MSG's Hit Is Only for the Short Term (LYV, MSG)

MSG's Hit Is Only for the Short Term

By Keki Fatakia | More Articles
September 20, 2011 | Comments (0)

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Madison Square Garden (Nasdaq: MSG ) reported a 39% drop in its second-quarter earnings, hurt by expenses associated with the renovation of its arena and theater business. So what can we expect from MSG in the coming months? Let's take a look.

Into the numbers
Revenues for the quarter rose a modest 3% to $234 million from a year ago. That's significantly worse than peer Live Nation Entertainment (NYSE: LYV ) , which reported a 23% jump to $1.5 billion. But MSG deserves credit for improving revenues despite disruptions caused by renovations at its prime venues.

However, in spite of the slight rise in revenues, the company's net income dropped significantly, from $14.0 million in the year-ago quarter to just $8.5 million this quarter. But I wouldn't worry too much about this, since much of the drop came from higher depreciation costs that can be linked to the arena's ongoing renovation. As I see it, stronger revenues once the project is completed should make up for the short-term pain here.

The transformation
The transformation of the Garden would include a larger entrance with interactive kiosks, climate-controlled spaces, a broadcast studio, new lighting systems, and LED video equipment, among other things.

MSG's renovation work is expected to continue for three summers and is estimated to cost a whopping $850 million. Thankfully, renovation work takes place only during the offseasons, when demand for the venue is minimal.

NBA lockout
In July, the NBA announced that to stem losses of $300 million annually, it would need to overhaul its revenue-sharing agreement. This has led to a lockout that could put the start of the season in jeopardy. Consequentially, MSG fears it could lose ticket revenues of almost $1 million per night. This could seriously affect profits for the short term until the situation changes.

The Foolish bottom line
MSG's renovation project has hurt near-term revenues, but the venue is expected to reopen in October for any regular-season games that end up taking place. My short-term outlook on this stock is cautious because of the NBA situation, which could hurt MSG's ticket revenues. But, all in all, for the long run this company is poised to see a great deal of growth, backed by improved revenue streams.

The Steve Jobs Betrayal
You may already know that in the final year of his life, Jobs revealed a stunning betrayal — and told his biographer, "I will spend my last dying breath... and every penny of Apple's $40 billion in the bank to right this wrong." What was it that made Jobs so irate — and why could it make a few in-the-know investors some major profits over the coming months and years?

Enter your email address below to find out what made Jobs so enraged!

Fool contributor Keki Fatakia holds no shares in the companies mentioned above. The Motley Fool owns shares of Madison Square Garden. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.