Monday, December 17, 2012
Financials of a post-Lin Knicks
By Ian Begley
Some thought the Knicks were making a big business mistake when they let Jeremy Lin leave for Houston over the summer.
He’s only been gone for about five months, so some analysts say that it’s too early to tell if Lin’s departure will have any impact on the Knicks’ -- or Madison Square Garden’s -- business pursuits.
But thus far, Lin leaving hasn’t much of an impact -- if any -- on the either entity’s bottom line.
Jeremy Lin during Linsanity in Madison Square Garden.
The Madison Square Garden stock price fell from $38.91 on July 3 to $34.73 on July 23. The stock then rebounded and climbed over $44 a share in December.
Madison Square Garden also generated $204 million in revenue in the first quarter of the fiscal year (since Oct. 1), a 15% increase over the last year.
The bump in stock price is best measured, however, against market performance as a whole, according to Richard Tullo, the director of research at the Wall Street firm Albert Fried & Company.
The Dow Jones Industrial, for example, has increased by seven percent over that same time frame.
So, in essence, since Lin left, Madison Square Garden has thoroughly outperformed the market.
But that's had little to do with the point guard.
Here's a breakdown of some of the factors at play:
RENOVATION: The Garden is in the final stages of a three-year renovation, which has created new seating configurations in the arena. The new seating allowed the Knicks to raise season ticket prices by an average of 49 percent after the 2010-11 season.
The renovation also gave MSG an opportunity to generate revenue from new advertising opportunities and re-vamp its luxury boxes, thereby increasing the prices for said luxury boxes.
"This is all a significant increase in revenue," Tullo says.
GOOD TIME FOR SPORTS ON TV: External factors in the sports cable industry market have also helped MSG’s value, according to Peter Lawrence, a senior analyst at Thesis Fund Management.
Time Warner Cable, according to various reports, recently paid $3 billion for rights to air Lakers games.
"The fact that they were able to do that was a positive indicator for regional sports networks," Lawrence said.
Also, Rupert Murdoch's News Corporation reportedly valued the Yankees' YES Network at $3.4 billion.
This has all had a positive effect on the value of the Madison Square Garden Network, which airs Knicks and Rangers games.
One area, though, where Lin had a more direct impact on the Knicks was in their negotiations with Time Warner.
MSG and Time Warner were engaged in a contract dispute last winter which caused a blackout of the broadcast for many local teams, including the Knicks. The blackout lasted 48 days. Thirty seven days into the dispute, Lin became the starting point guard for the Knicks.
Governor Andrew Cuomo said at the time of the settlement that Lin’s presence increased the pressure on both sides to strike a deal.
The loss of Lin hasn't hurt the stock prices of Madison Square Garden.
Another impact of Lin’s departure -- albeit a small one -- is on the Knicks' television ratings.
Last season, MSG’s telecasts of Knicks games averaged a 3.30 Nielsen household rating, making it the highest-rated regular season ever on MSG.
The Knicks-Nets telecast on Feb. 20, 2011 generated a record 7.34 household rating, the highest rating for a regular season event in the network’s 24 years of broadcasting.
This season, so far, Knicks games are averaging a 3.28 Nielsen household rating, down 0.02 percent from last season’s average. But, the ratings are up nearly 75% from the same time period (pre-Linsanity) of last season.
"They knew if they put a good team on the floor, (Lin’s departure) wasn’t going to affect them significantly," Tullo says.
JERSEY SALES/TICKET SALES: Due to the breakdown of profits per the current collective bargaining agreement, the Knicks' financial benefit from Jeremy Lin jersey sales, particularly those sold outside of the Garden, was minimal.
According to the team and figures released by the NBA, jersey sales remain strong.
The Knicks jersey was top selling jersey in the league from April 2012 through Nov. 26, 2012.
There's no doubt that the team took a hit in t-shirt sales and other Lin-related paraphernalia, but that data was unavailable.
As far as ticket sales are concerned, the Garden says that season tickets for this year sold out and the season ticket renewal rate was over 95%.
Had the Knicks resigned Lin, they would have had to pay upwards of $40 million in luxury tax penalties in 2014-15. Instead, they obtained Raymond Feton and Jason Kidd, two of the driving forces behind their 18-5 start.
"The cap hit was a bridge too far," Tullo says, "The overall business decision to let Lin walk was a good one."