Motley Fool Money - LinkedIn's Missed Connection

Episode Date: February 5, 2016

LinkedIn plummets on weak first quarter guidance. Alphabet surpasses Apple in the race to a trillion dollar market cap. GoPro reports some not so sporty earnings. And Conoco Phillips cuts its dividend. Our analysts discuss those stories and share some stocks on their radar. Plus, ESPN analyst Andrew Brandt talks about the business of football.  Learn more about your ad choices. Visit megaphone.fm/adchoices

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I'm Ron Gross, joined by Simon Erickson, James Early, and Jason Moser. Gentlemen, good to see you. Hey, oh, Ron. Good to see you to, Ron. Chris and Steve are in San Diego at an investing conference for members of our Motley Full One service. joined by a lot of other fools, including Jeff Fisher, Matt Argusinger, and Morgan Housel. Chris will be back next week with all the scoop. On today's show, in honor of the Super Bowl, we'll talk about the business of football with ESPN's

Andrew Brandt, and we'll talk about some not-so-super quarterly reports from LinkedIn and GoPro. But we begin with the big macro. The U.S. economy added 151,000 jobs in January, first in an expected gain of 190,000, but the unemployment rate, James, did fall to four. 0.9%. So, how bad a miss is this? Is this something we should be concerned about? Yes and no, or no and yes. I mean, it's so good. It's bad, right? You got that, Ron. We've had China problems. We've had oil problems. We've had, stock market has been just hell lately. I mean, January, it didn't have any IPOs. It's just awful, right? But unemployment, maybe it wasn't quite as good as people were expecting, but it's still at an eight-year low. Unemployment run for college graduates like yourself is at 2.5 percent. And that's like the best, like ever, or at least in many decades, as far as I know. So even wages of ordinary workers rose. Manufacturing was great. Construction was great. But from the investment, perspective. What this really means is that the, and this is why it could be bad, the odds of a sooner

Fed rate hike just went up. The Fed deliberated, and they're really, really nervous about the December rate hike. That was like the biggest deal ever. We had years of anticipation of that rate hike. Should we do it? Should we not do it? And they did it. Now they're thinking, oh, ha, ha, we were justified. You know, the Fed has twin mandates of price stability and full employment. So we're just a little bit closer to full employment, and it's going to give the Fed the confidence as it needs to do a rate hike, which is going to actually hurt investors just a touch. But they can't stay low forever, right? Those rates. They've got to come up eventually. Why not? I agree with you, but what is the actual argument? If they were to stay low forever?

That's a good question. We would end up with inflation, I would imagine. Good point. Okay. I would like to just throw one thing and actually two things. James, I also graduated college. I kind of feel like he's shorted me there a little bit. Just saying not just Ron. Right? Yeah. No, I mean, I can go Wofford, you know, Wofford Terriers. It seems like every month we get these unemployment questions. And it's interesting to see sort of how decisions in regard to monetary policy may or may not be made in accordance with whatever these unemployment numbers may or may not show us. But I think that it lends itself to sort of that greater notion that really when we talk about this stuff and we look back a couple of months later and we see these numbers have been revised, it's really difficult to sit there and try and make investing decisions based on headlines like these.

I mean, it does seem like the financial media loves to get headlines out of this that will help sort of dictate the market's actions one way or another. But I think it is difficult to actually pinpoint specific investing decisions you can make on this type of macro data. That's fair. LinkedIn's fourth quarter report looked good, but weak first quarter guidance sent shares plummeting. Jason, around 9 billion of market cap erased. Stocks at about 24 billion in market cap now.

This is a hit we don't usually see. Now, I know a lot of fools own this stock, so today is not a fun day. But is there an overreaction here? I don't know that there necessarily is an overreaction. I mean, this is a very severe reaction, no question there. And I think, as you mentioned, it wasn't like they turned in a bad quarter, but there are some signs here that this may not be quite the growth story that I think a lot of investors were hoping to see here in 2016. and that's why we're seeing the stock, you know, taking such a hit. It's not that there's one particular problem here. It's sort of death by a thousand paper cuts more or less. There are just issues all around the business.

