Why James Dolan may be forced to sell the Knicks

New York Knicks owner James Dolan, a successful businessman, knows how to run a company. But the changing sports media market may finally force him to sell the Knicks.

There is no doubt New York Knicks owner James Dolan raised an eyebrow when the Houston Rockets sold for $2.2 billion. Similarly, he surely took notice when the Los Angeles Clippers sold for $2 billion to Steve Ballmer.

The Clippers sale was a special circumstance and was a forced sell because of the behavior of owner Donald Sterling. However, the sale of the Rockets signaled a new era for the business side of the NBA.

Money makes the world go round and there is plenty available in professional sports. Furthermore, the decline of MLB and even the NFL opens the door for the NBA. Team owners, players and the league itself reap the financial benefit of renewed interest in professional basketball.

Anyone that owns a business or pays attention to financial markets understands the risk involved. Ultra successful financiers buy at a low price and sell at a high price. Consequently, it may now be high time for Dolan to sell his Knicks.

A bundled mess

The New York Knicks and the entire NBA owe much of their financial success to TV rights deals with various national and local broadcasters. However, recent trends show a decline in subscribers for one of the NBA’s biggest partners: ESPN. Andrew Bucholtz of Awful Announcing reports ESPN lost 220,000 subscribers between March and August.

In May, Claire Atkinson of the NY Post reported ESPN‘s household viewership was down 3.3 percent from last year. One reason for this downtrend is how TV viewers are moving away from traditional cable and satellite bundles in favor of streaming services. The question is, how does this affect the New York Knicks and James Dolan?

James Dolan has made a fortune off of the same kind of Cable/Satellite bundles that seem to be trending downward. A report by Trey Williams of Market Watch on Monday revealed at least one market analyst thinks the Knicks could be sold. The reasoning? Before being caught up in the future downward trend, Dolan could sell the Knicks before the market for NBA teams collapses.

The future value of television rights for NBA games could drop as people move toward streaming services and away from traditional bundle packages. Eventually, that could erode the value of NBA franchises, like the Knicks. James Dolan may be a bad team owner, but he is not a dumb businessman. If Dolan foresees the NBA’s bubble bursting, he will sell the Knicks in a heartbeat.

James Dolan

(Photo by Tim Clayton/Corbis via Getty Images)

Sell high

Since 2010, 14 NBA teams of various market sizes have been sold, as noted by Tim Cato of SB Nation. In other words, almost half of the NBA’s franchises have changed ownership in less than a decade. This upward trend won’t last forever and eventually, record-breaking sale prices will be a thing of the past.

According to Forbes, the New York Knicks are the most valuable team in the NBA. No doubt, Dolan is aware that the future sale price of the Knicks would top $2 billion. Furthermore, the previously mentioned shift in television viewing means eventually, there will be less TV money for owners to split. The Market Watch report quoted Dolan’s thoughts on the future of TV rights:

“Today’s monetization system, the one we’ve had over the last 20 years… Where 90 something percent of the American public who has television pays for ESPN whether they watch ESPN or not, right?” Dolan said during a future of sports content panel at the Consumer Electronics Show in January. “All of that advertising, if that system falls apart, which it looks like it is starting to erode now, it will not even come close to that kind of production of rights value and that’s really the thing we will all have to grapple with.”

Dolan is already grappling with what the future holds for TV rights and for his business interests. While it is possible Dolan will stubbornly keep the Knicks, it wouldn’t be a smart business decision. There are no guarantees the next television deal will be anything like the $24 billion deal the NBA began last season.

Recently, Dolan has taken a notable step back from involvement in the day-to-day basketball decisions of the Knicks. A new front office led by Steve Mills and Scott Perry is dealing with Carmelo Anthony without any meddling from Dolan.

Just because it makes sense for James Dolan to sell the New York Knicks doesn’t mean it will happen. Yet, overblown values of NBA teams and the decline in subscription-based television may force Dolan to finally put his Knicks on the market.

A Wall Street Insider Says James Dolan Could Possibly Sell The Knicks

Getty Image

With the Rockets selling for $2.2 billion to Tilman Fertitta, more than half a billion more than their 2017 Forbes valuation of $1.65 billion, it’s clear that the market for NBA franchises has never been bigger. Now that Houston is off of the market, the Nets are expected to be the next team to change ownership as Mikhail Prokhorov has reportedly been shopping the team to overseas buyers in China.

