Is Madison Square Garden Sports Stock A Buy?

Madison Square Garden Sports Corp (NYSE:MSGS) is an American sports holding company that owns some iconic New York sports businesses. This includes the NBA’s Knicks, NHL’s Rangers, and their minor league affiliate teams, along with esports team Counter Logic Gaming.

Despite the name, the company no longer owns Madison Square Garden Arena after spinning it off with its non-sports assets as a separate publicly traded company Madison Square Garden Entertainment (NYSE:MSGE) in April 2020.

You may buy tickets to its team’s games, but should you buy the stock – is Madison Square Garden Sports stock a Buy?

The company faced several major issues from social distancing initiatives and other restrictions. Besides MSG, its event venues include Radio City Music Hall, the Beacon Theatre, the Chicago Theater, and co-booking at the Wang Theater. These were the assets it spun off to maintain liquidity amid the viral outbreak.

But even the sports teams faced hurdles. The NBA delayed its season by four months before restarting in a bubble league in Orlando’s Walt Disney World resort. The NHL pulled a similar move and is already having trouble with delays in its new season.

Of course, esports rose to the call and filled the competitive void during the 2020 pandemic. Let’s check the scores to see if Madison Square Garden Sports can provide investors with high marks in their portfolios.

Madison Square Garden Sports Has A Rich History

Madison Square Garden Sports is the sports holding company that spawned from the namesake arena. The company spun off the actual arena holdings into another company, Madison Square Garden Entertainment.

It’s a component of the Russell 1000 index and majority owned by the Dolan family. In fact, 94-year-old billionaire Charles Dolan controls AMC Networks, MSG Networks, MSG Entertainment, and MSG Sports, all of which spun off from Cablevision, which he founded.

MSG Sports manages professional basketball’s New York Knicks, professional hockey’s New York Rangers, and esports team Counter Logic Gaming.

Each team is a business, with the Knicks earning $472 million of revenue in 2019, while the Rangers brought in $225 million that year. Meanwhile, Counter Logit Gaming won 450 tournaments and earned $5.088 billion so far since 2020. That puts it at about $500 million per year average.

Professional sports are as competitive as they get, and each team’s net worth reflects its ability to win games. So by failing to make it into the post seasons, the Knicks and Rangers cut off their potential earnings.

Esports is even more brutal, with winning necessary to collect payments from most league tournaments. And the team specializes in League of Legends, which means it’s not participating in major events for games like Madden, Smash Bros, and Counterstrike.

Still, each team has a high profile in a major city, and that has some investors wondering if now is the right time to buy.

Is Madison Square Garden Sports Stock A Buy?

Madison Square Garden Sports began the year with a market capitalization of over $4 billion, but lost 20 percent of its value in Q1.

As the company struggled to recover through the summer, it spun off MSG Entertainment in July 2020. By November, positive vaccine news and election results signaled a change of power and sparked a rally.

But it still hasn’t recovered to its former high price levels of over $200 per share. The vaccine and government changeover took longer than expected, and stimulus funding got stale through a cold winter while the stock market grew.

MSGS Financials Weakened 

It brought in $603.3 million in revenues for its fiscal year 2020 (which ended June 30), but lost -$27.5 million, due specifically to the pandemic. Its first 2021 fiscal quarter generated $57 million in revenues but lost $17.8 million for the quarter.

These losses give investors reason to pause, and the company restructured its long-term debt to continue operations. This will keep it running but inevitably drain its money reserves if it can’t find a way to turn a profit.

MSG Sports holds $23.5 million in cash and cash equivalents, along with $250 million in borrowing capacity between the Knicks and Rangers. This compares to $350 million in outstanding debt and brings up some of the risks of investing.

Risks of Buying Madison Square Garden Sports Stock

Madison Square Garden Sports is running at a deficit and things aren’t getting better any time soon.

Although it receives licensing fees for televised competitions, the company is suffering from lack of live ticket sales that also translate to merchandise.

While tickets, sponsorship and licensing fee revenues are down, the company has to continue paying its players and staff. This gets expensive when dealing with professional sports spending.

Cutting off its venue businesses did stop some of the bleeding, but the company needs to find new ways to inject cash into professional sports. And the competition is trying for the same goal.

Can Madison Square Garden Sports Competitors Win?

The company has a variety of competitors involved in sports, like Fenway Sports Group, Red Bull, Yankee Global Enterprises, and Liberty Media. Each of these companies wants their sports and teams to win, and not everyone makes it to the post season.

And fans of a team like the Lakers, Celtics, and Bulls will always hate the Knicks.

In such a competitive environment, one can only hope that the spirit of competition is enough to keep people interested. If professional sports take a dive, the company’s business will too.

Is Madison Square Garden Sports Stock A Buy? 

Madison Square Garden Sports is a long-standing sports company that manages three teams across three different professional leagues. It sold its holding in live arenas after the pandemic stopped public events. This is a great move for now but could hurt it in the long run.

Professional sports got hit hard, with the 2019-2020 and 2020-2021 seasons being affected. If the restrictions drag on, these companies will be competing for more than just a trophy – they will be competing for survival.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.