They're killing off this lead accelerator product, which was a business-to-business ad platform, and part of an acquisition that they made $175 million acquisition. So you have to at least kind of wonder, you know, what were they thinking at that point? They are seeing some weakness on the talent solution side of the business, And that really is the big moneymaker. The higher margin online sales there are really – that is trending now.

We're seeing more and more weakness there. And if we look at the company's deferred revenue, which is something a subscription sort of business, you want to see that kind of growing over time. It really has flattened out indicating potential slow growth there as well. These estimates they have for this year now coming up around $3.12 per share, significantly lower than what Wall Street was expecting in around $3.90 or something like that. that actually puts the stock around 37, 38 times full year estimates now, which is kind of reasonable. It tells us maybe the stock wasn't necessarily such a rational valuation before.

So it's a very tough hit. I would not encourage members of any foolish services or otherwise to just go back up the truck on these shares because they look cheap now. I think there are some genuine growth concerns there, and we don't really know how big that market opportunity really is. 2016, we'll shed a lot more light on that. Yeah, Simon, we talk a lot about a company like Facebook, which was richly valued as well, but continues to move higher and put up great numbers. LinkedIn, there's some parallels there, but they diverged quite a bit from a stock perspective. When you see a high-growth company take a hit like this, are you interested in jumping in?

Definitely interested. LinkedIn obviously had a tough quarter, and the market is showing that, but it's also got more members cumulatively now than the United States population. And you've got to see a lot of growth that they're getting from international locations, one of which being China. And you've got to think bigger picture, it's go bigger, go home for businesses like this. If you want the biggest platform, you're going to have to put a lot of money behind it. LinkedIn continues to do that. And I still see the network effect and effect.

Yeah, I think it's important for investors to note this is not a broken business. It's not like this is a bad business, right? This is still a very good business. I think that just this was a valuation question first and foremost. And I think that that's what this, that's the impetus to this reaction. And I do believe that over time, you know, LinkedIn will continue to do well. But there are also some questions that they're going to need to address here in 2016. Yeah, and as fools, we are business-centric investors.

First, business, first, stock, really. So this is a widely held Motley Fool recommendation that we'll be sure to keep an eye on and hear more about in the future. A strong quarter for Alphabet, the company formerly known as Google. Alphabet has now overtaken Apple as the world's most valuable company in terms of market cap. So, Simon, where does a company the size of Alphabet put up those growth? Where does the growth come from so the stock can continue to move higher? Well, Ron, I'm glad you asked because Alphabet has got a list of opportunities that runs from A to Z. Thank you.

Wait a little. I'll reach that one. They now have seven products that have over a billion users. Gmail just joined the ranks of Search, Android, Maps, Chrome, Play, and YouTube as billion user products that Alphabet has in its arsenal. YouTube, let's call some attention to that one since you're asking about growth. The amount of time that was watched in 2015 on YouTube doubled over the previous year, and they're now reaching more 18 to 49-year-olds in the United States than any other cable network that exists. So definitely a great audience for advertising,

which is going to be the continuing growth driver of Alphabet's core businesses. Now, when we're looking at growth drivers for the future, of course, Ruth Porat is ruthlessly prioritizing the company. Wow, you're on the road. And placing other bets on some really big opportunities, too. One of them that we look at an MDP is Google Fiber, which is offering 20 times faster Internet than typical broadband Internet service providers. And they're expanding their reach from three cities to nine cities this year. I think there's going to be a lot of opportunity.

