MSG - The Madison Square Garden Company

[Foreign Tuffett]

Spekulatius, Gregmal, thanks for the responses.

 

By comparison BATRK pays a fixed stadium rent of $6.1 million + property taxes ($2.4 million last year) under a very long term lease (expires some time in the mid to late 2040s) with Cobb County, GA. Maintenance costs are shared, but the team appears to pay most of them.

 

https://www.ajc.com/news/local-govt--politics/cobb-reckons-with-braves-stadium-debt-during-pandemic/jh3SXflP3iNIvftXNQvo3M/

 

To give you an idea of what a good deal this is for the team, the naming rights for the stadium are reportedly worth $10 million a year under a 25 year agreement.

 

https://www.sportsbusinessdaily.com/Daily/Issues/2014/09/17/Facilities/Braves.aspx

 

 

Law review article that has some details of the deal:

 

"IF YOU (PAY TO) BUILD IT, THEY WILL COME: RETHINKING PUBLICLY-FINANCED PROFESSIONAL SPORTS STADIUMS AFTER THE ATLANTA BRAVES DEAL WITH COBB COUNTY"

[Gregmal]

Sales like the Royals and Marlins have pretty well shown the bottom of the market for teams.  If the T-Wolves can get 1.2B plus w/o moving the team, which is the rumored starting point for discussions it will be yet another data point corroborating that.

 

Why aren't you making a distinction between NBA and MLB teams?

 

 

I think all sports teams are good "relative" feelers. You are right that there is a distinction, the more granular you want to get. But if the bottom teams in any sport are selling at record prices, I think thats a reasonable proxy for all of them as a whole. If for instance the Mets sell for $1.5B, I would definitely be concerned about the Knicks and Rangers, despite it being a baseball sale and a team that hemorrhages money.

 

Good article on the stadium too, thanks.

[wabuffo]

The note about stadium/arena rents reminded me of how much taxpayer subsidization there is in pro sports.  This got me remembering a trail-blazing article about the economics of sports from Sports Illustrated in July, 1978.  At the time, most observers and fans were largely ignorant about the economics of sports (Remember - this was the beginning of the free agent era in baseball and fans were bewildered about the sudden proliferation of multi-million dollar free agent salaries).

 

https://vault.si.com/vault/70789#&gid=ci0258bf1b902026ef&pid=70789---cover-image

 

In that long article, "Money: The Monster Threatening Sports", there were nine "plays" in the "Moneyball" playbook.

 

1) The Misdirection Play:                  Fact: The professional sports industry is a self-regulating monopoly.

2) The Encroachment Penalty:          Fact: Pro franchises are unfairly distributed.

3) The Big Money Play:                    Fact: Pro athletes are not overpaid.

4) The High-Percentage Shot:          Fact: Pro franchises are lucrative tax havens.

5) The Buck Lateral Series:              Fact: By one means or another, almost all professional teams make money.

6) The Grandstand Play:                  Fact: Ticket prices are determined by what the market will bear, not by players' high salaries.

7) The Very Old Sucker Play:            Fact: Pro teams are subsidized by the taxpayers.

8 ) The TV Time Out:                      Fact: Television money is essential to the successful operation of pro franchises.

9) The Unbalanced Formation:          Fact: Free agents are not destroying competitive balance, because it never existed.

 

Some of the maxims are quaint now, but I think they are all still largely true.  The article is available in the SI Vault that I linked above.  A good read - even if all the players mentioned are from forty years ago, and the power of the leagues has shifted somewhat (NBA especially, Baseball a bit lower, etc).

 

wabuffo

[KJP]

 

6) The Grandstand Play:                  Fact: Ticket prices are determined by what the market will bear, not by players' high salaries.

 

 

This is my favorite one.  Many fans think ticket prices are high because salaries are high, so they grumble about players being overpaid and are quite anti-labor.  They likely have the causation reversed.

[wabuffo]

Many fans think ticket prices are high because salaries are high, so they grumble about players being overpaid and are quite anti-labor.  They likely have the causation reversed.

 

I think the two most important "plays" above are 1 and 8.

