The New York Knicks are the poster child for bad decision-making and investments. True, in the last three years Donnie Walsh has turned things around by shedding bad salaries, freeing up cap room and investing in young players. But a lot of the ills of the lockout can be seen through the prism of the Knicks. They both overspend and make money — all while not winning.
Amar’e Stoudemire and Ty Lawson began changing that last year before New York shipped half its young talent for Carmelo Anthony and Chauncey Billups. Let’s just say James Dolan and New York are not always making investments in the future. After all, it is assumed the Knicks are one of the few profitable teams in the NBA entering this lockout.
With Stoudemire and Anthony in the fold and a pretty clear “win-now” mentality from New York to make up for years of mediocrity and downright awfulness, Dolan likely does not want to lose an entire season (Billups is not getting any younger either as his injuries in the Playoff showed).
And then there are the actual losses the Knicks may suffer.
The Wall Street Journal’s Market Watch reported Tuesday that Bank of America Merril Lynch downgraded Madison Square Garden Entertainment Company’s stock to neutral because of the prospect of losing the NBA season. Madison Square Garden is the parent company for the Knicks in addition to organizing the events at the “World’s Most Famous Arena” and running the MSG television station. This probably is not like Standard’s and Poor downgrading the U.S.’s credit rating from AAA to AA+, but it is a sign that the lockout is beginning to hurt the big-market teams perceived to be OK under the NBA’s current business model.
“Despite our continued belief in MSG’s robust long-term story … we think the shares will be unlikely to outperform over the near-term with $90 million of adjusted operating cash flow at risk from a full-season NBA lockout and a possible LA Forum acquisition on the horizon,” the analyst wrote.
It means the Knicks will be losing money while the newly renovated Madison Square Garden sits empty on basketball nights. To make sure the company makes all or most of that $90 million of cash flow, they better make sure the season starts on time.
Empty stadiums are going to be a problem for just about every NBA team as they sit and wait for the lockout to get resolved.
Scott Soschnick and Mason Levinson of Bloomberg report the NBA could lose more than $1 billion in revenue if an entire season is canceled from tickets alone. For stadium owners that could be especially bad because the dates home games were supposed to be played likely will go unfilled. Those dates have to be carved out of the calendar and held. Major concerts and other events take months to schedule and plan.
For instance, Bob Gutkowski of Madison Square Garden told Bloomberg he estimates the Knicks make approximately $1 million in ticket revenues per game. That simply cannot be replaced since it is difficult to re-fill the dates left empty by the already-scheduled NBA games. It could be especially damaging for arenas in small markets where basketball games take up most of the dates at the arena. They would lose most of their yearly revenue stream.
TiqIQ already estimated there would be severe losses in the secondary ticket market if the season were canceled. That captures only part of the market as the Knicks themselves are predicting even heavier losses than the $18.3 million in ticket revenue TiqIQ predicted.
The real question NBA fans want to know is will these dire predictions and actual downgrading of stock convince some of the owners to soften their stance and make a deal?
The union and owners have met just once since the lockout began and the two sides seem entrenched at where they were June 30. They both seem pretty content to wait for the National Labor Relations Board to make its decision (the union got an extension in filing its response to the owners’ lawsuit against them Tuesday). That is not expected until September and might be the next chess piece moved in this stalemate.
Between then, could owners of the profitable teams who need ticket revenue to maintain that profitability band together and try to force the owners back to the bargaining table?
That is still unclear. It might be interesting to watch how MSG’s stock moves in the next few days in the wake of this announcement.
Photos via DayLife.com.
