Madison Square Garden (MSG) represents the holding company that owns the New York Knicks, the New York Rangers, the New York Liberty, Madison Square Garden Arena, the Madison Square Garden Television Network , and several other properties. The latest Forbes valuations have the Knicks as the most valuable team in the National Basketball Association at $655 million. The Forbes valuation of the New York Rangers is $461 million. There is an overlap of the value of Madison Square Garden in these two prices with the Knicks value having $185 million and the Rangers having $148 million. The average of these two values is $166 million. The combined valuation of the two teams with the average value of Madison Square Garden would be $949 million.
Madison Square Garden is the third busiest arena in the world by number of tickets sold. The arena hosts around 320 events a year. Along with hosting Knicks, Rangers and Liberty games, the arena hosts St Johns University home basketball games, the preseason NIT tournament in college basketball, the postseason NIT tournament in college basketball, and hosts the NBA Draft every year. The arena holds 18,200 fans for hockey games, 19,763 fans for basketball games, and up to 20,000 for concerts at current capacity. Average attendance during 2010 was 19,728 for the Knicks, 18,103 for the Rangers, and 11,069 for the Liberty. All three of these numbers are increases from the 2009 seasons. Both Knicks 2011 home playoff games were sellouts with 19,763 fans.
The Knicks had not made the playoffs before the 2010-2011 season in 7 years and have not made it past the first round since 2000. The addition of Carmello Anthony helped the team and company have some of its highest attended and watched on their own Madison Square Garden Network in years. This was the first year since 1996 that both the Knicks and Rangers made the playoffs. Neither team made it past the first round but four home games were played at Madison Square Garden bringing in additional revenue from ticket sales, concessions, and advertising.
In 2011-2012 Knicks season tickets will go up 49%. This may seem like a steep raise but the team has only raised prices one time in 10 years. Rangers tickets will increase 23%. Both teams should have no problem selling tickets as they have loyal fans and have grown their fan base over the years. The renovations to Madison Square Garden will increase the number of seats and the number of luxury boxes. The latter will bring more revenue in as boxes are a prime way in sports today to increase revenue.
Madison Square Garden is one of the few ways to buy a professional sports team and represents the best pure play on the industry. The Green Bay Packers are owned by 112,159 individuals who own at least one share. The team last offered shares in 1997 to help finance improvements to Lambeau Field. You can not publicly buy the Packers shares as you would have to buy a share from a shareholder or inherit one. The company also pays no dividend and has said that they are non-profit. Liberty Capital (LCAPA) owns the Atlanta Braves along with other investments and minority ownerships in companies like Starz, QVC, Sirius, and Live Nation. Comcast (CMCSA) owns 61% of the Philadelphia Flyers and 76ers which makes it similar to Madison Square Garden in the NBA and NHL team aspect. The ownership stakes represent a small portion of revenue compared to Comcast main cable business and newly acquired ownership in NBC Universal. Rogers Communications (RCI) owns the Toronto Blue Jays and is publicly traded. I should also note that several soccer teams can be bought on foreign exchanges as well.
The company has strong institutional holding with 87% of the company being held by institutions. T Rowe Price currently owns over 12% of the outstanding shares of MSG. T Rowe Price has a price target of $45 on the shares currently and several analysts have added MSG to buy lists or watch lists for their investors.
The sports industry has been active in buyouts in the past couple of years. There are several teams available for sale in the NHL this offseason and several NBA teams were sold in the past couple of years. The Detroit Pistons were sold for $420 million versus a $360 million valuation. The Golden State Warriors were sold for $450 million versus a $315 valuation. The Washington Wizards were sold for $551 million versus a valuation of $313. These deals represent a 17%, 43%, and 76% premium respectively to the Forbes valuations from the previous seasons. This represents average of 45% premium to valuation which would make the New York Knicks worth $950 million with Madison Square Garden and $682 million without the stadium. The Knicks are the highest valued team in the NBA and have increased valuation from $392 million in 2001 to $655 million in 2010.
I think the shares are extremely attractive for several main reasons that are listed above.
- MSG is a pure play investment on the sports industry. The company remains one of the few publicly traded sports teams and offers exposure across several sports. The company is the best pure play on the industry.
- Increase in prices of tickets will increase revenue while having minimal impact on fan base or attendance.
- The expansion to Madison Square Garden saves money on building a new stadium but will bring in extended revenue in ticket sales, luxury box seats, and restaurants that are being constructed.
- The improvement of the Knicks with the addition of Carmello Anthony is enticing as well. The shares were traded up with rumors of Lebron James in last year’s highly anticipated free agency. The Knicks did not land Lebron but got Carmello in the trade deadline and have the chance to add a key free agent in the next two years to make their own big three with Carmello and Amare Stouadamire.
- The television segment will perform very well with the increased viewership of the Knicks and as long as the Knicks and Rangers have good seasons next year should increase in advertising sales values.
- The long term buyout possibility of the company exists either as a whole or in pieces.
- Possible buyout to take the company private by James Dolan.
The shares currently trade at between $26 and $27. The shares have been as high as $30.21 since the spinoff from Cablevision at $21 a share. I have a buy recommendation on the shares with a target of $50 by December 31, 2011.