 

I think even today, not many people recognize that pro sports are the only industry in the US that is exempt from anti-trust laws that bind every other business and industry from engaging in anti-competitive behavior.  This is what allows leagues to limit the number of franchises and allow a franchise owner to pit cities against each other in order to extract a better stadium deal. (ie, no. 7).  Large cities like New York City used to support three baseball teams in the 1940s-50s but now only has two.  Is it because NYC can only support two?  I don't think so - New York could probably support 5-6 MLB teams with all that local TV money available, but there are only 2 because baseball is exempt from anti-trust laws due to a Supreme Court ruling in the 20s.

 

No. 8 is important because the size of both national and local TV money (if it exists - NFL has no local TV deals) and how that money is divided between teams determines so much of the franchise value of each team.  There would be no Green Bay Packers nor Buffalo Bills if the NFL had a similar TV money structure like baseball does that is heavily dependent on local TV vs national - those franchises would've relocated long ago.

 

wabuffo

[KJP]

Many fans think ticket prices are high because salaries are high, so they grumble about players being overpaid and are quite anti-labor.  They likely have the causation reversed.

 

I think the two most important "plays" above are 1 and 8.

 

I think even today, not many people recognize that pro sports are the only industry in the US that is exempt from anti-trust laws that bind every other business and industry from engaging in anti-competitive behavior.  This is what allows leagues to limit the number of franchises and allow a franchise owner to pit cities against each other in order to extract a better stadium deal. (ie, no. 7).  Large cities like New York City could support 5-6 NFL teams but there are only 2 because the NFL is exempt from anti-trust.

 

No. 8 is important because the size of both national and local TV money (if it exists - NFL has no local TV deals) and how that money is divided between teams determines so much of the franchise value of each team.  There would be no Green Bay Packers nor Buffalo Bills if the NFL had a similar TV money structure like baseball does that is heavily dependent on local TV vs national - those franchises would've relocated long ago.

 

wabuffo

 

I agree, but most of this happens in the background, so fans don't see the direct impact.  They do with ticket prices, and they (in my view) misidentify the cause.

 

I think fans would be better off with an open, multi-level system with promotion and relegation, like European soccer leagues.  But as you note, the owners have no reason to adopt such a system.

[Foreign Tuffett]

Sales like the Royals and Marlins have pretty well shown the bottom of the market for teams.  If the T-Wolves can get 1.2B plus w/o moving the team, which is the rumored starting point for discussions it will be yet another data point corroborating that.

 

Why aren't you making a distinction between NBA and MLB teams?

 

 

I think all sports teams are good "relative" feelers. You are right that there is a distinction, the more granular you want to get. But if the bottom teams in any sport are selling at record prices, I think thats a reasonable proxy for all of them as a whole. If for instance the Mets sell for $1.5B, I would definitely be concerned about the Knicks and Rangers, despite it being a baseball sale and a team that hemorrhages money.

 

Good article on the stadium too, thanks.

 

My understanding is that it has been widely reported that Cohen has already bid at least $2 billion, with at least one other bidder still involved in the process.

 

 

I think a very important distinction to be made in any discussion about sports team sales is whether the comps were forced sales, or otherwise detached from economic reality. So, using baseball as an example, and in reverse chronological order:

 

2019 - Royals sold due to owners' failing health (died just a few months after the sale closed)

 

2018 - Marlins sold. Owner probably was not a forced seller. $1.2 billion a very good price for what is, per Forbes, the least valuable team in the MLB

 

2016 - Nintendo (yes, that Nintendo) sold majority interest in Mariners to a group that already owned a minority interest in the team. Why did Nintendo own an American baseball team? I have no idea. Why did it insist on maintaining 10% ownership of the team? I have no idea.

 

The next most recent sales were in 2012.

 

So how many good, recent comps do we have for the sale of a MLB team? Maybe just the Marlins transaction? Even the Mets owners (Wilpon family) are reportedly very motivated sellers due to their financial circumstances. 

[winjitsu]

 

2016 - Nintendo (yes, that Nintendo) sold majority interest in Mariners to a group that already owned a minority interest in the team. Why did Nintendo own an American baseball team? I have no idea. Why did it insist on maintaining 10% ownership of the team? I have no idea.

