According to a report in Crain's New York Business, the signing of LeBron James could add $150 million dollars to the market cap of Madison Square Garden Inc, the parent company of the New York Knicks. Every time the mention of him signing with the Knicks comes within a wiff of the stock market, it's ticker jumps. The stock is so sensitive to the possibility of LeBron heading to NY that it jumped 12% when the Cleveland Cavaliers, his most recent team, lost their playoff series against the Boston Celtics.
Currently, the Knicks are one of the worst teams in the NBA. The past couple of years have not been kind to their fans as they shed the outsized contracts of players like Stephon Marbury, Jared Jeffries, Jerome James, Allan Houston and others that took up more space on the bench, disabled list and the payroll than they did on the stat sheet or all star team. The shedding of those contracts has provided the team with $35 million in salary cap room, more than enough to sign King James or two other top tier free agents.
For a fan base used to winning and expecting it every year this was a shock to the system. Fans stopped going to games and stopped watching the team on their MSG Network. The team disappeared from national telecasts it used to be prominently featured in just as quickly as it slid out of playoff contention.
The thought is that anyone, not just LeBron James, anyone signed to a contract representing an improvement over the current collection of players that would be on the island of misfit toys, were this a Christmas special, would represent an upgrade and cause more cash flow into the team. Higher TV ratings would mean more advertising revenue; more competitive games would mean more people in the seats at the Garden; eventually they could even raise ticket prices when they make the playoffs. A planned $850 million dollar renovation will also help bring fans into the outdated arena for at least a season. In addition to 78 new luxury suites, there will be 40% more points of sale for concessions that should add t to the bottom line.
That would be great for MSG shareholders, but signing LeBron would be like investing in an exploratory oil drilling company shortly before it makes its first big find. Currently, according to Forbes, the franchise is valued at $586 million. That value could rise as high as $736 million should LeBron come to the Knicks says Patrick Rishe, a professor of economics at Webster University and director of consulting firm Sports Impacts. This would come in the form of an immediate $10-$20 million boost in revenue and the rise in TV ratings that having the most dynamic player in the NBA on the team would provide. Not to mention that boost in advertising inside the arena because of the increased exposure of the team being on national TV again as well.
In summary, the gains would come from sponsorships, higher ticket prices, playoff games, eventual subscriber fee increases from cable and satellite operators—and rocketing ad rates on the MSG Network, the company's main source of profits according to Crain's.
Overall, according to Crain's, the company has performed reasonably well considering the difficulty of the Knicks to field a competitive team. In its first quarter since it was spun off from Cablevision Systems Corp., the new company's revenues rose 9% over the year-earlier period to $307 million. It had net income of $17 million, compared with a loss of $2 million in the first quarter last year. Its stock has risen 16% since its February debut, closing at $21.48 on Friday.
The arena bills itself as the "World's Most Famous Arena" has no real competition just yet. Not until the Nets move into the Barclay's Center in Brooklyn anyway. That's when they will need a star like LeBron to draw the crowds investors in MSG Inc will expect, new Nets owner Mikhail Prokhorov is playing for keeps.
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