The Madison Square Garden Company Message Board

"Sports franchises are like bank stocks, with dual valuations. In tough times, banks are valued based on tangible book value. In good times, high P/B and 'trophy' franchise value dominate."

I think its a little different.

A sports franchise has tertiary value in that it can make another business, like a TV network more valuable. Plus you get to be a big wheel and be on TV.

The only asset that I can think that is like it is fine art or very very high-end real-estate. Maybe the New York Times?

Plus Jessica Simpson won't sit in the front row at any bank.

Exactly Boston.

Sports franchises are like bank stocks, with dual valuations. In tough times, banks are valued based on tangible book value. In good times, high P/B and 'trophy' franchise value dominate.

Sports teams are valued based on EBITDA during tough times and PMV during good times. When a guy with $17 BB buys, he could care less what cash flows are on a purchase. BTW, it's Mikhail Prokhorov who's buying the Nets.

Corvette-

I absolutely agree with your thinking.

You can't value sports teams based upon cash-flow and EBITDA. I doubt that Russian guy who is buying the Nets has ever heard of EBITDA. An argument can be made that someone might buy the equity in a sports franchise even if not one dime of cash-flow ever made it to their pockets.

I had been hoping that this thing would get down to the stated value of the sports franchises. That was probably being too greedy.

You're dead wrong on the value of Jordan and Shaq. Check the surge in the value of the teams and the cash flow and the profitability of the ad rates, suites, premium seats, stadium advertising, filled stadiums, etc. Jordan was a BARGAIN and nobody would want a team based on the 1993-94 team for 10-12 years vs. a Jordan team. Do you think the Yankees were more profitable when the payroll and MSG payment rights were alot lower ? You're creating value.

Do the math. Not only are the bad contracts from the Isiah Era almost all done, but you are EASILY looking at an additional 15-20% bump in revenues early in the contract. You can easily see an additional $15 MM (low end) to $40 MM (high end) of EBITDA if the Knicks get Lebron and Bosch and the team turns around bigtime. No, it wouldn't be all at once, but you build the value over time. When Goldman Sachs invested in YES, they valued the whole network anywhere from $300 MM - $750 MM. Today the network is valued anywhere from $1.3 - $3 BB, in only 8 years time.

You have to take into account private market value, cash flow margins, trophy asset premium, and other factors. Agreed, yes, my $10 estimate is very aggressive -- but you might recall that folks said that MSG Network was ABSOLUTELY NUTS when they paid $500 MM for 12 years of Yankee gamees (and were losing their shirts the first few years).

MSG Network would have done if that contract run-rate had been for 30 years !!

Adsman, you're entitled to your opinion...which is 100% nonsense.

No NBA teams draw 5,000 fans ? Been to a Clippers or Nets game lately? Read a 10-K to learn about NBA economics, or at least read Peter Vecsey's column once in a while.

The Knicks can raise ticket prices. You obviousley don't know what happened in the 1985-1995 period. Oh, wait, your ID says you're 30 years old so I guess you were following their ticket sales at age 5, right ?

Yeah, sales prices are down. Charlotte was run into the ground and asset prices are down. The business is cyclical. Ever hear of the late 1970's ??? Check out the prices then.

Gee, never would have known that losing the Yankees-Mets was bad for CVC. Did you know that the first few years the MSG Network deal was considered a joke for CVC ? Economics change my friend...so don't be so smug as to think you know it all, because you obviousley don't. You like to look at things in a point at time and then extrapolate. Bad way to invest.

(1) Cable/satellite penetration of the NY metro area is substantially higher than 15-17 years ago.

(2) A 4-5 rating might be high at first, but not unrealistic. Ranger games on MSG were 0.2-0.3 in the early-1980's. There's room for growth. I would be SHOCKED if the Knicks were a 50+ win team with Lebron and didn't beat a 2.5 rating from the Ewing teams. Remember, despite Ewing those teams lacked a bonafide offensive superstar. Certainly 2 superstars. I'm assuming Bosch or another joins Lebron.

(3) Yes, it's a longshot that they get LeBron in the 1st place. First, he has to be willing to leave Cleveland. If he is, then I think the Knicks have a 50-50 shot to get him.

Kobe did it in LA...Michael did it in Chicago. If Lebron does it in NY, and can win at least 1 championship, he's on their level or above it. He's a student of the game. He knows the Knicks history -- Holtzman & Co, not Riley & Co.

(4) Read the JEFFERIES report on NKE: talked about how they can add accretive EPS by cutting back on all their endorsements. You're right, alot of the deals are overpriced, but there are some that are definitely worth it. Quick, think of someone who had a great shoe deal in the 1980's -- I can think of 2, Jordan and Dominique Wilkins. But dozens of guys had deals back then and most were 7-figures plus. Jordan's with Nike and Wilkins with Reebock were the only 2 that really mattered. Later, Kareem with LA Gear. You're dead wrong that a shoe contract or other endorsement deal isn't worth a TON to Nike or LeBron's other endorsements. More to Nike, sure. If he has an endorsement deal with Whirlpool, nobody cares if he's in CLEV or NY.