 

 

Nintendo owner never attended a game. He bought the team as a thank you to the city of Seattle for headquartering and helping Nintendo of America grow. The current Mariners have the longest play-off drought of any professional sports team in the US, I believe, and the apathy of the owners was quite apparent. I'm glad they were finally sold!

 

https://uproxx.com/sports/seattle-mariners-nintendo-ownership/

[Spekulatius]

Many fans think ticket prices are high because salaries are high, so they grumble about players being overpaid and are quite anti-labor.  They likely have the causation reversed.

 

I think the two most important "plays" above are 1 and 8.

 

I think even today, not many people recognize that pro sports are the only industry in the US that is exempt from anti-trust laws that bind every other business and industry from engaging in anti-competitive behavior.  This is what allows leagues to limit the number of franchises and allow a franchise owner to pit cities against each other in order to extract a better stadium deal. (ie, no. 7).  Large cities like New York City used to support three baseball teams in the 1940s-50s but now only has two.  Is it because NYC can only support two?  I don't think so - New York could probably support 5-6 MLB teams with all that local TV money available, but there are only 2 because baseball is exempt from anti-trust laws due to a Supreme Court ruling in the 20s.

 

No. 8 is important because the size of both national and local TV money (if it exists - NFL has no local TV deals) and how that money is divided between teams determines so much of the franchise value of each team.  There would be no Green Bay Packers nor Buffalo Bills if the NFL had a similar TV money structure like baseball does that is heavily dependent on local TV vs national - those franchises would've relocated long ago.

 

wabuffo

 

The problem with TV is that the bundle is is falling apart. This means that either revenue go down for the teams (and with they their value) or the viewers that do like to watch sports in TV will have to pay much more. I think the latter is how this is going to play out, but it won’t be a painless transition, imo.

 

With MSG, you have to add the “leaches” MSG (TV rights) and part of MSGS (stadium rents  etc) to the EV value  and I am not sure the way this was split is creating much value as is. It makes it harder to sell the teams.

 

Anyways, I am out after some consideration. In the end, it’s just an asset play that won’t create any FCF and likely will bleed some money while waiting for the sellout.

[txvalue]

Sales like the Royals and Marlins have pretty well shown the bottom of the market for teams.  If the T-Wolves can get 1.2B plus w/o moving the team, which is the rumored starting point for discussions it will be yet another data point corroborating that.

 

Why aren't you making a distinction between NBA and MLB teams?

 

The average value for NBA & MLB teams is similar - both are a touch under 2 billion. I tend to think NBA teams are worth a bit more but valuations are more related than you'd think at first blush in terms of revenue, markets etc. 

 

With so few comps I think its a useful barometer to see where things stand. As a side-note really interesting to see PE money flowing into the space, the minority stake sales seem to be pretty active and under reported. Lots of investors/value investors hold stakes in teams everyone from big names to guys like David Abrams.

 

[Gregmal]

Rangers just won the draft lottery.

 

"Lafreniere, long-considered the consensus No. 1 pick and who has drawn comparisons to future Hall of Famer Sidney Crosby, had 35 goals and 77 assists for 112 points in 52 games last season with Rimouski Oceanic (QMJHL)."

 

 

Probably won't be a huge impact next season, but the Rags will almost certainly be a premier team 2-5 years from now with the rebuild they've now put together. Good for hockey, good for MSG. (Hate it as a Devils fan)

[spartansaver]

Rangers just won the draft lottery.

 

"Lafreniere, long-considered the consensus No. 1 pick and who has drawn comparisons to future Hall of Famer Sidney Crosby, had 35 goals and 77 assists for 112 points in 52 games last season with Rimouski Oceanic (QMJHL)."

 

 

Probably won't be a huge impact next season, but the Rags will almost certainly be a premier team 2-5 years from now with the rebuild they've now put together. Good for hockey, good for MSG. (Hate it as a Devils fan)

 

Tell that to Edmonton Oilers fans.

[bizaro86]

Rangers just won the draft lottery.