That's about a $92 billion market in the United States. Google's grab and share really quickly there. So we talk about this race to a trillion with Google and Apple at around $500 billion or so. So is there enough business, does it exist for Google to double from here, no matter how many years it takes, to capture that prize of the first company to one trillion? Yes, absolutely there is. You know, we talk about the law of large numbers a lot of times. Google's still phenomenally, I should say, Alphabet is still growing 20% revenues year over year, which is phenomenal. And they're also decentralizing the organization enough that they can place big bets and things like Google Fiber, self-driving cars, markets that can support a much larger valuation than the company looks at right day.

I think it's very possible, Ron. It's hard to make a prediction for a trillion-dollar company like that. It's a big number, yeah. But I like their bets. I think he could be an IR guy for Google or Appleby. I'm going to go buy the company now. Energy companies continue to struggle. Conco cut its dividend by 66%.

Exxon suspended its buyback program and will cut back its capital spending. So, James, as our dividend guy, do you like to see when a company cuts its dividend or puts in place some capital preservation of programs, or does that start to worry you? Well, Ron, in a way, what I like doesn't matter because these companies had no choice. You know, they really had no choice. They just hit the wall. You know, Exxon barred money to pay their dividend. The bigger issue here is that they kept professing they were going to pay their dividends. And what we're seeing now, well, let me back up.

In 2008, before 2008, banks hated to cut their dividends. And suddenly, one or two started cutting. Then everybody started cutting. It was kind of like the new cool thing, right? Right. Sliber slope. And now it's like, it's considered okay to, to go right down to the wire, professing that you're definitely going to maintain your dividend

until, like, the next quarter, and suddenly you didn't. Like, it's supposedly not supposed to be a big credibility ding. We've seen this in income investor or our dividend newsletter here. You know, what's the Glenn Eastwood line? I mean, their egos are writing checks, some other Saudi part cash, right? Philosophically, so that's that. Philosophically, though, it just kind of reminds me. In the U.S., we're stuck in this idea.

The dividend has to be a fixed payment. The Europeans, I think, and South Americans have a better model, which is a dividend is a percentage of profits. And they drink more wine. That's probably the more important point. That's a healthier model for the company, and that would avoid crisis moments like this. So if you're an investor and you have little or no energy exposure right now, are you adding to your positions at this point? That's a big question. Warren Buffett is adding, I will say.

I would be adding to energy. I would be. All right. Sounds good. Coming up, our earnings coverage continues and we'll share some stocks on our radar. You're listening to Motley Fool Money. 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. Welcome back to Motley Fool Money. Ron Gross, joined by Simon Erickson, James Early, and Jason Moser. GoPro reported a disappointing fourth quarter and said it would discontinue some of its entry-level cameras. Jason, Copro in trouble? Or is this just one of kind of those growing pains that early-stage companies find themselves in? I'd say it's more like Go Home at this point. You know, this is an interesting business here that I really initially wanted to be

optimistic. I thought they had sort of the really, the brand identity in that niche market. But really, they have not been able to pivot to that media strategy as quickly as I think they thought they might be able to. And so what we've witnessed is a tremendous fall from grace here as these devices have just become so commoditized so quickly. And I mean, if you just look at the gross margin line for these guys, it's down 18 percentage points, more than 18 percentage points from the same quarter last year. So what they are witnessing is no pricing power. They're having to cut prices on cameras. They're cutting lines on better cameras that they're making because people aren't buying them. And so for GoPro really to succeed here, I think it's going to be imperative

that they continue to form relationships with other bigger companies out there, ways to get that content out there, ways to become more of a media company like they listed in their S-1 when they went public. And did those bigger companies end up acquiring GoPro, tears down the road? It's certainly possible. I think Google or Alphabet was there. There's a lot of talk at CES this year about that. And I could see something like that happening because you look at something like Apple or Alphabet and they are obviously big enough and they can go beyond the device. They have the platform and sort of the beyond the device aspect of the business that GoPro lacks today. Yahoo reported a 15% decline in revenue.

