Buy the New York Knicks – Get the Rangers (Almost) Free!

Everyone knows that the best time to get great deals is after the holiday season.

Come January, the stores need to offer some incentive to get shoppers interested in pulling credit cards that were exhausted in November and December.

Apparently the stock market is thinking the same thing this year because there are plenty of great deals to be had.

And I’ve got my eye on one such deal that is going to let you purchase some highly admired American assets at an incredible price…

Buy One Iconic Sports Team and Get Another Nearly Free!

The Madison Square Garden Company (MSG) owns some of America’s most famous (and valuable) professional sporting and entertainment assets.

Included in the MSG asset portfolio are the New York Knicks, the New York Rangers, Madison Square Garden, the Los Angeles Forum, Radio City Music Hall and the Beacon Theater.

Madison Square Garden Company

These irreplaceable American treasures don’t just have incredible value, they are also constantly over time increasing in value.

Take the New York Knicks franchise for example. The Knicks were founded in 1946 and still represent one of the most valuable sporting franchises in the world today. Or how about the New York Rangers — which first iced a team in 1926!

These sporting franchises are incredibly durable businesses that aren’t going away any time soon. How many American companies in other industries operating today can match this kind of longevity?

The answer is very few, which is why assets like these are so special.

The most valuable asset that MSG owns is the NBA’s Knicks. Forbes values the Knicks at a whopping $3.6 billion, and pegs it as the most valuable franchise in the NBA.1

The true value of the Knicks is actually likely higher than the Forbes estimate. Recent sales of NBA franchises have taken place at prices well north of their Forbes valuation. The Houston Rockets and Brooklyn Nets were sold for 33 percent and 30 percent premiums to their respective Forbes valuations.

At a similar premium, the Knicks would fetch almost $4.7 billion in a sale.

Now here is where things get interesting…

If I add the $4.7 billion value of the Knicks to the $1 billion of cash that MSG has on its balance sheet I arrive at a figure of $5.7 billion.

With 23.7 million shares outstanding and a share price bumping around $260, the stock market is valuing the entirety of Madison Square Garden Company at $6.1 billion.

That means that all of MSG’s assets that aren’t the Knicks plus the cash are being valued by the market as being worth only $400 million.

Which as I’m about to show you is a heck of a bargain!

Johnny, Tell Them What They Get For $400 Million!

Those “other” assets that MSG owns are worth multiples of $400 million.

We can start with the New York Rangers franchise which Forbes estimates is worth $1.5 billion.2 That means that the Rangers alone are worth multiples of the $400 million.

Then we can move to Madison Square Garden itself, the world’s most famous arena. To get an idea of what the Garden might be worth, we can consider that more than $1 billion was recently spent renovating it or that it is tax assessed as being worth $1.2 billion. Again a value that is multiples of $400 million.

But wait, there is more!

The air rights above Madison Square Garden are also very valuable. In New York, where there isn’t an inch of unoccupied land to build on, vertical real estate is extremely valuable. A 2015 sale of Manhattan air rights above a Hudson River pier brought in $500 per square foot.3 At a similar valuation, the air rights above Madison Square Garden would fetch $1.1 billion.

I wish I could bottle that air and sell it!

Other assets that can be had for the low price of $400 million include the Forum in Los Angeles, MSG Entertainment (think the Christmas Spectacular and the Radio City Rockettes), Radio City Music Hall and others.

In total, there is very little doubt that there are several billions of dollars of value that is not being reflected in the current share price.

In addition to presenting very attractive value, MSG shares also offer a looming catalyst that will force the market to recognize that value.

The company has announced that it will be spinning out the sports teams (Knicks, Rangers, and the WNBA’s Liberty) into a separate company. That spin-out is being specifically done to force the market to finally properly value these iconic franchises.

In the last conference call, MSG management said that it expects that the spin-out will be completed in the first half of 2019. Which means now is the perfect time to do some post-holiday bargain shopping.

Here’s to looking through the windshield,

Jody Chudley

Jody Chudley
Financial Analyst, The Daily Edge

2 The Business of Hockey, Forbes
3 MSG: Trophy Properties for 35% Off

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Jody Chudley

Jody Chudley is a contributing analyst to Lifetime Income Report and Contract Income Alert. Jody is a qualified accountant with a degree in Finance from Brandon University. After spending fifteen years in various finance and planning roles with an international financial institution, Jody set out to manage his portfolio on a full-time basis.

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