It’s a sale like this past week's ownership stake in the Green Bay Packers that reminds me of how unique an investment in Madison Square Garden (MSG) is. The company is publicly traded and, unlike the Green Bay Packers shares, rises and falls with the success of the teams it owns and how much money it earns in a year. It is the dream of any sports fan to own a professional sports team. While almost all sports fans never make it to the front office or full ownership stake, they have the option to participate in owning shares of publicly traded Madison Square Garden.
Madison Square Garden owns the basketball team New York Knicks, hockey team New York Rangers, minor league hockey team Connecticut Whale and women’s basketball team New York Liberty. Beyond the sports teams the company also owns the namesake Madison Square Garden, Radio City Music Hall, The Theater at Madison Square Garden, Beacon Theatre and The Chicago Theatre. Along with the ownership of sports teams and venues, Madison Square Garden also owns a media division. The media division has the Madison Square Garden Network, the MSG Plus channel, and the FUSE music channel.
The company hosts over 1000 concerts at the venues it owns. Beyond the owned sports teams, Madison Square Garden arena also hosts college basketball games, WWE, the Harlem Globetrotters, and the BNP Paribas tennis tournament each year.
The New York Knicks are currently in the bidding for several free agents, including Chris Paul of the New Orleans Hornets. Anyone who follows the National Basketball Association knows that Paul's name has been linked to several teams including New York. Landing Paul would give the Knicks the valuable triple threat of Carmello Anthony, Chris Paul, and Amare Stoudamire. If the Knicks are not able to sign Paul, they still have cap space to sign a number of valuable free agents to improve on their playoff run from last season.
The New York Rangers sit in fifth place in the Eastern Conference and currently have a 15-6-3 record (Wins, Losses, Overtime Losses) after playing a quarter of the season. The success of the Rangers could lead to another year of Playoffs for both the Knicks and Rangers, which would greatly impact earnings.
Back in may I wrote an article about Madison Square Garden representing a great purchase, with seven reasons to invest. I’ll break those down and update them again for you to consider.
1. MSG is a pure play investment in the sports industry. Madison Square Garden is the only U.S. traded sports team to have full ownership of a team other than Liberty Capital (Atlanta Braves) or Rogers Communications (RCI) (Toronto Blue Jays).
2. Increase in prices of tickets will increase revenue while having minimal impact on attendance. The Rangers currently have an average attendance of 18,165-- an increase of about 60 per game over last year. The Knicks have not begun playing yet due to the NBA lockout, so we will have to wait to see their new attendance levels. Attendance for the Connecticut Whale, who play at the XL Center, is up slightly this year as well.
3. The expansion to Madison Square Garden will bring in extended revenue in ticket sales, luxury box seats, and restaurants that are being constructed. During the first quarter conference call, the company commented on all twenty new luxury boxes being sold out for basketball and hockey for this season. New restaurants will be part of next year's offseason construction.
4. The Improvement of the Knicks with the addition of Carmello Anthony have the chance to land a big free agent next year to create a big three. What good timing on this piece as today kicks off NBA free agency. Chris Paul and Dwight Howard are among the big free agent names in the league. The New York Knicks have stated their interest in Chris Paul, which would make a great superstar threesome in Anthony, Stoudamire, and Paul.
5. The television segment will perform well with increased viewership of Knicks and Rangers having good seasons. According to this article , the Rangers viewership on the MSG network is up 7% from last year at this point in the season. Madison Square Garden broadcasts hockey games for four area teams including New York Rangers, New York Islanders, Buffalo Sabres, and New Jersey Devils. Viewership and interest in hockey is up for this season, which could mean good things for the second and third reported quarters.
6. The long term possibility of a buyout or a piece being sold – The company has valuable assets and every year a rich overseas billionaire attempts to enter the American sports market which could be a good thing for shareholders.
7. Possibility of James Dolan taking the company private – Along with the buyout possibility, current CEO and majority owner Dolan could take the company private, buying out what he doesn’t already own. Shareholders would get a nice premium for their shares in a deal like this.
Madison Square Garden reported results from its first quarter of fiscal 2012 on November 4th. One of the big topics in the report and the question and answer segment was the NBA lockout. Since that earnings report we have learned that the season will begin on December 25th and the number of games missed is minimal for the teams affected. Revenue for the quarter came in at $177.6 million. This represented a decrease of about seven percent from the first quarter of fiscal 2011. This number is due to the closure of Madison Square Garden during remodeling. A seven percent decrease is actually a good report from a company that was missing its key earner for a full three months. Net income for the quarter came in at $21.3 million, which was an increase of 10.5% from last year, so the company appears to be spending its money wiser. Broken down by segments earnings were:
- Media 138.6 million (up 3.9%)
- Entertainment $27.6 million (down 27.7%)
- Sports $28.8 million (down 21.9%)
Amongst the higlights of the conference call:
- Strong results reported for shows at Radio City Music Hall and the Beacon Theatre. These two venues helped offset the loss of shows at Madison Square Garden during construction.