And, Simon, just to keep things nice and neat, announced a 15% layoff of their workforce. Story of 15. So here's my question. Simon, is Yahoo and CEO, Mercer Mayer, for that matter, in real trouble here? Where are we going? You know, Mercer Meyer had a really tough job taking on the Yahoo CEO gig, because she really had to transform that business. And as we know, it's very difficult to transform any business, especially one that's been in the internet tech space for the last 20 years. But I think that she had a good cause at the beginning.

She wanted to focus on people, then products, then traffic, then revenue. Unfortunately, none of that is really working out, Ron, very well for her, at least. A company wrote down a $4.5 billion impairment charge to goodwill this quarter, largely rated to Tumblr and then their North American and South America operations. So they don't have the products in place. I do think that the people is a little bit better than the media sometimes might portray. I think that actually people are happy to work at Yahoo. But the company is still getting only 25% of revenue from mobile. And you've seen companies like Facebook that are at 80% of revenue from mobile right now.

Yahoo's user base still is that desktop legacy search. It hasn't made the jump, and it really hasn't transformed. All right. Siri has sold off a bit on declining profits for the quarter. Jason, they're spending a ton of money. Good move? I think it's, yeah. I mean, it's a good move.

they have to make, but it's working out for them so far. They grew the top line 9% for the year, and their subscription base. Subscriber base is down around 30 million, added 2.3 million subscribers in 2015, see around 1.4, 1.5 million they can add in 2016. This is a business that's going to have to spend money to make money, right? I mean, that's their business. It's just basically figuring out a way to distribute that great content. I think there was a lot of uncertainty eliminated when they just re-upped Howard Stern for a new. five-year contract. And, you know, for me, like, we're serious subscribers. I love it. I mean, I think, you know, a big fan of Howard Stern channels. I also love the NFL access there. They

extended that agreement through 2022. I think that Howard Stern was a big reason why Sirius has been able to succeed to this point. And so the question then becomes, what do they do once he retires? They were very shrewd to address this. I think, when they renewed Stern's contract. They got him for an additional five years. If he decides to retire at that point, that's okay, because Serious XM will maintain exclusive rights to all of his content for an additional seven years. Smart move. So they're going to build out a new app presence, something along the lines of Howard Stern 360, or something like that for the diehard fans like us, Ron.

And as far as the stock goes, who knows. But I think these guys are doing the right things. All right, guys, it's Super Bowl weekend. The halftime entertainment show is Coldplay with Beyonce and other Super Bowl special guests. If you have to pick one special guest to add to the half-time. time show. We're going to go around the table. Someone who would make the show a strong buy. Who you going with? Jason. Oh, well, I've always been a big, just thumbs down on the music stuff during the Super Bowl.

I hate it. So I would actually go the opposite direction. Max's going to love this. I'd bring Amy Schumer in and just have her blow everybody's ears off. Nice, James. This is an investment. I would bring in, I'm actually two people. Steve Broido, and the guy, the rant is too damn high. Remember that guy? Oh, yeah. That guy was good. And have them give commentary on the performance.

But, like, for people watching at home, you would mostly hear the commentary and the performance would be kind of the background. So you could just, like, hear the psychology of the interaction between those. That, to me, is more entertaining. Nice. Simon. My first choice was going to be James Early doing Kazeshae. But if we couldn't get him, I was actually going to vote for the left shark from Katie Perry's performance last year. This is a phenomenon. I totally went rogue during the dance and got to bring that, whoever that person is, still unknown, back for this year.