 

"Lafreniere, long-considered the consensus No. 1 pick and who has drawn comparisons to future Hall of Famer Sidney Crosby, had 35 goals and 77 assists for 112 points in 52 games last season with Rimouski Oceanic (QMJHL)."

 

 

Probably won't be a huge impact next season, but the Rags will almost certainly be a premier team 2-5 years from now with the rebuild they've now put together. Good for hockey, good for MSG. (Hate it as a Devils fan)

 

Tell that to Edmonton Oilers fans.

 

The Edmonton Oilers are a 6 sigma event on screwing up number one picks. The NHL literally changed the rules of the draft lottery because they kept winning and wrecking young players with terrible development. Then they won the McDavid lottery under the new rules. If you draft flops number 1 (Yakupov), trade great players for scraps (Hall), or don't make them backcheck (McDavid) you'll have poor results. They've had 4 number one picks in the last 10 drafts and still couldn't make it out of the qualifiers this year. Most of this is just terrible management imo. Classic example is the 2014 draft, where they took Jesse Puljujarvi at number 4. Even at the time it was obvious they should have taken Tkachuk or Keller if they wanted a forward. These two (the next two forwards drafted) have both already been named All-Stars, while Puljujarvi is now a reclamation project who probably ends up playing in Europe.

 

I'm a big fan of their biggest rivals, and I think it would be more fun if they weren't such a dumpster fire.

 

Back on topic - Lafreniere seems to be the real deal. The Rangers have been doing a good job with their rebuild, and they have a big advantage with UFAs based on the desirability of living in NYC for young, rich men. Couple more years and a few rounds of playoffs are likely in MSG.

[spartansaver]

Rangers just won the draft lottery.

 

"Lafreniere, long-considered the consensus No. 1 pick and who has drawn comparisons to future Hall of Famer Sidney Crosby, had 35 goals and 77 assists for 112 points in 52 games last season with Rimouski Oceanic (QMJHL)."

 

 

Probably won't be a huge impact next season, but the Rags will almost certainly be a premier team 2-5 years from now with the rebuild they've now put together. Good for hockey, good for MSG. (Hate it as a Devils fan)

 

Tell that to Edmonton Oilers fans.

 

The Edmonton Oilers are a 6 sigma event on screwing up number one picks. The NHL literally changed the rules of the draft lottery because they kept winning and wrecking young players with terrible development. Then they won the McDavid lottery under the new rules. If you draft flops number 1 (Yakupov), trade great players for scraps (Hall), or don't make them backcheck (McDavid) you'll have poor results. They've had 4 number one picks in the last 10 drafts and still couldn't make it out of the qualifiers this year. Most of this is just terrible management imo. Classic example is the 2014 draft, where they took Jesse Puljujarvi at number 4. Even at the time it was obvious they should have taken Tkachuk or Keller if they wanted a forward. These two (the next two forwards drafted) have both already been named All-Stars, while Puljujarvi is now a reclamation project who probably ends up playing in Europe.

 

I'm a big fan of their biggest rivals, and I think it would be more fun if they weren't such a dumpster fire.

 

Back on topic - Lafreniere seems to be the real deal. The Rangers have been doing a good job with their rebuild, and they have a big advantage with UFAs based on the desirability of living in NYC for young, rich men. Couple more years and a few rounds of playoffs are likely in MSG.

 

Call it what you want, there's never a near certain path to become a premier team. Also I feel like every year, the number one pick becomes over-hyped. There are very few Crosby's/McDavid's who are generational players. Picking great draft picks in hind sight is very easy, but it's a giant crap-shoot. It's all easy in hindsight to say how bad managements are, but most of the time at the professional levels I think it comes down to luck. It's like investing, except there are no inefficient areas.

[Gregmal]

Simply having the number 1 overall is great for marketing, merchandise, and(not that they need it) ticket sales, if nothing else. The overall direction of the team is definitely, up.

 

I think Edmonton is a mix. They did have some awful management issues. Buts its also not as though they didnt have some bad luck. Nugent Hopkins never bulked up and stayed healthy. Yakupov was a typical Russian bust. But they also were guilty of self inflicted injuries. The Hall trade. The Lucic signing. Talbot. If I am not mistaken, they also had the Barzal pick and traded it for an already established draft bust...

