Societal habits have changed dramatically in the last two months. No longer are restaurants filled with folks connecting over a meal or a beer. No longer are classrooms filled with students being educated. No longer are malls bustling with consumers hunting for the perfect purchase.
While I am excited for my state's eventual safe reopening, I am not as eager for chores like depositing a check or filling a script. The pandemic pushed many, including myself, into learning how so many things can be done more quickly and easily from home. Life will return to some kind of normal, but some experiences and activities will be structurally changed forever.
What We Can Rely On
Few pandemics have been as invasive and impactful on the global economy as this one. Newness breeds uncertainty, making more vital the pursuit of any subtle hints on consumer behavior. Which activities and rituals am I confident will look largely the same as they did before coronavirus? The clearest answer is a return to sports.
Sports is a centerpiece of our culture. For evidence, look no further than the recent NFL draft breaking all viewership records. As a nation and a world, we yearn for sports. Cities rely on professional teams to draw money-spending fans. Advertisers have long relied on strong ratings from programs like Sunday Night Football, and March Madness to drive interest. Cable companies rely on live sports to keep consumers from cutting the cord. Sporting events are vital to several ancillary, job creating industries.
Filling stadiums with fans will be a logistical nightmare until we have a vaccine. This harsh reality makes me quite hesitant to recommend publicly traded franchises like Manchester United or Braves owner Liberty Media. They rely on ticket sales for revenue. Alternatively, the owners of sport-broadcasting rights do not. That is where the opportunity lies.
Best Play Within Sports
Madison Square Garden Networks (MSGN) owns cable and streaming stations with a plethora of rights to NHL franchises including the New York Rangers and Islanders, Buffalo Sabres, and New Jersey Devils. Additionally, the company possesses broadcasting rights to the New York Knicks, an iconic NBA team.
Games can be played without fans in seats meaning success for CEO Andrea Greenberg's company is independent of stadium ticket sales. Revenues here depend on ad-spend which is widely expected to rebound before a vaccine enables arenas to fill. Industry confidence in an eventual advertising recovery can be deduced though Madison Square Garden Networks' recent successful rate hikes to carriers. Further hints of an ad-spend rebound: media titan Facebook already seeing a stabilization in demand by the end of April. Conversely, a vaccine remains distant.
From a value perspective, Madison Square Garden Network's market cap sits at roughly $700 million. If they are able to return to 2019 profit levels, their price earnings multiple (PE) will sit under 4 times. Brand power and a passionate following of the Knicks and NHL organizations should enable this company to regain its footing long term, but assume they never do.
Just regaining half of their net income, an overly conservative target, would leave a company much cheaper than the market at an 8 times PE. That extremely negative demand outlook still creates compelling value here bolstered by the stock price halving over the past year. Here we have the rare, intriguing duo of seemingly good value and a loyal, sticky consumer following.
Professional Sport Exposure
There are other public companies with great sport content rights trading at low valuations. ViacomCBS, Disney, and Comcast are a few names that come to mind. The main difference between these larger companies and owning MSGN is the exposure to college athletics.
The path to pro sports returning is much clearer than a return for the NCAA. In recent days we have heard murmurs of return plans for the MLB, NFL, NHL and NBA juxtaposed with colleges casting doubt on seasons of their own. While universities need both the revenues and the draw sports provide, asking students to return to school and compete for free is difficult if the virus risk persists. Conversely, convincing pro athletes to stay in quarantined, luxury hotel between games while collecting their giant paychecks could be a relatively easier task.
If I know anything about our species, I know that we will love sports long after the coronavirus is gone. Certain companies, like Madison Square Garden Networks, have the ideal kind of exposure capable of snapping back before other parts of the industry. By not relying on full stadiums, or colleges returning in the fall, they depend solely on professional sports returning and people watching. I am quite comfortable making that leap. Their low valuation only increases my confidence this position will work going forward. My only issue? Deciding if I'm more excited about this stock, or a return of sports.