The Knicks Missing Out on Durant, Irving May Pressure MSG Stock

(Bloomberg) -- Investors who bet on James Dolan to revive the National Basketball Association's most valuable franchise with a pair of All-Pro NBA stars met the harsh reality of another disappointing free agency summer this weekend.

The New York Knicks failed to net any of the league's top free agents, and instead signed multi-million dollar deals with former lottery pick Julius Randle, as well as journeymen Taj Gibson, Bobby Portis and Reggie Bullock. That stands in stark contrast to the haul the Brooklyn Nets brought across the bridge in All-Stars Kevin Durant, Kyrie Irving and DeAndre Jordan.

MSG Networks shares fell as much as 6.3% in Monday's trading. The slide adds to a now 13% drop since the NBA Draft Lottery in May, when it was decided the Knicks would miss out on then-Duke phenom Zion Williamson, who was drafted by the New Orleans Pelicans. That underperformance is similar to an 8.9% decline for Madison Square Garden, compared with a 4.8% gain for the S&P 500 Index.

While the Dolan-owned Knicks are just a part of the offerings presented by both the MSG Networks Inc. and Madison Square Garden Co., expectations for a splashy summer made investors salivate and bullish analysts eye the potential for gains in the shares of the two companies. “Team performance and superstar talent have a dramatic impact on team valuations,” BTIG analyst Brandon Ross wrote in a May note highlighting that “it has been a tough millennium for Knicks fans.”

BTIG's Ross and Imperial Capital analyst David Miller have highlighted that the ability for the Knicks to fill seats and be must-watch television with All-World players like Jimmy Butler, Kevin Durant or Kyrie Irving would help boost advertising revenue for MSG's flagship network and its MSG+ offerings. However, the same probably can't be said for the haul of Randle and Portis, who haven't started in a playoff game in their young careers.

Dreams of the Knicks reclaiming their spot among NBA royalty were mocked across social media as calls for Dolan to sell the Knicks intensified. Reports that the team wasn't prepared to offer Kevin Durant a full max contract because of concerns related to his Achilles injury didn't help Dolan's cause.

While fans and investors may be feeling the burn of another disappointing summer, the Knicks released a statement Sunday evening from team president Steve Mills that tried to ease some concerns.

“While we understand that some Knicks fans could be disappointed with tonight's news, we continue to be upbeat and confident in our plans to rebuild the Knicks to compete for championships in the future, through both the draft and targeted free agents,” the statement read.

To contact the reporter on this story: Bailey Lipschultz in New York at blipschultz@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Steven Fromm, Richard Richtmyer

©2019 Bloomberg L.P.