All right. You're all wrong. Led Zeppelin Reunion is the right answer. All right, guys, it's time for our stocks on our radar. We've just got a couple of minutes. Jason, what do you got? Yeah, you know, I've got to go with LKQ here. They're in the business of aftermarket parts for automobiles, and I think it's just the insurance companies, the principle of indemnity. You're not going to get new parts on your car when it's wrecked. They're going to get aftermarket parts. That's what LKQ does. They do it really well. Business continues to grow, and I tell you, my experience in the insurance business, I cannot believe how many cars. car accidents we have in this country every single day. It's just a phenomenal number. James? When I read in the Wall Street Journal that Venezuela was flying in plain loads of new bills to keep up with inflation, I smiled because it's so bad it might actually be good news

for Copa Airlines. This is a Panamanian airline that is down because of negative Venezuela exposure. I think Venezuela is getting so bad it may change soon. So that bose well for Copa. CPA. C-P-A. Simon, what do you got? Ron, I'm going with Facebook, ticker F-B, excuse me. Obviously, the world's large of social network, the thing that really caught my eye, operating margins popped from 32% a quarter ago to 44% this quarter. That's because they're getting not only more advertising impressions, but also richer content, so the price per ad is going up at the same time. That's great for a platform like Facebook. Do I get to be like the man behind the glass here?

I own Facebook. I don't own the other two. I'm going to go with what I know. Yes. Guys, we still got another 30 seconds or so. We want to go around the table. favorite Super Bowl snack or food. Main course is acceptable as well.

Jason. You know, Ron, I love cooking and I love making potato skins. The cheese, the bacon, the chives, the sour cream, peter skins, that's it. Now, James, I know this is going to be tough for you because I know you're healthy, you're organic. What do you got? I'm not really a snack. I mean, I only like broccoli or carrots. Oh, my gosh.

Some Super Bowl party add. I'll put some peanut butter on a cracker. Great. Simon. I'm going with jalapeno flavored potato chips, Ron. Sounds good. Thanks, guys. Coming up, ESPN's Andrew Brandt talks about the future of football. You're listening to Motley Fool Money. Welcome back to Motley Fool Money, Ron Gross, sitting in for Chris Hill this week.

Chris is out in San Diego at an investor in conference for Motley Fool One members. He'll be back next week. It's Super Bowl weekend. Earlier in the week, Chris interviewed ESPN's Andrew Brand, who has more than 25 years of experience in pro football. Brand worked as an agent and later worked in the front office for the Green Bay. Packers. He currently teaches sports law and sports business at Wharton and is the NFL business analyst for ESPN. We're going to get to the physical health of football in a moment, but Andrew, let's start with the economic health of the game. And I'm no doctor, but it does seem like things could hardly be better for the NFL right now. And as the Super Bowl is getting ready to start, I keep going back to this moment a year ago. It was the day after the

last Super Bowl, Les Moonvez, the head of CBS, was on the set at CNBC, and he could not be happier because last year's Super Bowl, huge audience. CBS has the Super Bowl this year, and a year ago, he's saying on live TV, the bidding for a 30-second commercial is going to start at $5 million. Is it really that healthy? Because it certainly seems like it is. Yeah, Chris, this is this inexorable March to present. prosperity for the NFL. It's really hard to think what could knock it off this incredibly lofty perch where it's almost like NFL football is mainlined into our veins and we can't get rid of it. It's just so popular. Business is booming. And you know, I've talked over the years

of all the quote-unquote crises that they've faced in terms of Ray Rice, in terms of domestic violence, in terms of the issue we'll talk about with head injuries and safety and concussions, in terms of negativity around roger giddell and the deflate gate last year with tom brady and picking on uh... football golden boy if you will what is that all what is all of that done it's only increased popularity it has become

weekly where we read about here about record ratings the networks are salivating to get more and more of this we have a deal announced this week adding nbc to CBS for the Thursday night football lineup where the NFL owners have diabolically reduced the entertainment programming output from those two networks and replaced it with NFL football and oh by the way taken a 450 million from it in the process so everything points

north we have franchise values all over a billion dollars some would say the most successful franchises are in the three billion dollar range you have a team and owner and friendly collective bargaining agreement with the players. You have record ratings, so it does seem all pointing north. As you mentioned, one of the issues you and I have discussed is the concussion issue, and a lot of that evidence comes after players have retired, in some case decades after they've retired. But news this week that Detroit Lions receiver Calvin Johnson, who is one of the NFL's marquee superstar players, wide receiver, he's reportedly going to retire. He's 30 years old. He's in the prime of his career. He's certainly made a lot of money over his career,

