Brendan Smith #42 of the New York Rangers reacts after scoring a goal in the second period against … [+]
NHLI via Getty Images
Most hockey teams don’t make much money unless they make the playoffs. But that’s not the case for those that play in the sport’s best markets.
The New York Rangers have won just one Stanley Cup since 1940, in 1994, and have not made the playoffs the past two seasons. Attendance at Madison Square Garden for their home games slipped the past two years. Yet by our count, they are the NHL’s most valuable team for the fifth consecutive year, worth $1.65 billion, 6% more than a year ago.
The Blueshirts benefit from being based in the sport’s largest market and in the city with the most big companies. Despite losing more games than they won each of the past two seasons, the Rangers posted by far the most revenue ($270 million) and operating income ($123 million) in the league during the 2018-19 season. They ranked first in the league in combined suite and premium seat revenue (nearly $80 million) and in advertising and sponsorship revenue (over $40 million), as well as non-NHL revenue at their arena, from events like concerts ($30 million). The Rangers also generated the fourth-most cable television revenue (more than $30 million).
The 31-team NHL is the most bifurcated major North American sports league. The top five teams (Rangers, Toronto Maple Leafs, Montreal Canadiens, Chicago Blackhawks, Boston Bruins) are worth a combined $6.58 billion, 3.7 times more than the bottom five teams (Arizona Coyotes, Florida Panthers, Columbus Blue Jackets, Buffalo Sabres, Winnipeg Jets). The comparable valuation spreads for the other sports—3.3 for MLB, 2.7 for the NBA, 2.0 for the NFL—are far lower mainly because of their much larger national media deals, which get shared equally among all teams.
Yearly National Television Money*
*Annual average of deals, including league-owned networks.
A $1.65 billion valuation for an unimpressive hockey team like the Rangers speaks volumes about why publicly traded Madison Square Garden—which has a current enterprise value of $6.16 billion and also owns the Rangers’ arena and the New York Knicks, among the NBA’s most atrocious teams for decades—is planning on splitting into two companies: one that owns the sports teams and another that will own the arenas. If the Rangers and the Knicks can be worth a combined $5.65 billion when they are bad, they could be worth over $7 billion as playoff teams.
Although MSG boss James Dolan deserves criticism for the failures of the Knicks and the Rangers, he has has been incredibly good to his shareholders. If you had bet on Dolan after Cablevision spun off all of its sports teams and regional sports networks as Madison Square Garden shares in February 2010, your investment would have increased more than six-fold in a little less than nine years—a much better return than the stock market and even better than Warren Buffett’s Berkshire Hathaway has delivered.
The past year has been a different story, however, with the Rangers and the Knicks both looking like they will miss the playoffs again this season and the basketball team having posted back-to-back losses of more than 30 points for the first time in its history. Since my story last year on MSG’s performance, MSG’s stock price, last seen at $275, is up only 11%; the S&P 500, meanwhile, is up nearly three times as much, at 30%. MSG has also underperformed by four percentage points relative to Berkshire Hathaway. My sense is that given the increase in sports team values—even bad baseball teams easily outperform the stock market—MSG’s stock is very undervalued for investors with a long-term bent.
Our valuations are enterprise values (equity plus net debt) that include the economics of each team’s arena deal but not the value of the real estate itself. We do our best to adjust values for teams moving into new arenas based on how the arena is being financed, when it will open and the degree to which we can estimate revenues from the new arena.
Revenue and operating income (earnings before interest, taxes, depreciation and amortization) are for the 2018-19 season. All figures are in U.S. dollars based on average U.S.-Canadian exchange rates during the 2018-19 season.
The information used to compile our valuations primarily came from the teams, sports bankers, media consultants and public documents, like arena lease agreements and bond documents. Pollstar was our primary source for arena concert revenue.