Is Madison Square Garden A Good Stock To Buy Right Now? $MSG

Linsanity may have died down, but our interest in the world renowned sports venue that the Knicks call home remains high. People may not realize that Madison Square Garden (NASDAQ: MSG) was spun off from Cablevision (NYSE: CVC) in January 2010 and owns more than just the eponymous Madison Square Gardens. The company is an integrated media and sports company with ownership of the New York Knicks basketball team (NBA), the New York Rangers hockey team, the New York Liberty basketball team (WNBA), and two sports networks.

The Madison Square Garden Co (NASDAQ:MSG)

MSG reported earnings in early May, beating expectations. Both the affiliate media and sports segments performed well. In the media segment, revenues were up 12.6% to $65 million, driven by a $10 million increase in affiliate revenue.  This was impressive given the dispute it had with Time Warner, which had an estimated $17 million setback. Thanks to New York Governor Andrew Cuomo’s intervention, a new carriage deal was struck between the two entertainment giants. The new deal will contribute $32 million a quarter versus $48 million for two quarters under the old deal. Many attribute the increase in advertising to the temporary Linsanity craze that occurred, which boosted ratings significantly for the Knicks. We agree with that analysis though note that it may be non-recurring since Lin suffered an injury. The sports segment also outperformed with revenues up 37% to $216 million. MSG was able to benefit from the additional four Knicks games, ticket price increases for both Knicks and Rangers games, and sponsorships. For this year’s season, MSG raised season-ticket prices by 49% for the Knicks and by 23% for the Rangers. Even in the face of such steep increases, over 90% of Knicks season-ticket holders and over 85% of Rangers season-tickets holders renewed their tickets for the 2011-2012 season. Now that’s what I call pricing power.

Currently one of the main overhang on the stock is the billions MSG has committed to upgrading the Madison Square Garden event venue. The company reaffirmed guidance of $980mn in total anticipated capex for the year. As of the earnings announcement, approximately 70% of the budget had been allocated. Note that they expect another $250 million in capex in FY 2013. The capex should prove to be money well spent, resulting in top-of-the-line facilities after the renovations are complete. Management reported that the “transformation project” is on-budget (MSG & MSG theater will be closed after the NBA and NHL season end this summer). We would’ve liked to hear an update from management on the rumored purchased of the LA Forum, a landmark venue in Inglewood, CA, but there was no commentary.

What we really find compelling about MSG is the company’s free cash flow generation capabilities. After the renovation is complete, MSG should be able to generate approximately $175million to $200 million a year in FCF (assumes maintenance capex of $60 million and the same amount in taxes).

Sports is an interesting industry that commands an inexplicable loyalty from fans whose spending habits have proven to be fairly inelastic even during economic downturns. Fans have continued to pay for premium tickets to live events even when the economy was at its troughs. MSG has some unique assets that have high barriers to entry—it’s going to be tough to build another MSG in the heart of New York City. Even though the stock is up almost 20% in the past few months, we still think there is room for another ~20% of upside. Thus, we are inclined to agree with hedge fund managers Steven Richman, David Gallo, Christian Leone, and John Rogers who are all holders of the stock.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!