The New York Knicks and New York Rangers both advanced to the next round of the playoffs for the first time since 2013 and are now in charge of their individual second-round matches. Viewers are going beans.
On Wall Street, not so much.
Shares of publicly traded Madison Square Garden Sports are up 2.7 % since the NBA playoffs started, versus 5 % for the S&, P 500. MSG’s investment is over 5.4 % over the past 12 months, while the S&, P has returned 27 %.
In contrast to Sportico’s most new NBA and NHL team prices, Wall Street values MSG Sports, which includes the Knicks and Rangers, at a significantly lower price. The current enterprise value of MSG Sports is$ 5.6 billion, 43 % lower than the$ 9.9 billion combined for the Knicks ($ 7.43 billion ) and Rangers ($ 2.45 billion ).
In their first-round encounter with the Philadelphia 76ers, the Knicks were the better team but losers. Sports teams do n’t industry like your common stock, but the majority of companies do so as a result of an income beat or fresh good news. And while the additional revenue from hosting playoff game is a bonus, the company’s long-term financial health is not affected.
People point to a” Dolan discount” in refence to the controlling shareholder of MSG Sports, James Dolan. In actuality, sports teams have previously traded for less than what they might receive in a private transaction.
Before being taken personal in 2002, the Boston Celtics have won 17 NBA titles, but generally ran as a dump as a publicly traded stock. In 1998, Richard Jacobs launched an IPO for the Cleveland Indians—now Guardians—at$ 15 a communicate. Before Jacobs ‘ announcement to sell the team, which caused the stock to drop below$ 10 per share, the price surged over$ 20. Larry Dolan—James ‘ uncle—agreed to buy the team for$ 323 million in 2000, and shareholders locked in their gains.
When the Glazer family hired Raine Group to look into” corporate solutions” for Manchester United, the same thing happened. The group’s NYSE-traded stocks were dwindling at$ 13 but had more than doubled in value in the hopes of a sale. Jim Ratcliffe ultimately bought 25 % of the common stock at$ 33 per share, implying a valuation of at least$ 6 billion. The stock sank again to its current$ 15.75 for an enterprise value of$ 3.5 billion.
Manchester United ranked second this week in Sportico’s football team valuations at$ 6.2 billion, which is based on a control- sales transaction.
Some owners are optimistic about the Dolan Sports kingdom.
” We have a lot of trust in Jim Dolan”, John Miller, portfolio manager at Ariel Investments said in a movie meeting. He has done a lot to increase shareholder value over the years. He’s a great revolutionary”.
Ariel holds significant roles in MSG Sports as well as other Dolan- controlled, MSG- associated companies: Madison Square Garden Entertainment and Sphere Entertainment, which also owns MSG Networks, in addition to the$ 2.3 billion Sphere place.
MSG Entertainment reported income on Thursday, citing the additional playoff game it holds because it owns the creating and leases it to the team, as well as an increase in revenue direction for the recent fiscal year. The stock still sank 7.5 % on the day.
Miller says he looks at private valuations, such as those at Sportico. ” There is a discount in the marketplace, because people do n’t believe the franchise will be sold”, Miller said. ” We are happy to hold, because we know the value is increasing, and we do n’t see anything on the horizon that would disrupt our thesis”.
With a cost-per-share ratio of between$ 12 and$ 14, Ariel was Manchester United’s largest institutional shareholder. When the stock rose following the Glazers ‘ hiring of Raine, it retreated from its position and kept its gains.
A few strikes are carried out against publicly traded sports teams. Scarcity value is a factor in price increases ‘ soared valuations. As a publicly traded stock, there is no scarcity value. There are 8, 000 securities traded on U. S. stock exchanges, yet just 124 teams in the four biggest U. S. sports leagues, which have added only three new franchises during the past 20 years.
The other drawback of sports teams is that they cannot operate independently. Sports teams are great tax breaks when you invest in them and open doors to other investment opportunities, but there is a reason why investment bankers started valuing teams on revenue multiples rather than earnings multiples, as is the case with most businesses with a price-to-equity ratio, as opposed to earnings multiples. With the exception of the NFL, sports teams historically lost money, and even though collective bargaining agreements have become more owner-friendly and TV deals have soared, there are still teams that, with the exception of the NFL, have low profit margins or can lose money.
MSG Sports generated$ 927 million in revenue over the last 12 months and operating income was$ 81 million. Net income was$ 24 million for a 2.6 % margin, and diluted earnings per share was$ 0.99. That translates to a P/E of 189, based on trailing earnings.
” On a valuation basis, unless you’re looking at it on a private market value, it looks ridiculously expensive”, said Miller, who thinks the traditional investor metrics are not appropriate with sports teams. He makes the case that MSG Sports and its two dominant market sports franchises are unrelated to their real estate ownership in New York City. Although the value of the property is not increasing and may be declining after taxes, it is still worth, especially if it is in a good location. The value will ultimately be monetized.
Another sports team that has been traded publicly is the Atlanta Braves. The club’s enterprise value of$ 3 billion is much higher than Sportico’s$ 3.4 billion private valuation. The Braves ‘ 60-acre development in the vicinity of Truist Park, The Battery, benefits from a multifaceted business that also generates steady cash flow. It generated an adjusted operating profit of$ 39.5 % from revenue of$ 59 million in 2017.
MSG Sports highlighted Sportico’s NBA valuations, where the average team rose 33 %, during its second quarter earnings remarks.
During the earnings call, former MSG Sports president David Hopkinson stated that these rising third-party valuations reflect both the limited resources of these assets and the robust underlying business fundamentals and significant growth opportunities for both of our leagues. We do n’t believe that the value of our assets is accurately expressed in our current stock price.