But New York ? Do you remember the Dwight Gooden mural right near the PABT in the mid-1980's ? Do you know how many people saw that who weren't baseball, Doc, or Nike fans and went out to see the Mets, Doc, or get Nike's ? I can't tell you how many dumb women I heard say "Yeah, I got these to walk to work and then I switch to my shoes...I told the guy to get me something from the baseball guy on the apartment building." No, they didn't get cleats. LOL

Nike would pay TRIPLE if Lebron were to go to NY. You think if Lebron or his advisors went to Phil Knight and said "Hey, we're thinking of going to ______, just wanted to know if you'd be willing to sweeten the pot when the current deal runs out if we go there? that Knight wouldn't offer a TON more money if he want to NY ? Trust me, he would. If you listen in on the NKE CC's, you'd know that.

Jordan in Chicago or NY, not much of a difference. LeBron in Cleveland or NY -- HUGE difference. I don't even know who makes LeBron shoe and EVERYBODY knew that Jordan used Air Jordans and Dominique had The Pump in the 1980's.

corvette_kid1:

You are living in a fantasy world of "My dad can beat up your dad." You think the world revolves around New York so that everything here is more profitable.

You make up dumb crab like bad NBA teams drawing 5,000. Stop the stupid hyperbole.

The Knicks sell out, which is a problem. They have no room to improve ticket sales. Their ratings have always been crappy compared to basketball teams in other cities and compared to the Yankees and Mets. When the Mets were awful and the Knicks had Ewing at his peak the Mets outdrew the Mets on television by more than 60%. The disaster for MSG was losing the Yankees and the Mets. If you had really covered CVC you would have known that.

There is no private market value for the Knicks. The Dolans aren't sellers. They have the public financing 75% of the equity for them. If you were really a professional investor you would have known that.

The last several basketball team sales have been at losses or been aborted. You can have your fantasy but that's all it is, a fantasy.

The Knicks, Rangers, MSG building and MSG networks can't be separated. Every team in the New York area and all teams nationwide now own their stadiums or have long term government subsidized leases. Any buyer of the Knicks and Rangers would immediately threated to leave the MSG building. That's why no one would buy them separately (Knicks and Rangers were created by owners of MSG, they've always been owned by the same company as their building) from the building, because no one is stupid enough to sell the teams and keep the building unless the teams were saddled with a very bad lease long term for the teams (and good lease for MSG building owner) before selling the teams.

You have no clue about New York sports economics.

NY sports teams are always worth a premium because this is a sports town. All 4 major sports teams sellout or nearly-sellout even in bad times.

If the Knicks had the record over the last decade in a smaller city, they'd be drawing 5,000 a night, so saying they are playing to 95% or so capacity isn't that bad.

As for the valuation: the Gabelli approach seems best, value it based on Private Market Value and subtract it out rather than value it based on cash flows or EBITDA.

The Forbes valuations seem about right. They are being valued as 'trophy' assets. Like I said, watch the EPS and cash flow for the Knicks SOAR if they get LeBron.

The Rangers ? Well, if Sather had spend the $$$ on Jagr instead of Redden, imagine a Gaborik-Jagr combination...the Rangers would be a legit Stanley Cup contender this year.

I saw the same thing that Magic said about that.

You know what? Shaq and Kobe co-existed for enough years....Magic, Worthy, and Kareem coexisted for a decade....The Pearl and Clyde co-existed when NOBODY said Earl Monroe would be able to coexist with either Frazier or Red Holtzman.

I think LeBron and Wade can co-exist for 3-4 years. By then, Wade will be on the downside of his career (like Iverson, he's too brittle) and he will have made the megabucks and won a championship or two. Then he can finish up in Phoenix and golf for another few years while soaking Sarver for $$$ in the twilight of his career.

"james Dolan is incapable of running a hot dog cart. To trust him with MSG is absurd"

Lets get the discussion on this company moving.

From my research it appears that Jimmy doesn't have the greatest track record. It also appears that the CEO is more of a Dolan flunkey than a guy with hard-core experience running entertainment assets. However at least some of that is built into the stock.

Part of the problem is that Jimmy has always been able to hide behind Cablevisions prodigious cash-flows. On conference calls the questions would always be about ARPU for cablevision as opposed to how the MSG rennovation was going. MSG execs aren't going to have that luxury. They are now going to be forced to answer hard questions from analysts or face embarrassment. Jimmy Dolan will either have to make better decisions or hire people who can, because this time there will be much more public scruitiny on him and the MSG assets.

According to Forbes the Knicks and the Rangers are worth approximately $1B togeather or $16.34 per share. I don't think their valuation includes the arena or MSG and this would likely rise if the Knicks sign Lebron James.

Also, I believe that many former Cablevision shareholders are dumping their MSG shares because they prefer the more stable cash flows of Cablevision and because Cablevision is a takeover play. MSG on the other hand has much more valuable assets, but will have lumpier cash-flows and isn't likely to be taken over.

These reasons however have nothing to do with what MSG is actually worth. When shareholders start to dump shares for uneconomic reasons that usually can signal an opportunity.

Right now if you assume that MSG will draw down its entire $375M facility and keep it drawn down, MSG ex-the Rangers and Knicks is trading at $8 a share.