Business

Knicks’ disastrous season a $7.2M drag on profits: analyst

As even the most casual basketball fan can see, the 5-23 Knicks have been losers on the court so far this season.

On Friday, a Wall Street analyst broke down the financial impact of this lost season and found the losses are piling up off the court, too.

MSG Media, a unit of Madison Square Garden, which owns the team, is expected to see operating profit decline by $7.2 million this season due to lower ad revenue on MSG Network — thanks to an 11 percent decline in ratings, the analyst, Rich Tullo, wrote in a note to clients.

“[W]e think MSG takes a revenue hit on poor Knicks play,” writes Tullo, an analyst with Albert Fried & Co.

Tullo estimates that MSG will lose $6 million in ad revenue in the three months ending Dec. 31, dropping to $188 million, plus another $6 million in the following quarter.

With MSG Media operating at a 60 percent profit margin, the lost revenue translated into $7.2 million in lost operating profit, Tullo noted.

Tullo, a longtime MSG- watcher, said a weak scatter ad market — and the Garden’s policy of not pre-selling ads at the beginning of the season but rather closer to when games are played — adds to the slide.

The expected lower ad revenue could be mitigated by the Knicks’ MSG co-tenants.

“A strong Rangers performance could offset a Knicks team that apparently forgot how to play basketball in the NBA,” Tullo wrote.

It could be worse, the analyst noted, as demand for tickets won’t change all that much since New York is a basketball town in winter — no matter how much the Knicks stink.

Separately, MSG, which is discussing ways to split itself in two, raised the prospect of spinning off its media networks, it said in a regulatory filing late Thursday.

MSG Media comprises two regional sports networks and related HD feeds.

MSG Media has an estimated private market value of $3.39 billion, according to an analysis by Morgan Stanley analyst Ben Swinburne.

MSG’s board in October said it was examining a possible separation of the company to unlock value. But that earlier plan had the entertainment or sports units getting spun off.

The thought of spinning of the media assets is new.

MSG houses sports teams, media networks and an entertainment division that puts on shows such as Radio City’s “Christmas Spectacular.”

The earlier spin-off plan left a big question unanswered on Wall Street: which unit would get the venues, including MSG.

Separating just the media asset would seem to settle that question — the venues would stay with the entertainment and sports assets.

The TV assets derive an estimated 70 percent of revenue from affiliate fees paid by pay-TV distributors.

Swinburne pegs the Knicks’ value at $2.25 billion and the Rangers’ at $700 million.

Venues, which include the Beacon Theater and Radio City, could fetch $1.48 billion, , he said.

Morgan Stanley suggests that MSG, broken into parts, is worth $8.26 billion versus its market cap of $5.62 billion.

MSG stock rose 3.4 percent on Friday to $75.07. It is up 30.4 percent this year.