Investing in professional sports is usually limited to large scale private equity deals. With Madison Square Garden's (MSG) spin-off from Cablevision (CVC) in 2009, the average investor now has a chance to enter this market. Madison Square Garden based out of Manhattan, NY is one of the world's most busy arenas. It hosts two major professional sports franchise, several high profile college basketball games such as the Big East Tournament, Preseason NIT, and St. John's basketball games among others. Madison Square Garden ranks third in the world for the most concerts held of any arena in the world.
There is more to Madison Square Garden than ownership of an arena. Assets of MSG include the New York Knicks or the NBA, the New York Rangers of the NHL, the MSG local sports television network, the Radio City Music Hall, and other venues in New York and Boston. Television revenues, licensing rights, and merchandise sales from the sports franchises and the TV network supplement the primary revenue sources the leasing of the stadium and ticket sales.
The hidden value in MSG is that the Knicks' and Rangers' market value is significantly higher than the cost basis ($495 million) listed on their balance sheet. According to Forbes professional franchise valuation rankings, the Knicks are currently the NBA's most valuable team at $655 million and the Rangers are the NHL's second most valuable franchise at $411 million. Their combined value of $1.066 dollars is $571 million more than cost and this capital appreciation is not factored into the stock's price. With a total market cap of $2.1 billion and no debt, this discrepancy is worth $7.50 per share.
At first glance, Madison Square Garden may not seem to have much earnings growth. However, that is because the future growth of the company's earnings have not been factored into the company's forecasts. Knick's ticket prices will be increased by 49% this upcoming season and attendance is expected ot increase to full capacity during the first full season with Carmelo Anthony on the team. Renovations during the next two summers will increase revenue opportunities in the stadium as well. Both the Knicks and the Rangers have been improving teams and expanded playoff game revenues and merchandise sales in future years are also not factored into the current stock price.
Overall, stadium renovations, improvement of the Garden's sports franchises, financial strength, and undervalued assets on the balance sheet, Madison Square Garden is an excellent value investment. I expect MSG to climb in price to at least $40-45 per share and this does not even the factor the rumors of James Dolan plan to take the company private.