OH YEAH!
GRIMLOCK’S BACK!
G: ME GRIMLOCK! ME LIKE WHEN THING EASY!
Yes we know Grimlock. Grimlock, as you all must know, is a Dinobot Transformer. He likes to join us once in a while to explain easy stuff . . . right G?
G: ME GRIMLOCK!
Yes, we know, we know. So what’s up Grim?
G: YOU THINK WRONG.
Oh yeah? Not the first time, what about this time?
G: YOU NO THINK MORE OF TEAM IDEA!
Oh you mean the article Matt the Intern wrote?
G: MATT SMART, YOU THINK MORE.
Okay, I’ll bite, what I miss?
G: SHINY THING GO UP!
Huh?
G: SHINY THING GO UP, LAKERS GO UP.
Okay, okay . . . Lakers. Jerry Buss and the Buss family bought the Los Angeles Lakers in 1979 for $67.5M, and sold it 46 years later for $10B. Excluding the annual free cash flow thrown off by the Lakers organization during those years, the value of the team appreciated on average . . . 11.5% a year for 46 years. Dang that’s pretty good.
G: GOOD.
Yeah, I just said that, good.
G: NOW YOU BUY HALF.
Huh?
G: HALF TEAM!
MSGS? Oh wait, they own the Knicks (NBA) and the Rangers (NHL), and both are probably worth ~$11B conservatively. The market cap is around $5B, so we’re buying it for half price.
G: HALF IS DOUBLE.
What? . . . oh goodness. If the teams appreciate at 10-12%, but you buy it at half price, you’re effectively compounding at 20-24% a year, excluding any dividends, etc.
G: NOW RULE.
. . . 72? If you compound near 20%, the Rule of 72 tells you you’re doubling your money every what . . . 3.5 years. So in 35 years, you’ll compound your investment 10 times.
WHOA.
$1K turns into $1M. $100K into $100M.
Still what if Dolan and family, who control via supermajority vote never transacts, and that discount doesn’t close?
G: GOOD.
Wha?? Oh, because if they do, this generational asset goes away. You stop participating in the rising value of sports teams if they ever transact (i.e., “sell”). Interestingly, you actually don’t really want them to, since you just want to sit and let the asset appreciate.
G: SHINY THINGS GO UP.
Thinking in decades sure is a long time.
G: ME DINOSAUR.
Yeah I guess you’re right. Buss family held the Lakers for nearly 4 decades, but it just keeps grinding higher. In all likelihood today’s fans are raising tomorrow’s fans, and the value of sports teams grind higher. What’s the risks though?
G: ASTEROID!
Yeah that’s a risk I guess. Maybe the discount doesn’t close, it’s half off because the family doesn’t really care about the stock too much, but does it matter? It’s half off to the current market price, and so you can just assume the future rise, and then chop it by half . . . but again that’s just optics. The underlying teams are still worth double, and compounding at a staggering rate if you buy MSGS stock today. The teams are still climbing at 10-12% a year from a $11B “real price,” but you’re buying it for effectively “$5B”.
Maybe instead of an asteroid risk, it’s kind of like a pet rock. The risk is more investor psychology, you won’t always see the immediate gratification of the investment. So take a small position and just let it appreciate. Betting that the New York Knicks and the New York Rangers, will still be the New York Knicks and New York Rangers that they are today . . . yeah that’s a good bet. If you're young, for your kids’ college fund, or something long term, this could be brilliant. Wow, thanks for reframing it Grim. We’ll go buy it.
G: ME GRIMLOCK!
Insightful as always.
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