When Kevin Durant went down with an Achilles injury in game 5 of the NBA Finals between the Golden State Warriors and the Toronto Raptors, it wasn’t just basketball fans that were feeling his pain. Warriors’ GM Bob Meyers was reduced to tears in a postgame press conference and investors in MSG Networks Inc. (NYSE: MSGN), which broadcasts the New York Knicks’ games, probably got a little weepy too when they saw their portfolio balances the next evening.
MSGN was down nearly 5% on Tuesday, finishing the day’s trading session at $20.65 after closing at $21.70 on Monday — and pundits were quick to point to Durant’s injury as the reason why.
“In our view, the movement in the stock rhetorically illustrates how many investors were/are long MSGN on the thesis that Kevin Durant would sign with the NY Knicks sometime this summer, which was never a guarantee,” Imperial Capital analyst David Miller noted on Wednesday. Durant will be a free agent this summer, and the Knicks, who have missed the playoffs for six straight years, were among the teams thought to be vying for his services.
But is this true?
Lebron James — A No-Brainer, 85% Return On Investment
Certainly, star players contribute to their teams’ bottom line. According to Ian Begley of ESPN, LeBron James, arguably the NBA’s top player, generates approximately $65 million in revenue for his club (currently the Los Angeles Lakers). But that’s King James. And even though $65 million is a lot of Benjamins, it represents just 16% of the $395 million in revenue the Lakers produced in 2017-2018, according to Statista.
Members of an ownership group from an NBA team ran an analysis that concluded signing LeBron James could generate approximately $65 million annually for the franchise, per sources. He’s projected to sign a contract worth $35 million for the 2018-19 season.
— Ian Begley (@IanBegley) June 30, 2018
Remember too that MSG Networks doesn’t just broadcast Knicks’ games; it also carries the New York Rangers, New York Islanders, Buffalo Sabres, and New Jersey Devils of the NHL, along with the NFL’s New York Giants and the New York Red Bulls, a Major League Soccer squad.
So, how much impact does Durant’s not signing with the Knicks really have?
Again, it’s difficult to isolate one factor among the many that contribute to a business’ success or failure, but research on several stocks that have an interest in pro sports teams — BCE Inc. (NYSE: BCE), Liberty Media (NASDAQ: BATRK), Rogers Communications Inc. (NYSE: RCI) and the aforementioned MSG Networks (NYSE: MSGN) — failed to yield any meaningful results.
In fact, it’s debatable that even a team’s wins and losses have much to do with what happens on Wall Street.
Sports Investors Should Beware the Winning Fallacy
Manchester United is the most decorated club in English football (soccer) history, with a record 20 Premier League titles, 21 FA Community Shields, 12 FA Cups and five League Cups. It has also been publicly traded on the New York Stock Exchange since Aug. 10, 2012. And not only has MANU failed to keep pace with the S&P 500 over that time, but the team’s performance on the pitch has also had little to do with its performance on the Big Board, as the following chart attests to.
Comparison Between Manchester United (MANU) and S&P 500 Returns
The Red Devils won the FA Cup in 2016, yet MANU was down 18.8% that year.
Now, one might argue that it was Manchester United’s first hoisting of the Cup since 2004 and the stock rallied strongly the next year/season (up a whopping 40.3%). OK, so what happened in 2018, the year after Manchester United triumphed in the EFL Cup Final and MANU stock was down 3.2%?
Look, sports angles relating to the stock market, like the “Super Bowl Halo Effect,” are fun, but most are statistical anomalies and none should be used as the sole basis for an investment decision.
Since Tuesday’s close, MSGN largely recovered by the end of the week. Apparently, Durant’s hospital-bed tweet made investors feel better.
All stock prices aside, as NBA fans, we’re hoping Durant makes a fast and full recovery; the game is always better when elite players are able to compete.
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What’s good everybody I wanted to update you all: I did rupture my Achilles. Surgery was today and it was a success, EASY MONEY My road back starts now! I got my family and my loved ones by my side and we truly appreciate all the messages and support people have sent our way. Like I said Monday, I'm hurting deeply, but I'm OK. Basketball is my biggest love and I wanted to be out there that night because that’s what I do. I wanted to help my teammates on our quest for the three peat. Its just the way things go in this game and I'm proud that I gave it all I physically could, and I'm proud my brothers got the W. It's going to be a journey but I'm built for this. I’m a hooper I know my brothers can get this Game 6, and I will be cheering with dub nation while they do it.