It was announced today that the NBA players refused to accept the owners' proposal and will seek to decertify the players union. Decertification will result in a series of lawsuits that will last for a long time and most likely jeopardize the NBA season. I will miss seeing the Lakers play this year, but at least investors can profit off losing basketball by shorting Madison Square Garden (MSG).
Madison Square Garden is the holding company that owns the New York Knicks, New York Rangers, the MSG sports television channel, and the Madison Square Garden arena in Manhattan. Although the arena generates revenue from non-NBA events such as concerts, college basketball games, and Rangers games, the loss of revenue from the Knicks will significantly hurt earnings and cause negative growth for the next three quarters. The shut down of the Knicks will cause losses of at least $70 million. With a trailing twelve month net income of $81.63 million, the $70 million loss from NBA revenues will reduce after tax income by $45.5 million or 55% of net income.
In addition to these direct losses, MSG also faces long term damages to the company's future growth. They also lose the momentum from the fanfare they would have received for the first full season of star players Carmelo Anthony and Amare Stoudemire playing together, along with the growing relevance of the Knicks as a team. The lockout also will sour the perception of the NBA as a whole. This will result in lower future attendance, TV ratings, and possibly lower ticket prices.
Technically, the charts look very weak for MSG as well. The MAC-D crossed bearish during the last trading session and the stock has an island gap to fill at 25.50. It is also near the top of a downward expanding triangle which is another strongly bearish sign.
Overall, I am strongly bearish towards MSG because the recent developments of the NBA lockout have nearly ensured the chances of a cancellation of the 2011-2012 season. MSG will be unable to recover the lost revenue from ticket sales, merchandise, and television coverage this season. Fan resentment from lockout also has long term repercussions. Technical trends also confirm the negative change in fortune of the firm's fundamentals.
Disclosure: I am short MSG.