be live music that I love going to. I mean, I feel like when all of this ends, I'm going to have a renewed appreciation for live events.
Kline: Yeah. So, I think it's a little bit of both. You know, we talked about cruises before and I'm going to, you know, hug the first person I see when I get to go on a vacation or do something for fun. And the same with concerts, I've missed out on some concerts. On the other hand, some of my favorite musicians have been using YouTube or Zoom or whatever it is to broadcast live from their basement. So, I've had some really fun, somewhat intimate experiences with artists I really like, playing to maybe 10 people, maybe 1,000 people.
So, I also think you're going to see a better understanding of not making stupid trips. The example I will give is ESPN has been having all of its correspondence from home and a lot of times they would fly an LA correspondent to do a Connecticut or a New York-based show for the day, and that just seems silly when you could do it over Zoom. So, I think you're going to see an acceptance of, "Yeah, this works, and it could be done better." This isn't the old Skype videos being used on the news where you look like you're on, like, a handheld camera from 1984, this is really good technology that's seamless and more people understand it.
I think I've mentioned on a couple of shows we've done or I've done with other people that my mother had no idea Zoom existed and now it's a pretty big part of her world with keeping in touch with her friends. So, we're absolutely changing behavior, but am I still going to go to sporting events? Yeah, I absolutely can't wait.
Greer: Okay, Dan, and I think I buried the lead, because I know that you are a wrestling fan, so where does all this leave wrestling, and specifically, WWE (WWE 2.00%)?
So, WWE faces a pretty big challenge, in that, a lot of its revenue, what keeps it profitable is its television deals. And so far, it's been able to fulfill those deals by doing empty arena shows at its training center. There are very strong rumors that they've recorded a few shows in advance, that WrestleMania has already been recorded, which is going to take place over two nights. Also, it would not shock me if they license WrestleMania to ESPN, because ESPN has been running some old WrestleManias, I think, to reasonably good ratings.
So, for WWE, the big question is, at some point, will they not be allowed to do carefully controlled closed arena shows if they stopped delivering programming, they stop getting paid and that does create problems. Maybe less problems than a lot of companies, because pro wrestlers are contractors. So, while most of them have downside guarantees, meaning, minimums they'll be paid, they're not getting huge money if they're not performing, for the most part.
But this is a touch-and-go wait-and-see because UFC hasn't been able to put on scheduled events, because they couldn't find a venue that would legally let them do it. But because they are a real sport, there are athletic commissions that regulate them. WWE is television, so they have a little bit more leeway, and so far they've been able to find ways to do it and they do have the ability to enhance some of their live programming with programming from their network, with old matches. They've been dropping a lot of stuff in shows. So, I'm fairly confident that they'll be OK even if they do end up with some sort of temporary disruption.
Greer: Okay, Dan, let's wrap up with the desert island poll. You're on a desert island and you have to own one of these stocks for the next five years, let's go with the cruise lines: Carnival, Royal Caribbean or Norwegian; let's throw in WWE and Comcast, which owns the broadcast rights for the Summer Olympics. What do you think?
Kline: So, I really want to say Royal Caribbean, but if I'm on a desert island, something has probably gone very wrong with my cruise. [laughs] No, I'm kidding. As much as I believe in Royal Caribbean, I think the true winner here is Comcast/Universal. Obviously, they're experiencing some delayed revenue, their theme parks aren't open, but they're such a diversified company, I would assume the market for at-home television and streaming and all the other things they do, and cable and internet, has dramatically gone up.
So, there will be short-term hits, they're clearly losing some revenue or at least pushing some revenue down the road, but when you're doing that, they're going to have a monster lineup of movies, they're going to have an incredible array of sports rights that might get all clumped together a little bit, but those things are going to happen and that come back is going to be pretty fast.
Kline: Thanks for having me.
Greer: As always, people on the show may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear.
That's it for this edition of MarketFoolery. The show is mixed by Dan Boyd. I'm Mac Greer. Thanks for listening and we'll see you tomorrow.