MSG Investors Hear the Crowd Roar

by Marc Bastow | August 24, 2012 1:19 pm

I’m getting a raft of grief this morning from my sports-minded colleagues on the news that Madison Square Garden (NYSE:MSG[1]) — otherwise known to some of us as “The Magical World of Madison Square Garden, the Most Famous Arena in the World” — stock is soaring after a blowout quarter[2]. As of this writing the stock is up 6% today, and is up nearly 42% year-to-date and almost 81% over one year.

As Dick Barnett, the estimable guard from the New York Knicks’ glory days (read: 1970-1973), would say: “Fall back, baby.”

Let’s take the insults one at a time: first, InvestorPlace Editor Jeff Reeves[3] sneered that MSG is a thinly traded stock that nobody really cares about. OK, yes, it is thinly traded: The stock is 76% owned by institutions, and I suspect the Dolan family owns the rest. And even as it rose 6% this morning on the good earnings news, it’s trading at sub-500,000 shares. Average daily volume is just under 200,000 shares. So, you’ve got me there, Jeff.

But like the fans who sell out The Garden every night for Knicks and Rangers games, those small-number investors are thrilled that fourth-quarter earnings TRIPLED from last year, as both the Knicks and Rangers respectively made the NBA and NHL playoffs.

For the record, MSG reported a quarterly profit of $28.6 million, or 37 cents a share, up from $8.5 million, or 11 cents, a year earlier, and revenue rose 42% to $332.9 million. According to The Wall Street Journal[4], analysts surveyed by Thomson Reuters recently forecast earnings of 22 cents on revenue of $332.9 million. Meanwhile, operating margin widened to 15% from 6.2%.

The Knicks actually contributed an even higher percentage of the revenue than anticipated as the strike-shortened NBA season compressed game schedules, and provided teams with what seemed a greater visibility on the winter sports landscape. The result: jersey sales.

Which brings me to a second jab from another InvestorPlace colleague (and rabid Cleveland sports fan), Kyle Woodley[5], who was surprised at the pop in earnings since the team allowed phenom/superstar/NBA poster child Jeremy Lin to leave after the season to Houston. Linsanity ruled the Garden[6] for weeks, but in the end MSG decided not to renew or restructure his contract due to monetary considerations.

But sell jerseys and apparel he did, and it showed in the quarterly earnings. Sport segment revenues jumped 47%, and operating income improved by $11 million over last year. Linsanity may yet come back to bite management both on the court and in the pocketbook, but that will have to wait for another quarter.

Of course, MSG isn’t just about the sports teams: MSG was spun off from Cablevision Systems (NYSE:CVC[7]) in 2010, with Madison Square Garden part of the package. Anyone who has attended an event there recently knows the place is a bit of a mess because the company is doing extensive renovations to what my son once dubbed “a dump.” But it is getting nicer.

MSG also operates Radio City Music Hall and the Beacon Theater, both in New York City, and in June MSG paid just over $23 million to acquire the Los Angeles Forum. Between the four sites, MSG has some of the best concert venues available, and while the company’s entertainment business is still in the red, losses narrowed to $8.7 million from $14.5 million last year, while revenues rose 41%.

So yeah, I get it: thinly traded stock, let the best thing they had get away, the place is a bit of a dump as it goes through renovations, the stock trades at an absurd 37 times earnings and blah, blah, blah.

The stock is soaring, the Garden is roaring and I still hope to get a season ticket package in my lifetime. Take it and like it my peeps!

Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing he does not hold a position in any of the aforementioned securities, nor does he have season tickets for either the Knicks or Rangers. 

Endnotes:
  1. MSG: http://studio-5.financialcontent.com/investplace/quote?Symbol=MSG
  2. after a blowout quarter: http://investorplace.com/2012/08/madison-square-garden-q4-profit-triples-shares-up/
  3. Jeff Reeves: http://investorplace.com/author/jeff-reeves/
  4. According to The Wall Street Journal: http://online.wsj.com/article/BT-CO-20120824-705731.html
  5. Kyle Woodley: http://investorplace.com/author/kyle-woodley/
  6. Linsanity ruled the Garden: http://investorplace.com/2012/02/invest-in-msg-thats-pure-linsanity/
  7. CVC: http://studio-5.financialcontent.com/investplace/quote?Symbol=CVC

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