- Construction remains on plan and on schedule financially and length of time. The current incurred costs are $500 million and the company expects total costs to top out at $980 million.
- Next year's construction will include two bridges suspended over the floor/ice, to offer a one of a kind seating experience.
- MSG Media segment had an increase in revenue of 4% from last year's first quarter.
- Debut of Cirque du Soleil Zarcana show at Radio City Music Hall (show ran 06/09/11-10/08/11). Show will return in June 2012 due to strong demand
- Second Quarter lineup of muscians playing at MSG owned facilities includes: Sting, Duran Duran, Jay Z and Kanye West, Foo Fighters, Taylor Swift, and Katy Perry.
- 20 new event level suites all sold out.
- 70% of not yet constructed Madison level suites under contract or agreement. Suites will be available for 2012-2013 NBA and NHL seasons.
- Return of the BNP Paribas Tennis at Madison Square Garden in March 2012. The event will feature Maria Sharapova, Caroline Wozniacki, Roger Federer, and Andy Roddick.
- Knicks Season Ticket Renewal Rate is in the 90%s.
- Rangers Season Ticket Renewal Rate is in the mid 80%s.
- About one third of Knicks season ticket holders chose to keep their refunded money in their account representing future intent at more season tickets purchased. The NBA policy is that when games are cancelled, the money is either refunded or kept in the account at the request of the season ticket holder.
- During the first nine months of 2011 (Calendar not Fiscal), MSG media networks broadcasts 430 live sporting events, and over 1900 original programming hours of entertainment.
Shares are trading at $29.25 and are approaching a new fifty two week high ($30.37). T. Rowe Price owns 14% of the company's shares through various mutual funds. It is always nice to get behind a company with such strong backing. Institutional ownership sits north of 87% (Yahoo Finance). Current earnings estimates call for $0.90 for fiscal 2012 and $1.30 in fiscal 2013. That is a current price earnings multiple of 32.5 with a future earnings multiple of 22.5.
I think that with the lockout moving forward along with the new luxury boxes playing out a full season, and the added strength the Media segment is seeing, it is not unreasonable to think that the company could earn $1.55 next year. That would place shares about 19x next year's earnings. Shares should trade closer to 22 to 25 x next years earnings, which would represent a price target of $35.65-$38.75.
The company missed out on revenue during this off-season and will have the same problem the next two years. Earnings will be down signifcantly for the first quarter over the course of three years.With that being said, it is hard to use a price earnings multiple when trading Madison Square Garden. Also, stocks do not always trade according to fundamentals, and I think the company will be a momentum trade as well with the likely success of the Knicks during the shortened season. As I wrote in my last MSG article, I think shares are worth $50 when adding up the pieces. I stand behind that value and think that they will hit that mark in the next twelve months.
Shares of the Green Bay Packers went on sale Tuesday morning. Over 250,000 shares will be available through February 29th to raise money towards the $130 million the team needs for stadium improvements. Shares can be purchased through the Packers Website. Shares are being sold for $250 each plus a handling fee ($25). The Packers last sold shares in 1997, but that time at a slightly more affordable $200 each. Over 100,000 fans owned close to five million shares prior to this year’s sale of new shares. Shareholders receive no free tickets and can’t even cut the line of waiting people on the season ticket holder list, which currently stands at around 81,000.
The shares are non-transferable once purchased, other than to a family member. The stock will never pay dividends and will not go up in value. The National Football League actually prohibits a team to be publicly traded. The shares are publicly held but not tradable. Shares in the Green Bay Packers have no real benefit other than an invitation to an annual meeting and the knowledge of owning a piece of NFL history. And while it may seem unique to own a portion of a sports team, it’s important to remember as investors that there’s always a better investment option out there.
Along with publicly traded Madison Square Garden, investors who want to own a professional sports team have other options.
- Liberty Capital owns the Atlanta Braves
- Comcast (CMCSA) owns 61% of the Philadelphia Flyers and the Philadelphia 76ers
- Rogers Communications owns the Toronto Blue Jays
- Soccer Teams Traded on International Stock Exchanges, including Juventus, AS Roma, Lazio and Rangers
Today I leave you with a decision buy one share of the Green Bay Packers at $275 or 9 Shares of Madison Square Garden for $263.25 (based on current share price of $29.25). An investment in a foreign soccer team, if your broker supports international trading, may even represent the better trade. If I was making the decision, I’d choose the one that might go up in value and buy MSG.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MSG over the next 72 hours.
Additional disclosure: I am a Detroit Lions season ticket holder and not a Green Bay Packers fan.