MSG Stock Jumps If Knicks Sign LeBron James

James Lebron Photo: Keith Allison

A stock price may jump when a CEO joins the company, but what about an MVP? On Friday, a Wall Street analyst speculated that Madison Square Garden shares could leap if LeBron James signs an employment agreement July 1.

Now a publicly traded entity after splitting from Cablevision, MSG operates the New York Knicks and Rangers and the eponymous MSG network. If James joins the Knicks, revenues from season-ticket sales, TV affiliate fees, ad sales and in-stadium sponsorships would likely soar.

Acquisition cost? About $16 million in year one -- 1.5% of 2009 revenue.

That would, however, give James about $2 million more than CEO Hank Ratner's 2010 package -- and $13 million more than executive chairman James Dolan, whose family controls MSG.

The MSG network carries Knicks games, and the higher ratings from James' appearances on the channel should boost ad pricing and bring higher affiliate fees from distributors. The company is also in the midst of a nearly $800 million revamp of the Madison Square Garden arena.

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"While MSG is experiencing strong earnings growth, led by its cable networks -- investors are hoping that James chooses to come to New York to improve the profitability of the Knicks (ticket sales/suite sales/merchandising/MSG Network ratings, etc...), and to help drive the ROI of the Garden rebuild project," wrote Richard Greenfield of BTIG Research.

James, whose Cleveland Cavaliers were eliminated from the NBA playoffs last week, is a free agent and coveted by a slew of teams, with the Knicks and Cavaliers considered the most likely to sign him.

This may be the first time that observers can watch a share price bounce up and down as reports come out purporting to know which way a player is leaning. Wall Street, however, may think the Knicks will have difficulty. MSG's shares were down Friday, albeit by less than 1%.

"After Cleveland's exit from the NBA playoffs ... MSG investor attention will undoubtedly turn to whether or not the New York Knicks can land LeBron James after he becomes a free agent in July," Greenfield wrote.

Greenfield did not speculate on how much extra revenue James could bring to MSG or his impact on the share price -- neither would an MSG representative -- but MSG is doing well in both areas now.

Even with the abysmal Knicks and the Rangers failing to make the playoffs, first-quarter revenues were up a slight 1% (to $143 million) for the company's unit that runs the teams. It increased 18% for the division that operates MSG network and other outlets (to $140 million).

Company-wide, MSG posted a 9% increase to $307 million. Net income was $17 million, after a slight loss a year ago. The share price closed Friday at $22, near a high since it became an independent company.

Although James -- the NBA MVP this year -- would be the most celebrated, he might not be the only high-priced player the Knicks add this summer. The team has room under the NBA salary cap to sign another free agent, such as Toronto's Chris Bosh, to a max $16 million-type contract.

CEO Ratner is expected to earn a compensation package, including cash and stock, of $13.8 million this year, while Dolan's target is $3.3 million, according to a government filing. Dolan also collects from Cablevision, where he is the CEO.

As of March 31, MSG reported its season-ticket-holder relationships have a net intangible-asset value of $47.3 million and suite-holder relationships are $8.4 million.

A renovated Madison Square Garden, with suites closer to the court, is expected to boost the latter.

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