While the Nets would be an unsurprising team sale, the other New York franchise would be a stunner, but there are some on Wall Street speculating that James Dolan listening to offers for the Knicks (or Rangers) could be a possibility.

According to BTIG’s Madison Square Garden analyst Brandon Ross, the sale of the Rockets for $2.2 billion could spark interest in Dolan to at least consider offers to sell the Knicks.
As Marketwatch notes, Dolan is keenly aware of the decline of the cable TV bundle as the former owner of Cablevision (which he sold recently) and MSG and MSG Networks, and, thus, he knows the dangers the collapse of the cable bundle has for sports television rights to decrease.

“Today’s monetization system, the one we’ve had over the last 20 years… Where 90 something percent of the American public who has television pays for ESPN whether they watch ESPN or not, right?” Dolan said during a future of sports content panel at the Consumer Electronics Show in January. “All of that advertising, if that system falls apart, which it looks like it is starting to erode now, it will not even come close to that kind of production of rights value and that’s really the thing we will all have to grapple with.”

With the NBA’s latest TV rights deal causing franchise valuations to skyrocket, it’s possible that Dolan could see this as the perfect time to get out before the bubble bursts and the decline of cable TV leads to a smaller rights deal in the future. As to whether he would sell the Knicks or the Rangers, because NBA teams are so much more valuable, Ross notes that it’d be far more lucrative for him to cash out on the Knicks should he decide to only sell one of the teams.

“Given Dolan’s views, we would think he would have to consider at least partially monetizing MSG’s sports interests (even with the Knicks at a competitive lull), if not now than in the near- to medium-term,” Ross wrote. “The largest dollar upside would clearly come from selling all or part of the Knicks.”

At a $3.3 billion valuation in the latest Forbes estimates, it’s conceivable, as Ross noted, the Knicks could fetch a record $4 billion price tag.

Should a group be willing to pony up that kind of money, it would have to force Dolan to consider selling the team and, in turn, delight Knicks fans that have loathed Dolan for nearly two decades.

(via Marketwatch and Street Insider)

Why Jim Dolan Could Sell New York Knicks

Analyst: Why Jim Dolan Could Sell The New York Knicks

After the $2.2-billion sale of the Houston Rockets, an unloading of the New York Knicks by owner Jim Dolan could be a slam dunk.

Madison Square Garden Co (NYSE: MSG) and live entertainment are the Dolan family’s focus, and the company’s executive chairman has said sports are in a “bubble” and face shrinking revenues, BTIG Research analyst Brandon Ross said in a note.

The company is likely to go private, and the sale of the Knicks could pave the way for such a move and provide a cash influx for an “aggressive expansion” in the remaining live entertainment business, Ross said.

Macquarie Research recently valued the Knicks at $3.5 billion. Monday’s BTIG note questioned whether the team could pull more than $4 billion in a sale.

BTIG maintains a Buy on Madison Square Garden Co. with a $260 price target (see Ross’ track record here).

“If the Dolans do not monetize their sports interests, a separation of the sports teams from the rest of [Madison Square Garden] makes sense in the near future,” Ross said.

The Future Of Broadcasting Revenue

Dolan has been pulling back from legacy television: First with the stock split of Madison Square Garden Co. and MSG Networks Inc., then with the sale of Cablevision to Altice USA Inc (NYSE: ATUS), according to BTIG.

The 62-year-old Dolan, who also owns the New York Rangers NHL team, said at this year’s Consumer Electronics Show in Las Vegas that sports team revenues will shrink as multichannel video programming distributor bundles decline.

“All of that advertising, if that system falls apart — which it looks like it is starting to erode now — it will not even come close to that kind of production of rights value, and that’s really the thing we will all have to grapple with,” he said, according to BTIG.

While the research firm said its take on sports broadcasting revenue is in line with Dolan’s, Ross said it’s worth asking whether new digital buyers will bid up sports rights when the deals in place today expire.

Amazon.com, Inc. (NASDAQ: AMZN) and Facebook Inc (NASDAQ: FB) are experimenting with licensing sports, “but how aggressive they will be is an uncertainty,” Ross said.

The NBA’s national TV deal expires in 2025, the analyst said.

Related Links: 

Houston Rockets’ $2.2 Billion Sale Boosts MSG’s Stock

5 Sectors Millennials Prefer To Consumer Goods, And The Stocks That Prove It

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