Two Takeaways:
According to Forbes, the two franchises together should be worth ~$7.8B.
The valuations for both franchises have skyrocketed with the Knicks more than 5x and Rangers nearly 3x over the past ~10 years.
Ready to hear how much the asset is worth in the public markets?
$3.5B. Yup. Just $3.5B when the valuation of the Rangers and Knicks alone is more than 2x that.
Why the discrepancy? What are we missing?
Valuation
First & foremost, it is important to recognize the disconnect between the fundamentals of the business and the valuation. The Knicks for example are trading @ ~30x operating income while the Rangers are trading @ ~23x operating income. Very very expensive.
A sports team is a luxury asset and therefore what people acquire assets for are not tied to the fundamentals. Additionally, historically, sports teams have struggled to be profitable and rather are funded by their multi-billion dollar owners.
This makes things difficult from a stock perspective as the likelihood of dividends, share buybacks, and increase in cash flows is unlikely and therefore the stock is missing a major catalyst to move the equity valuation higher.
Arguably the simplest way to actualize the fair equity value would be to sell the asset. However, if you were to own the Knicks, why would you ever sell them?
Check out these interesting comments that James Dolan, majority owner of the Knicks/Rangers, shared in 2019:
"You have a responsibility as the guy who runs the place to deliver on that for them; that's being open and transparent. And so in that position, I could never say that I wouldn't consider selling the Knicks. Now, my family is not in that position, and they are the majority shareholders. They hold the majority of the vote.
"As a majority owner, I don't want to sell, either. As the head of the public company, you can't say you can't sell, because then you're telling your shareholders that your own personal feelings about your assets are more important than their money. And they won't invest with you if you do that."
So if I got things right he knows that he has to sell, does not want to sell, and hasn’t sold. Not much to work with.
Since these comments, the Forbes valuation of the two franchises is up at least $2.5B. Taking everything into account, I would expect that something would have to happen over the next couple of years or institutional investors will make some serious noise.
I would expect Dolan to either take the franchise or sell a portion of it, likely the portion owned by the public shareholders.
The current situation with $MSGS & lack of insight into a sale has not held back legendary value investors, Ariel Investments & Mario Gabelli (GAMCO & Gabelli Funds) continuing to grow their stake in $MSGS in Q1:
- Ariel Investments picked up an additional ~55K shares taking their stake in $MSGS up to 4.6% of the company
- Gabelli, across his two funds increased their stake in $MSGS by over 3K shares, taking his ownership in the company up to 4.3%
Mr. Dolan should be expecting calls from Ariel & Gabelli soon – if he is not receiving them already.
-Alan