and maybe he's taking good care of it. But if he does walk away from the game, well, let me back up. What did you think when you first saw the news that Calvin Johnson was going to retire in the prime of his career? Well, the first thing before I got to any feelings about physical health and future was the money. And you started to mention it, this guy, because I cover the business of the NFL, there's very few players that have tilted the leverage their way where I could say they, quote, unquote, won the business of football, because usually the teams win. This guy won. Because in the old rookie way of doing contracts, he was one of those bloated deals at the top of the draft. So he got a market-setting deal not once but twice, once when he came out of college, and then when he was a veteran renegotiated contracts.

So I calculated this, Chris. He has made, in nine years, $115 million. That's gross. Now, we don't know how he's handled his money, but I thought about, okay, you know, at age 30 or whatever he is, $15 million, he's good. you know, he's good to go. He is well set up for the future. Then I thought about, okay, maybe there's more to this, because maybe in combination with having that kind of money, that kind of net wealth going forward, he can now say, I'm not going to risk it. I'm not going to risk

everything below my head, but maybe even more importantly my head on what could happen to head trauma over the years and just hang it up. If it does turn out, out that this is why he's walking away because of his health. Again, this is a guy in the prime of his career. He's not at the tail end. And at some point, we'll talk about at least one player who is in the sunset of his career. But I don't know, Andrew. Even with that amount of money, I'm still a little surprised. And to me, if I were the NFL, I'd just be the tiniest bit more worried today than I was, say, last week, because if this guy's going to do it and there start to be more questions raised from players about their health and how teams are handling

their health, and it seems like there are, that could be something that works against the economic health of the league. Yeah, this is interesting because a couple of these happened a year ago, one with a stark reminder of everything you're saying. We had a linebacker who was poised to make what I think is, I don't know, $15, $20 million contract, and he walked away. After one year, San Francisco 49er, Chris Borland, did a lot of research, had a concussion during training camp, was told it was dinged, and it lasted all year.

He did a lot of research, and he decided to walk away. That was a moment, and that was about a year ago. We had a 30-year-old linebacker, all same age as Johnson, on the same team, 49ers, same team as Borland, walked away. We had a quarterback last year, played four years in the league named Jake Locker, walked away. So the question becomes, as you mentioned, are these going to be isolated outliers or is this start of a trend? If it's anything near the latter, that is a real concern for the NFL. People walking away. I used the term last year, and I'll use it if it's the case with Johnson,

we don't know. Preemptive retirement. How many times have we seen that? Not very often. and in this sport. Usually, and I've been on both sides of this, I've been an agent, and I've been a team executive, players are quote unquote retired. They don't do it willfully. They are told to leave, and that's 99% of the cases. Now we may have some preemptive retirements, and like you said, not at the end of the career, but in the middle, Calvin Johnson was in no danger of having his career cut short by the team in the next few years, but here we are. Could it be another preemptive retirement. The Associated Press did a survey of 100 current NFL players. The results came out this week and 53% of them said they don't believe team doctors have their best interests in mind when it

comes to injuries. When you and I talked a couple of years ago, one of the things you had said was that current players, more than anyone, more than agents, more than executives, current players were objecting to what you referred to as, quote, the sissification of football. We've seen rule changes put in place over time to protect players. But when you think about results of a survey like this, do you think that that mindset among current players is starting to change? I do. And that's actually something the NFL would be proud of. I mean, they just released their report of showing more concussions and actually are, I don't know if the right word's proud, okay, saying, yes, we have more concussions because it's showing more reported concussions and less

hiding and people staying out longer and people not so much scared to report a concussion for fear that they'd never play again, they'd be replaced. I do think this culture change is anecdotal. It's hard to say on a major macro scale that players are not hiding concussions anymore, not intentionally failing baseline tests, so they're not placed on the bench when they're concussed. But there's anecdotal evidence that players are, reporting more and be staying out longer, you just don't know what the total incremental impact of all

