In our recent March Madness basketball special, The Motley Fool's Industry Focus podcast continues its discussion of college basketball's influence on the investment world.
In the following segment, we trace how the NBA draft selection process could impact the future professional career of Duke University star Zion Williamson and potentially improve the fortunes of a publicly traded sports conglomerate.
A full transcript follows the video.
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This video was recorded on March 19, 2019.
Jason Moser: Let's talk a little bit about the influence of NCAA basketball beyond apparel. I think that anybody can connect those dots and say, Under Armour, Nike, Adidas, we're going to see those brands every game. They're just front and center. But let's talk a little bit about some of those brands that maybe we don't see so front and center but certainly come into play when it comes to big events like these.
Asit Sharma: Absolutely. A company to look at is Madison Square Garden, which is one of the few companies that's publicly traded that owns a professional basketball team, that being the New York Knicks. This is connected, as I hinted a little while ago, to Zion Williamson. Zion Williamson will go pro next year. For those of you who aren't familiar with how this whole process works, of jumping from college to the NBA, there's something called the NBA Draft in which players are selected to play on different teams through a lottery system. How you get points in the lottery system, or how the different teams get preference in the players they can take, depends on how you play during the season. If you play really badly, the league is very good to you, and it says, "You had a bad season, you're due for a good player. We're going to give you a probability in the lottery that you'll get a top draft pick." Zion Williamson is going to be hands-down the No. 1 pick. He's a once-in-a-generation player. Hard to think of another player coming out of college who's had such a hype behind him, not just for what he brings to the court -- and he delivers on court -- but he's a charismatic kid. There's a lot of potential for huge endorsements and for him to spread his own brand in the NBA.
Three teams that sit at the bottom of the league, I'm going to read these stats out and hand this back over to you, Jason. The Knicks, the Phoenix Suns, and the Cleveland Cavaliers each have a 14% probability of getting the first draft pick in the NBA lottery this year because they're playing so badly, they've been so woeful this season. This is a phenomenon that is hard to prove, but some suspect, it's called tanking, where you lose games on purpose to get that draft pick. What are your thoughts on that, Jason?
Moser: Well, that's something you hear a lot about in the NBA and the NFL. I get it. If you've hit that midpoint of the season and you realize you suck, more or less, and you just want to get through it and have something to show for it...I guess it's hard to prove. By the same token, you can see maybe that coaches try different things, play players a little bit more who wouldn't normally garner so much playing time. Maybe it's unintentional tanking. Whatever you want to call it. I do get it. You want to try to get the best players you can, and it's a business.
Whenever I think of going beyond the usual suspects in regard to basketball and making that leap from NCAA to the NBA -- NCAA, you have that one-and-done. You essentially have to go play one year in the NCAA, then you can get in the draft. I like, now, though, that in the NBA, you see these teams that are able to have patch sponsors, jersey sponsors. You didn't see that for quite some time. But now, you actually see teams in the NBA with companies that are actually sponsoring the teams, and they wear those companies' patches on their jersey. A couple that stand out to me, the Milwaukee Bucks are sponsored by Harley-Davidson. That's pretty cool. You've got the Orlando Magic, shocker, they're sponsored by Disney. That's pretty neat. On the flip side here, though -- and, I mean, I say this as a Boston sports fan -- the Celtics being sponsored by GE, [laughs] I'm not sure how I feel about that, Asit.
Sharma: [laughs] You want to associate yourself with a winner. No offense to GE.
Moser: [laughs] Yeah, it's been a poorly managed company. There are reasons for those problems. But yeah, I just think that's neat, to see how they've made that leap into the NBA. Another way to draw connection between the sports and the names that we cover here in the work that we do every day. To me, that's just another fun way to look at it.
Sharma: Just a quick last point from me. If you look at this aggregate effect on Madison Square Garden, what a player like Zion Williamson can mean in terms of greater attendance, concession sales, sales of team merchandise, that ultimately gets reflected in the stock price. I was looking at the chart of MSG, it's sort of a sleepy stock. It's done OK over the past couple of years, but I noticed they're up 10% year to date. I wonder if that has something to do with the Knicks' fortunes on the court.
Moser: [laughs] Distinctly possible.
Sharma: You can't prove it, but there's some correlation there.
Moser: We'll leave it at this. It's a very interesting story between Zion and his connection to Wofford College. For those of you who don't know it, I'll just tell you, Google Zion and Wofford College, and that will take you immediately to the story there. Once upon a time, it wouldn't have been such a crazy thing to think that Zion actually might have ended up at Wofford College, but it just wasn't meant to be.
Check out the latest earnings call transcript for Madison Square Garden.