Can't score a seat to see the Knicks try to finish off the Celtics in Madison Square Garden? Maybe you should just invest in the stock instead.
Shares of the Madison Square Garden Company rose almost three percent on Monday, after Credit Suisse initiated coverage of the company with an "outperform" rating and $68 price target. The bottom line for Credit Suisse's analyst Michael Senno is that premium sports content will become increasingly valuable — but a good Knicks team doesn't hurt, either. As the Knicks look to take out the Celtics on Wednesday and advance to the Eastern Conference Semifinals, MSG looks to benefit richly.
After all, MSG not only owns the Knicks, but also the stadium in which they play, and the regional sports network that shows Knicks games. That means that a good Knicks team helps the company in multiple ways — and playoff games are simply gravy. While Senno notes that "the Knicks are currently in position to advance to round two," he also notes that for both the Knicks and the Rangers, "Our base case in future years is for zero playoff games; therefore team performance would drive upside to our model." Considering that Senno already has a $68 target price on the stock, that certainly gives MSG investors a reason to become major Knicks and Rangers fans.
So just how much do playoff games help?
Well, in fiscal year 2011, the Knicks and Rangers played a total of 13 home playoff games, and these games meant serious ticket and concession revenue for MSG. Those 13 games were good for $47 million in revenue,and $17 million in adjusted operating cash flow for MSG. (Ironically, since each home playoff game means an additional $1 million to $2 million, the Knicks' overtime loss on Sunday could be a good thing for the stock.)
And Knicks success in the postseason will also help MSG in the future. When it comes to Knicks ticket prices, which "remain the largest revenue contributor in the team business," Senno expects to see "mid-single digit price increases for the next two years, as we expect an increase with the Knicks qualifying for the 2013 playoffs."
On the TV side, "the Knicks recent resurgence and infusion of star players" have led to much better ratings for the MSG network, and "additional playoff games also drive higher ad revenue on MSG network."
Harold Vogel, a money manager and the author of"Entertainment Industry Economics," sees the Knicks' wins as a short-term catalyst rather than a long-term reason to buy the stock. "It's positive, but it's also fleeting, because next year there will be another team that does well," Vogel said. "But it makes for a good quarter."
Benjamin Mogil, who covers MSG for Stifel Nicolaus, voiced similar sentiments. "From an investor's perspective, this is seen as a one-time, unsustainable event," Mogil said. That said, if the Knicks do make the NBA Finals, "that would mean a $40 million bump" in earnings before interest, taxes, depreciation, and amortization, "and that's not even including any increased sales of merchandise."
But despite all his bullishness, the Credit Suisse analyst doesn't expect the Knicks to even get past the second round of the playoffs."Our current fiscal year 2013 projections estimate that the Knicks play two playoff rounds," Senno writes, meaning that he expects either the Indiana Pacers or the Atlanta Hawks to knock them out in the next round.
If the Knicks can keep playing well, though, expect MSG investors to be the ones cheering the loudest.