Key insights
- The article suggests a bullish outlook for Madison Square Garden (MSGS) stock, driven by a potential 30% discount to Net Asset Value (NAV) and a planned spin-off of its sports franchises (Knicks and Rangers). The author highlights the Knicks' increased odds of winning the NBA Finals as a catalyst for a 30-40% stock price increase. Additionally, the low implied volatility on MSGS options makes them an attractive, asymmetric bet with significant upside potential.
For game 1 of the NBA finals, I took out a $15,000 Amex loan to “invest” in the Knicks game one. Then, I rolled my profits into the Knicks game 2, and now I’m rolling them all into $MSGS OTM calls.
The DD
MSGS is the parent company of the Knicks (NBA) and the Rangers (NHL). It is one of the only ways to trade sports teams in the stock market. The Knicks are privately valued at ~$10B, and the Rangers at ~$3.8B. Despite owning $13.8B in sports equity, MSGS’ market cap trades at only $9.3B, a 30% discount to net asset value (NAV).
The CEO (Dolan) looked at that ~30% holdco discount and recently filed a Form 10 to break up the company and spin the teams out into separate publicly traded companies**.** Stop burying the Knicks (~$9.9B private mark) inside a conglomerate, force the market to price it against real comps, and the discount evaporates. SOTP screams ~$555/share vs. ~$383 now.
Then add the cherry on top: the Knicks currently have a ~80% chance (up from 25% a week ago) to win the NBA Finals, which would catapult the stock up anywhere from 30-40% by the next quarter. And even if they don’t win, each playoff home game prints over ~$20M operating profit → at any reasonable forward multiple their market cap should expand dramatically.
The options play
IV on MSGS options is only ~45%. This is almost nothing compared to the 200-300% numbers on the FDs I’m used to trading!
- ATM calls: easy 10x * OTM calls: 100x when the Knicks close it out
This is functionally an asymmetric sports bet (in terms of upside), with limited downside (options are exceptionally cheap). Heads I win $280k, tails I only owe Amex $2.8k.
Icing on the cake is that 95% of MSGS’s float is held by the Dolan family and large institutions. So any small change to the ~5% of shares available for trading on the public market will catapult the stock into the stratosphere.
Risks
Victor Wembanyama. Enough said.
Positions below (+$10k to be deployed Monday at open into OTM calls). NFA.