For years, purchasing a professional sports franchise was considered an ego-stroking move for the extremely rich.
It certainly wasn’t considered a savvy investment decision.
But that’s beginning to change.
In 1999, Dan Snyder purchased the Washington NFL franchise for $750 million.
This summer, he sold the team for a record-setting $6.05 billion.
That’s an annualized return of just under 10%.
And that excludes all the income and positive cash flow the business generated over his 24 years of ownership.
Snyder’s success is not unique.
A detailed study on the values of sports franchises from 1991 to 2016 found the following annualized increases in value:
- Major League Baseball franchises: 10.5%
- National Football League franchises: 12.5%
- National Basketball Association franchises: 12.7%
- National Hockey League franchises: 12.3%.
These are annualized rates of return comparable to – if not better than – the stock market’s.
And these annualized rates of return do not include the annual cash flow and income that franchises produced for their owners during those 25 years.
Obviously, most of us can’t purchase a pro sports franchise. That luxury is still reserved for the uber-wealthy.
We can, however, purchase a small stake in a company that owns two of the most coveted sports franchises in North America…
For just around $200.
(Take THAT, Dan Snyder.)
Madison Square Garden Sports (NYSE: MSGS) owns the NBA’s New York Knicks and the NHL’s New York Rangers.
Forbes currently estimates the Knicks are the second most valuable NBA franchise, at $6.1 billion. (The Golden State Warriors took the top spot.)
Forbes estimates the Rangers are the most valuable NHL franchise, with a $2.2 billion valuation.
Using those Forbes estimates, we can easily see that Madison Square Garden Sports is undervalued in the market.
The Knicks and Rangers are worth a combined $8.3 billion. From that, we must subtract the $290 million of net debt that Madison Square Garden Sports carries.
Doing that, we get a valuation estimate of just over $8 billion.
That equates to a value of $334 per share.
That’s 57% higher than the $212 per share the stock currently trades for.
Clearly, that’s appealing. But there is more to this story.
Forbes’ sports franchise valuations have proven to be too low.
Earlier this year, the NBA’s Phoenix Suns sold for $4 billion.
In October 2022, Forbes assessed the value of the Suns to be $2.7 billion – two-thirds of what the Suns later sold for.
With its $5.6 billion estimate on the Washington Commanders, Forbes was closer to the purchase price… but still too low by almost 10%.
It’s likely that the true value of the Knicks and Rangers is considerably higher than Forbes estimates.
That would mean that the true value of Madison Square Garden Sports is also considerably higher than $334 per share.
The company is worth far more than its current $212 price tag.
The Value Meter rates shares of Madison Square Garden Sports as being “Slightly Undervalued.”
Valuation Rating: Slightly Undervalued
We can buy the stock and then root for the Knicks and Rangers to make their franchises even more valuable.
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