these subconcussive hits is. We just don't know. That's the frustrating part. You can't say that you play football and this will happen to you in 10 years, but there are players doing more research. There are players sitting out more. So we do have the start, maybe the genesis of this culture change we're talking about. As you've said, you've been on both sides of this equation. You've been an agent for players. You've worked in the front office at the Green Bay Packers. You've consulted with the Philadelphia Eagles. Contracts in the NFL aren't guaranteed like they are in Major League Baseball or the NBA. Do you think we're going to start to see some sort of slow amount of change where owners will have to guarantee contracts as players become more aware of health risks?

It certainly would help everything they're talking about because I think owners can talk on both sides of their mouth. They want this reporting. They want this culture change. But they need to incentivize players to do it. In other words, you don't want players. And I'm not talking about superstars. I'm talking about your average down-the-line player. You don't want them thinking, hey, I tell them about the concussion.

I'm on the bench. I'm going to replace me. I'll never get my job back. You know, I always point out this example of a couple years ago, a quarterback for the San Francisco 49ers, Alex Smith. one of the better players in the league at that time had a concussion, did exactly what we want them to do, sat out weeks.

Guy named Kaepernick came in, was dynamic, played this incredible style of game. Alex Smith never played another down for the 49ers. Now, he ended up in a good place with Andy Ree with his Kansas City Chiefs, but players noted that and still do. I talk to players, they go, man, if that can happen to Alex Smith, starting quarterback for the 49ers, it can happen to me. So that's a long way of getting back to what owners need to realize

that if players had guarantees, if players had security in their contracts, they would report more. They wouldn't worry about being replaced so much. Then it gets down to this negotiation issue. Teams don't want a guarantee because players do get injured. They don't want to pay injured players. I'm not just talking about hand injuries, talking about all over their body. So I guess, you know, this is a little in the weeds, but if I'm an agent and a team says we'll give you, you know, $50 million contract with $20 million guaranteed,

most usually the way they structure those is that $20 million is all paid off in the first two years. If they won't guarantee more, what I would say is, all right, that five-year, $50 million contract, $20 million guaranteed, just give me $4 million guaranteed every year. That way there's some semblance of security beyond the first couple of years. years, that's one way to make inroads on these contracts. Coming up, Chris talks with Andrew Brandt about daily fantasy sports and betting on football. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Ron Gross.

Let's get back to Chris's conversation with Andrew Brandt, NFL business analyst for ESPN. Over this most recent NFL season, there were some other issues on the economic side of the equation that made it into the headlines. And let's start with fantasy football. I watch the stock market all week every week, and so I'm no stranger to stocks that shoot to the moon and then come crashing back down to Earth. I'd be hard pressed to see an entire industry shoot to the moon and crash back down the way daily fantasy sports has in the last, not even the last year, just the last, I would say, eight months or so. where is this going? Because right now it looks like a lot of states are going to court to sue the likes of Draft Kings and Fandul and others. You mentioned those two companies and we'll focus on them. They have become part of the lexicon of not only NFL, but baseball, basketball, and hockey,

because they offer fans a chance to have this engagement on a nightly basis and football, of course, a weekly basis. and it's not your father's fantasy. It's not sitting around with friends and family in August and drafting a team and realizing how you did in December and January. It's weekly and in some cases daily. The barrage of advertising from these companies was incredible. They achieve extraordinary mind-share market share by doing that. They're both valued over a billion dollars.

