July 17 (Bloomberg) -- Gamco Investors Inc., Madison Square Garden Co.’s third-largest shareholder, has a “sell” rating on Jeremy Lin.
The National Basketball Association’s New York Knicks, owned by MSG, should allow the 23-year-old point guard to go to the Houston Rockets because his contract overvalues him, Chris Marangi, a portfolio manager at Rye, New York-based Gamco, said in a telephone interview.
New York can keep Lin by matching Houston’s three-year, $25.1 million offer. The third year of the deal would be worth $14.8 million, nearly three times higher than the average NBA salary. The signing of veteran Jason Kidd and the trade that brought Raymond Felton back to the team indicate the Knicks may be planning for a future without the Harvard University graduate.
“We like it when companies shop for bargains, and Ray Felton looks like a bargain compared to Jeremy Lin,” Marangi said. “We’re value investors.”
Gamco and Gabelli Funds, a sister investment program, own about 5 million shares of MSG, approximately 8 percent of the company and trailing only Southeastern Asset Management Inc. and T Rowe Price Group Inc. in the firm’s holdings.
Lin’s back-loaded contract, when combined with the salaries of New York’s Carmelo Anthony, Amar’e Stoudemire and Tyson Chandler, would cause the James Dolan-owned team to pay tens of millions of dollars in luxury taxes, the NBA’s method of preventing large-revenue clubs from hoarding the league’s best players.
The luxury tax on Lin’s deal may cost the Knicks an extra $35 million to $45 million in payments by the third year of the contract if the team keeps Anthony, Stoudemire and Chandler.
“From the point of fiscal restraint, I don’t see how you can argue for Jeremy Lin, in any shape or form,” Rich Tullo, an analyst at Albert Fried & Co., said in an interview.
Lin has played 64 NBA games -- less than a full season -- and is returning from a knee injury that kept him out of the final 17 games of the 2011-12 regular season and the playoffs.
His meteoric rise, dubbed “Linsanity,” peaked in February after Lin scored 38 points against Kobe Bryant and the Los Angeles Lakers and 28 points against the defending champion Dallas Mavericks. Lin led the Knicks to a 10-4 February record and his fame was credited with encouraging Time Warner Cable Inc. and MSG to sign a contract to carry the MSG Network, which airs Knicks games.
Lin’s success fueled a 37 percent increase in ticket and merchandising sales last quarter to $216.1 million. While that’s an $80 million boost, his presence already has been priced into the stock, said David Joyce, an analyst at Miller Tabak & Co. in New York.
MSG shares, which have gained 25 percent this year, fell 0.5 percent to $35.81 at 4 p.m. New York time.
The TV rights deal will be Lin’s biggest effect on the Knicks, even if the team signs him to a new contract, Tullo said. Cable and satellite-TV operators pay more than $4.50 a month per subscriber for MSG and MSG Plus, according to researcher SNL Kagan.
“The benefit of Linsanity was manifested in the Time Warner Cable affiliate agreement that’s providing the team with an annuity in the future, and the Knicks have already received that benefit,” Tullo said.
Ultimately, signing Lin won’t be as important to MSG’s performance as a winning Knicks team, Marangi said. “I think Jeremy Lin would be forgotten if the Knicks are able to put together a strong run next year.”
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