Rangers Title Seen as Nice to Have in Record Revenue YearEben Novy-Williams
The New York Rangers have given Madison Square Garden Co. almost everything they can, even before playing a single Stanley Cup finals game.
The best-of-seven championship series begins tonight with the Rangers on the road against the Los Angeles Kings. New York’s run to its first finals berth in 20 years will bring more than $37 million in revenue for MSG, contributing to what Rich Tullo, director of research at Albert Fried & Co., said he expects to be record revenue for the New York company.
As National Hockey League fans pay record ticket prices on the secondary market and MSG stock rises, analysts say the result of the championship series is largely irrelevant to the company’s bottom line.
“Getting to the championship is the revenue event,” Tullo said in a telephone interview. “Winning the championship, for the fans, is monumental. For the investor, it’s fairly inconsequential.”
Win or lose, MSG is guaranteed 12 home playoff games -- and a 13th if the series goes to Game 6 -- which Tullo said is the most important factor in calculating postseason revenue.
MSG, which has sports, media and entertainment divisions, was spun off by Cablevision Systems Corp. four years ago. Revenue has increased every year to $1.34 billion in the fiscal year ended June 2013, of which 35 percent, or $470 million, came from sports. Tullo said he estimated fiscal 2014 numbers to grow to a record $1.36 billion, a number that will increase with the added Stanley Cup games.
Michael Morris, a media analyst with Guggenheim Securities in New York, said each home playoff game is worth about $3 million in revenue for MSG Sports, which also includes the National Basketball Association’s Knicks. About a third of that total, or $1 million a game, is operating profit.
“And that doesn’t include the incremental advertising revenue for added playoff programming on their channels,” Morris said, referring to the MSG Media segment. “There’s lasting power of driving higher ratings for Rangers games next season, programming next year and the ability to leverage the popularity in higher affiliate fees in the future.”
There’s also a chance to cross-promote the company’s entertainment segment, which includes Manhattan’s Radio City Music Hall and the Beacon Theatre, said Paul Sweeney, an analyst for Bloomberg Industries.
MSG Chief Financial Officer Robert Pollichino said on the company’s third-quarter conference call May 2 that it generated $47 million in revenue from 11 home NHL and NBA playoff games last year. Six of those were Knicks games.
“With respect to our fourth quarter at MSG Sports, please keep in mind that the outcome of the playoffs will have a significant impact on year-over-year comparisons,” Pollichino said. MSG spokeswoman Stacey Escudero said in an e-mail that the company wouldn’t comment on 2014 playoff finances.
Knicks playoff games bring in more money than hockey because the arena holds about 2,500 more seats for basketball and the Knicks are a larger television property than the Rangers, Tullo said. He estimated that a Knicks run to the NBA Finals, with a comparable amount of home games, would be worth about $70 million in revenue.
The Knicks missed the playoffs this year for the first time in four seasons. Pollichino said television ad sales for Rangers telecasts went up this season, which helped offset a decrease in Knicks sales. Rangers ticket prices will increase 3 percent next year; Knicks prices will remain the same.
“I don’t think the company ever wants to put itself in a position where they feel like they’re not delivering a product that’s good enough to at least keep pace with inflation,” said Morris, who owns no MSG shares and gives MSG a buy rating.
Sweeney said the Rangers’ run is nicely aligned with the Garden’s $1 billion privately financed renovation, a three-year project completed in October.
“This comes at a great, great time, to the extent that they want to upsell some customers to bigger and better suites, or longer season ticket packages,” Sweeney said in a telephone interview.
Due in part to increased suite sales, MSG Sports revenue is projected to grow to a record $580 million when its fiscal year ends in June, according to Tullo. That would be a 23 percent increase over fiscal 2013 ($480 million), which included a lockout-shortened NHL season.
MSG shares have risen for 14 consecutive days, the longest such streak since the company was formed in 2009. Shares closed today at 56.20, up 0.04 percent from yesterday.
Morris said the recent stock climb was partly due to the Rangers’ success and partly to the pending $2 billion sale of the NBA’s Los Angeles Clippers to billionaire Steve Ballmer, which shattered the previous record sale price of a basketball franchise by $1.45 billion.
“It’s also combined with, in my opinion, the stock being oversold after the most recent earnings call,” Morris said.
Playoff games generate less revenue than regular-season contests because the NHL takes 35 percent of the postseason gate from each team for revenue sharing. A regular-season game is worth about $5.3 million in revenue, Tullo said.
The Rangers have sold out their season tickets for seven straight years. The team’s success drawing fans is one reason analysts say the outcome of the Stanley Cup finals will have little effect on MSG’s overall business.
“Even with the price increase, they should be able to sell out their season tickets next year without much of a problem,” Tullo said. “As long as this series goes to six games, giving the Rangers a 13th home playoff game, that’s what matters.”