[bizaro86]

Rangers just won the draft lottery.

 

"Lafreniere, long-considered the consensus No. 1 pick and who has drawn comparisons to future Hall of Famer Sidney Crosby, had 35 goals and 77 assists for 112 points in 52 games last season with Rimouski Oceanic (QMJHL)."

 

 

Probably won't be a huge impact next season, but the Rags will almost certainly be a premier team 2-5 years from now with the rebuild they've now put together. Good for hockey, good for MSG. (Hate it as a Devils fan)

 

Tell that to Edmonton Oilers fans.

 

The Edmonton Oilers are a 6 sigma event on screwing up number one picks. The NHL literally changed the rules of the draft lottery because they kept winning and wrecking young players with terrible development. Then they won the McDavid lottery under the new rules. If you draft flops number 1 (Yakupov), trade great players for scraps (Hall), or don't make them backcheck (McDavid) you'll have poor results. They've had 4 number one picks in the last 10 drafts and still couldn't make it out of the qualifiers this year. Most of this is just terrible management imo. Classic example is the 2014 draft, where they took Jesse Puljujarvi at number 4. Even at the time it was obvious they should have taken Tkachuk or Keller if they wanted a forward. These two (the next two forwards drafted) have both already been named All-Stars, while Puljujarvi is now a reclamation project who probably ends up playing in Europe.

 

I'm a big fan of their biggest rivals, and I think it would be more fun if they weren't such a dumpster fire.

 

Back on topic - Lafreniere seems to be the real deal. The Rangers have been doing a good job with their rebuild, and they have a big advantage with UFAs based on the desirability of living in NYC for young, rich men. Couple more years and a few rounds of playoffs are likely in MSG.

 

Call it what you want, there's never a near certain path to become a premier team. Also I feel like every year, the number one pick becomes over-hyped. There are very few Crosby's/McDavid's who are generational players. Picking great draft picks in hind sight is very easy, but it's a giant crap-shoot. It's all easy in hindsight to say how bad managements are, but most of the time at the professional levels I think it comes down to luck. It's like investing, except there are no inefficient areas.

 

There isn't a near certain path to becoming a premiere team, but a number one pick definitely helps. Most number one picks end up being very good players - to have a bust like Yakupov is very rare. In fact, all post 2002 number one picks are still in the league except Yakupov. 2002 was Rick Nash, who retired after an all star career.

 

If you go through the list of the most recent number one picks not on their entry level deals, you get Austin Matthews, Connor McDavid, Aaron Ekblad, Nathan MacKinnon, Nail Yakupov, Ryan Nugent-Hopkins, Taylor Hall, John Tavares, Stephen Stamkos, Patrick Kane, Erik Johnson, Sidney Crosby, Alex Ovechkin, and Marc-Andre Fleury. Yakupov is clearly the worst player on that list, and Nugent-Hopkins is the second worst. I think the oilers drafting is pretty clearly an example of negative skill effects.

 

I also think there are inefficient areas in the NHL, and am surprised to hear value investors think otherwise. The trade deadline often has significant overpayments as just one examlle. That makes sense because of incentives - a GM worried about his job has an incentive to overpay with futures for success now. There are only 31 NHL GMs, I doubt that is enough for a perfectly efficient market.

[Gregmal]

Look at what Chicago/Boston/Tampa did with respect to trades and drafting and how it prolonged their peak years, as an example of the other side of management.

[spartansaver]

That's fair that its not perfectly efficient, but like I said it's easy to see in hindsight. Trades can be more beneficial for one team, but in the moment it's tough to know who won a trade (there are of course some exceptions, but I'd say this is the rule). I just don't think its anywhere near most people's wheelhouse to evaluate a sports team management (including myself).

[bizaro86]

That's fair that its not perfectly efficient, but like I said it's easy to see in hindsight. Trades can be more beneficial for one team, but in the moment it's tough to know who won a trade (there are of course some exceptions, but I'd say this is the rule). I just don't think its anywhere near most people's wheelhouse to evaluate a sports team management (including myself).

