Could Lebron's Move Push Stocks Higher?
Professional athletes in general, and basketball players specifically, are notoriously bad with money.
Lebron James is 6'8" tall, weighs 250 pounds and is really good at putting the basketball into the net. I don't want to stereotype so I won't say that he's a bad investor. But the good news is that there's a way to invest in Lebron's basketball prowess without relying on his investing abilities.
It's as easy as figuring out where he, and other top NBA stars might end up…
Ok, that's not exactly easy. And every sports fan knows that deals fall apart in the final hours. But that doesn't mean there isn't a profit opportunity for small-cap investors.
Now that the 2009-2010 NBA season is over (I would have preferred to see the Celtics win, by the way), teams are quickly finalizing their roster positions for next season. Amare Stoudemire was one of those free agent players that recently finalized (almost) his plans for next year. In this past season with the Phoenix Suns, the all-star forward appeared in all 82 of the club's regular-season games, averaging over 23 points per game. In the post-season, he averaged 22 points per game and helped lead the Suns to its first conference finals appearance in 4 years. He's a pretty big deal.
So where is Stoudemire going? He recently agreed to a 5-year $100 million deal with the New York Knicks. We'll know tomorrow if this deal will come to fruition. This is one of the many moves the Knicks are looking to make over the coming days as they try to put together a championship team for next season.
The Knicks aren't stopping with Stoudemire. They are also considering NBA superstar Lebron James and 'best of breed' guard Dwayne Wade. Lebron, nicknamed "King James", has played in 6 NBA All-Star games in only 7 seasons, and is widely considered one of the most dominant players in the game today. Similarly, Dwayne Wade has played in 6 out of a possible 7 All-Star games and was named as the MVP in this year's star-studded match.
Over the recent holiday weekend, Lebron stated that he planned to make a decision this week on what city he's going to dominate in next.
There are a few places where the superstar will likely play - and many experts aren't ruling out the Big Apple. Lebron indicated his interest to play with Stoudemire in NY after he stated the Cavs should acquire the Suns superstar last Friday. What's more, Lebron has shown an interest in big endorsement deals, and those are easier to come by in Manhattan. He signed a $90 million contract with Nike before playing in his first NBA game. A move to NY could mean more deals during the peak of his career.
So what's our investing angle? There are large-cap companies like Nike (NYSE: NKE) and The Coca-Cola Company (NYSE: KO) that sponsor Lebron and could be appropriate investments given these developments. But we are primarily interested in small-cap stocks, and even a major endorsement by Lebron barely moves the needle in these large companies' stocks.
Alternatively, you could jump on this opportunity by playing Madison Square Garden, Inc. (Nasdaq: MSG), a company with a market cap of only $1.6 billion. Is this a slam-dunk investment? No, but it's a good way to play a possible move by Lebron.
Madison Square Garden owns two sports teams (the New York Rangers and the New York Knicks), a television network, and "The Garden", one of the most popular arenas in the world. It also happens to be located in downtown Manhattan.
If Lebron goes to the Knicks, he could drive more spectators to The Garden and lay the foundation for a winning season. Both would help Madison Square Garden on a financial level. The Knicks struggled in their previous season, finishing 11th in the eastern conference and winning only 29 out of 82 games.
Lebron helped the Cavaliers turn their program around over the past few years, the team won its division and had a winning percentage above 70 percent. Similar stories can be found in other sports towns after stars arrive. Pittsburgh Penguin's Sidney Crosby helped lead the team to a Stanley Cup - the franchise almost folded just a few years earlier.
Lebron has the potential to turn the New York Knicks around, both in terms of winning percentage and greater revenues. In a recent New York Post article, Patrick Rishe, professor of economics at Webster University, stated that if the team makes the playoff's revenues could jump by $50 million, nearly 5 percent of 2009 revenues. That could help drive greater profitability to owners of the Knicks. By buying shares of Madison Square Garden, you become one of these owners.
Imagine Lebron James, arguably one of the best and most popular athletes in the world, performing on a stage like New York. He could increase profitability through increased ticket sales, merchandising sales, suite sales, and higher network ratings.
Mr. Rishe also says that Lebron would not only increase the ratings of MSG Network, but right away could bring in $10 million to $20 million in revenue - regardless of whether the team makes the playoffs.
Analysts have recently raised EPS estimates for the next two quarters and expect earnings growth of 110 percent this year and nearly 20 percent in 2011. The company is sitting on $268 million in cash, and only $6 million in total debt, and right now is trading with a forward PE of 22.7.
Lebron and other players will most likely announce their plans in the next two days. Given the amount of interest in his future, I expect Madison Square Gardens' stock will move if he goes to New York. Whether it will put in a sustained move higher is, of course, the ultimate question.
But consider this: if Lebron signs with the Knicks he could purchase shares in Madison Square Garden, effectively allowing the star to work for himself, at least in a tangential sense. Pick up shares and you'll be part owner of the same company as Lebron, and both your incentives will be aligned.
That's not a bad deal, regardless of whether Lebron is a savvy investor or
not.
