No MSG Please
Cross-posted from today’s Times.
The formidable skills of LeBron James probably wonâ€™t reach the stock market. Speculation is rampant he could soon be headed to the New York Knicks basketball team, whose owner is now trading on the Nasdaq.
The listing followed a spinoff of Madison Square Garden Inc. from the cable operator Cablevision to its shareholders last week. MSG is a collection of trophy assets but doesnâ€™t seem to be a gold-plated investment.
In addition to the Knicks, MSG owns the New York Rangers hockey team, the Madison Square Garden arena, Radio City Music Hall and some lesser-known teams and theaters. But the teams lose money, and the entertainment division, home to the Rockettes Christmas show, only broke even last year. The real value is in MSGâ€™s two regional sports networks, where the Knicks and Rangers are the primary draw.
The shares look fully priced already, after rising to $19.76, or 8.5 percent, in their first days of trading. Analysts expect MSG to generate about $95 million in earnings before interest, tax, depreciation and amortization, or Ebitda, for 2009. Add $30 million from a new broadcast deal with Cablevision, a better year for the Rockettes, other television-contract renewals and narrower losses for the teams, and MSG might just have EBITDA of $160 million in 2010, as some analysts forecast. Put that on a multiple of 10, the same as its closest peers, and you get an optimistic enterprise value of $1.6 billion.
Forget the cash on MSGâ€™s books â€” it will be chewed up in an estimated $800 million renovation of the Garden. All in that equates to $21 a share.
That price overlooks fresh competition and potential corporate governance costs. The Barclays Center in Brooklyn, where the New Jersey Nets are expected to play, is to open in 2012. And the Dolan family, which controls Cablevision, still controls MSG via super-voting shares. Conflicts are already apparent: The Dolans wonâ€™t let Cablevision rivals AT&T and Verizon carry the MSG networkâ€™s high-definition feed.
And then thereâ€™s the LeBron factor. His presence will benefit fans more than investors. More wins for the Knicks probably will not be enough to offset the cost of his contract. So by all means buy a courtside seat at the Garden â€” but sell MSG shares.