 

I think there are definitely mistakes that were obvious at the time they occur. The oilers trading Hall is an obvious one, and more painful for me was D Sutter's trade of Phaneuf to the Leafs for spare parts. I think that is a good example of inefficiency - it was widely rumored in Calgary that locker room conflict played a part in that trade, and Sutter got fed up and desperate and took the first offer. Other GMs were quoted later (anonymously, but by reputable inside sources) saying they would have paid more for Phaneuf if they had known he was on the market.

 

It's harder to separate skill from luck in sports team management than investment management, because not everyone has the same opportunity set. With few exceptions all investors have access to the same stocks, but a GM only has the players and draft picks they start with, and once someone else drafts a player they can't also select that player.

[Gregmal]

I just remembered Mike Milbury's tenure with the Islanders. LOL

[spartansaver]

That's fair that its not perfectly efficient, but like I said it's easy to see in hindsight. Trades can be more beneficial for one team, but in the moment it's tough to know who won a trade (there are of course some exceptions, but I'd say this is the rule). I just don't think its anywhere near most people's wheelhouse to evaluate a sports team management (including myself).

 

I think there are definitely mistakes that were obvious at the time they occur. The oilers trading Hall is an obvious one, and more painful for me was D Sutter's trade of Phaneuf to the Leafs for spare parts. I think that is a good example of inefficiency - it was widely rumored in Calgary that locker room conflict played a part in that trade, and Sutter got fed up and desperate and took the first offer. Other GMs were quoted later (anonymously, but by reputable inside sources) saying they would have paid more for Phaneuf if they had known he was on the market.

 

It's harder to separate skill from luck in sports team management than investment management, because not everyone has the same opportunity set. With few exceptions all investors have access to the same stocks, but a GM only has the players and draft picks they start with, and once someone else drafts a player they can't also select that player.

 

And yet D. Sutter won two cups with the Kings. Was he a good coach/poor GM? Would any coach who came into the Kings mid-season have won two cups? Was he a decent GM that made a poor trade?

[bizaro86]

That's fair that its not perfectly efficient, but like I said it's easy to see in hindsight. Trades can be more beneficial for one team, but in the moment it's tough to know who won a trade (there are of course some exceptions, but I'd say this is the rule). I just don't think its anywhere near most people's wheelhouse to evaluate a sports team management (including myself).

 

I think there are definitely mistakes that were obvious at the time they occur. The oilers trading Hall is an obvious one, and more painful for me was D Sutter's trade of Phaneuf to the Leafs for spare parts. I think that is a good example of inefficiency - it was widely rumored in Calgary that locker room conflict played a part in that trade, and Sutter got fed up and desperate and took the first offer. Other GMs were quoted later (anonymously, but by reputable inside sources) saying they would have paid more for Phaneuf if they had known he was on the market.

 

It's harder to separate skill from luck in sports team management than investment management, because not everyone has the same opportunity set. With few exceptions all investors have access to the same stocks, but a GM only has the players and draft picks they start with, and once someone else drafts a player they can't also select that player.

 

And yet D. Sutter won two cups with the Kings. Was he a good coach/poor GM? Would any coach who came into the Kings mid-season have won two cups? Was he a decent GM that made a poor trade?

 

I think D Sutter is an exceptional coach and a middling GM. He has some exceptional wins (Kiprusoff trade) and some exceptional losses (Phaneuf trade). The poor moves tended to occur at the end of his tenure in Calgary when I suspect he had poor incentives and was probably burned out.

 

I should clarify that wasn't intended as criticism of him, but rather an example of an inefficient market. I think all GMs make mistakes, I've met Darryl Sutter a number of times and have a great deal of respect for him.

[Gregmal]

Totally off topic but Lightning-Jackets just confirmed, even without fans...theres nothing like playoff hockey.

[Gregmal]

The lowly Mets go to Cohen for $2.4ish. New record for a sports franchise.

[jgyetzer]

Consistent with Forbes valuation.  Wonder how this will impact valuations of other MLB fanchises.  Looking at you BATRA...