And more importantly, they have investment from Major League Baseball with draft kings from the NBA with Fanduel. the NFL has not had an equity stake in either company, but 28 of the 32 teams have sponsorship deals. The NFLPA has a sponsorship deal. And two of the NFL owners, Robert Kraft of New England and Jerry Jones of Dallas, are investors' equity stakes in draftings. You couple that with what New York and other states are doing now, which is basically saying this is gambling. We're shutting it down or we're trying to. And maybe their goal, cynically, is to just get a piece of it, be a regulator, get involved with it,

regulating gambling in the way they want to do it with some financial interest. But at the end of the day, this is going to bubble up for the NFL to realize what are we doing here? We're taking all these money from these two companies that the New York Attorney General and others have called, quote-unquote, gambling. and everything we stand for is to stay away from gambling. So I just think this is going to reach ahead, where either Roger Goodell has to tell these two owners to divest or somehow the sponsorship deals will run out and they don't get involved with it because the monetization angle is great.

But again, this is gambling. What are they going to do about that? This past season we saw for the first time, an NFL game gets streamed online. It was not on the television network. Yahoo streamed Buffalo versus Jacksonville in Yahoo. Say what you want about that game not necessarily being in the highest demand, not necessarily a marquee matchup, but it did start to get both people on the business side and fans in general starting to think about streaming only football games. How far off in the future do you think it's going to be before someone, it could be Google,

it could be some other big tech company, but someone with Deep Pockets comes in and says, we're going to compete with the television networks and we're going to make a serious bid to have a bunch of games just on our online or streaming platform? I think that's coming, but I think we're going to talk about baby steps because, as I mentioned at the start of our interview, we're talking about. about Thursday night packages now with CBS and NBC, just Thursday night, but there was a little notation in that press release that caught my eye. Separate rights are being sold for OTT over-the-top streaming, and I would expect that would be with a tech company,

whether it's Google or Yahoo or Netflix or Apple, et cetera. Now, like you mentioned, that would not take the place of the over-the-air networks, but it's coming because now we're sort of introducing this second screen OTT delivery and they're selling rights for that. Of course, these NFL owners never miss a revenue opportunity, but is it going to be that only? They allowed it last year with this one Yahoo game. It was not a game that people would be interested in nationally.

It was Jaguars versus Bills. I think it did fine. I think they got 20 million from Yahoo to do it. We'll see if that continues. Listen, Google's got however many billions sitting around. They look at ESPN and CBS and NBC paying $1 to $2 billion for rights. They probably think they got that in their couch cushions. They probably do.

So they could figure out a way to do it. I just don't know if the NFL will ever allow that to not be on broadcast television. We're going to wrap up with a round of buy, sell, or hold. Let's start with someone who has had problems both on and off the field, and his stock is probably trading at an all-time low right now. Buy-seller-hold, Cleveland Brown's quarterback Johnny Mansell. Zell, to me, culture counts, and he's an undisciplined guy not only on the field but off the field.

That guy's not changing. This is a branding issue that hasn't really been in the headlines too much recently. Buy-seller-hold, the Washington Redskins changing their name. Tough one for me. He grew up there, long time, never associated. did it with anything that untoward, and I'm going to hold right there. He's playing in this weekend Super Bowl, but his skills have diminished over time. Buy seller hold.

Peyton Manning playing next season. I'm going to sell that. I think he's gone, whether he will ride off into the sunset, perhaps with a Super Bowl ringing his hand a second one, or perhaps not. But either way, I think he's moving on. And finally, this musical act was a bit of a surprise. choice, buy-seller hold this year's Super Bowl halftime entertainment, Coldplay, and I should mention that reportedly Beyonce will be joining Coldplay during the halftime show.

That's a big buy for me, two of my favorites. I will be enthralled and grossed with those two acts. Andrew, thank you so much for your time. Enjoyed it. Thank you. That's it for this week's Motley Full Money. And a reminder to check out our new podcast center. Go to Fool.com slash podcasts. For past episodes of Motley Fool Money as well as our four other podcasts. That's Fool.com slash podcasts. Our show is produced by Matt Greer.

Handling the Engineering and Editing Duties this week is Rick Engdahl. I'm Ron Gross sitting in for Chris Hill this week. Thanks for listening and we'll see you next time.