MSG Sports Loses Money for Third Straight Year, But Morgan Stanley Is Bullish

After a dire 2020, Madison Square Garden Sports (MSGS) released its fiscal year and quarterly earnings reports this morning. While the parent company of the New York Knicks and Rangers reported losses for the fiscal year ending in June, Wall Street analysts think it is a good bargain.

MSGS reported $415.7 million in revenues and an operating loss of $78.4 million, and an adjusted operating loss of $12.5 million for the fiscal year. For the fiscal 2021 fourth quarter, MSGS reported $146.9 million in revenues, up from negative $7 million in revenues of the same quarter the year before. The report stated this increase in revenue was driven by “higher league distributions, local media rights fees from MSG networks, sponsorships and signage revenues, playoff-related revenues and regular season ticket-related revenues.”

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The company sounded optimistic about its emergence from the pandemic. “We are not completely out of the woods, but we are confident,” Andrew Lustgarten, the president and the CEO of MSGS, said during the call. “New York has the highest vaccination rates, and our fans are comfortable attending games with vaccination mandates,” he added. “The company expects all their 82 games to take place in full capacity.”

During the call and Q&A, Lustgarten emphasized the difficulties faced due to COVID-19 and strategies his team put together for the next season and beyond.

Analysts are more interested in that future than last year’s results. “It’s a completely abnormal year,” Brandon Ross, a partner at LightShed Partners, said in a phone interview with Sportico. “I don’t think that most investors are looking at the quarterly report and thinking it’s reflective of what’s happening in the business. The metrics that investors are going to key in on are what advanced ticket sales and season tickets look like for this coming season.”

In addition to ticket sales, Ross believes developments in sports betting are what investors will consider because of “the abnormality of the [last] season.”

Lustgarten welcomed the legalization of mobile sports betting, which is set to happen in New York. “We love sports betting for what it does for fan engagement,” he said. “It is great for the consumer experience, sponsorship value and marketing.”

The earnings report came after Morgan Stanley analysts’ note recommending the stock. According to Morgan Stanley equity analysts, MSGS is trading at a “38% discount to the private market value of its marquee franchises, the NBA’s Knicks and NHL’s Rangers.” Analysts estimated that the Knicks value alone “translates into $181 a share for MSGS,” 17% above the current share price.

“I don’t think anyone can argue with the fact that MSG sports own the premier sports franchises,” Ross said. “The biggest risk facing the future of sports teams is the ability to get high valuations on their media rights. And it so happens that both the Knicks and Rangers are locked into very long-term local sports rights deals. And there’s still some time left on national sports rights deals.”

MSGS is a rare publicly traded pure-play sports equity in the market. Aside from the Knicks and the Rangers, the company owns two development league teams (Hartford Wolfpack and Westchester Knicks) and esports teams through Counter Logic Gaming.

MSG Sports and MSG Entertainment spun out of the Madison Square Garden (MSG) company. They began trading on the New York Stock Exchange in April of 2020 after Madison Square Garden Company split its sports teams and venues into two separate publicly traded companies. Lustgarten underlined that they do not have any intention to merge sports (MSGS) and entertainment (MSGE). “We have a very straight rationale for why we did it, and we believe it still holds,” he said.

According to Sportico’s valuations, the New York Knicks are the NBA’s most valuable franchise, at $5.4 billion.

Ross believes what’s happening with New York sports betting is going to impact both sports and entertainment, though there’s more uncertainty now that the state’s governor, Andrew Cuomo, is stepping down. “We don’t know yet, but if there’s an expansion of legalized sports betting in New York in this post-Cuomo era,” he added, “it can impact sponsorship and advertising dollars.”

New York does not yet allow online sports betting but is weighing bids from six companies, and platforms could be available in time for February’s Super Bowl.

With assistance from Brendan Coffey.

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