An article by Jonah Keri, “Taking Stock of Jeremy Lin’s Value,” posted to the the ESPN.com blog Grantland this afternoon offered an interesting look at the financial impact of Jeremy Lin’s sudden rise to fame last winter. For those who were not following the “Linsanity” phenomenon last February, Jeremy Lin was (until today) a point guard with the New York Knicks who became an overnight media sensation and perhaps saved the NBA after last season’s labor dispute. At the end of the 2011-2012 NBA season, Lin became a free agent, and this week, the New York Knicks declined to match the 3-year, $25.1 million offer that Lin received from the Houston Rockets.
What caught my eye with Jonah Keri’s Grantland article today was the approach he took to exploring the value, that of the impact on the stock market. The New York Knicks are one of just a few sports franchises in the world that are affiliated with a publicly-traded company. The Madison Square Garden Company trades on the Nasdaq exchange under the ticker symbol “MSG.” The media and entertainment company has a $2.6 billion market capitalization and operates three primary divisions:
- MSG Sports, which manages several professional sports teams, including the New York Knicks (NBA), New York Liberty (WNBA), and New York Islanders (NHL).
- MSG Media, which controls the company’s television networks, including the MSG Network, which broadcasts the New York Knicks.
- MSG Entertainment, which manages live events at Madison Square Garden, the home court of the New York Knicks, as well as events at the Theatre at MSG, Radio City Music Hall, and the Chicago Theatre, among other venues.
Thus, the Madison Square Garden Company and its shareholders are somewhat leveraged to the success of the New York Knicks franchise. Keri’s article explored the performance of the stock from Feb. 3 when Lin first entered the starting line-up, thus kicking off the Linsanity phenomenon, through May 7, a couple of days before the Knicks were eliminated from the NBA playoffs. During this period, shares of MSG rose from $29.32 to $38.69, an increase of 31.96% in just over three months.
In finance research, this type of measurement is called an “event study.” Yet, we cannot just look at the time period in isolation, because after all, performance is relative. So instead, we might compare the performance of the stock relative to the performance of the broader market over the same period. The chart below (from Yahoo! Finance) shows the relative performance of MSG versus the broader market S&P 500 Index for the Feb. 3 – May 7 holding period.
Ignoring dividends, the S&P 500 returned just 1.84% over Feb. 3 – May 7 period. Thus, MSG substantially outperformed the market by 30.12% (31.96% – 1.84%) during this three month period.
Let’s look at the value from a slightly different perspective. According to Yahoo! Finance, there are approximately 74.66 million shares of MSG outstanding. A 30.12% market-adjusted return on these shares from Feb. 3 – May 7 increased the value of the company by $659.3 million more than if the stock had matched the return of the market over the same period! (Data: 74.66m shares * 30.12% return * $29.32 price on Feb. 3 = $659.3 million)
Of course, this does not necessarily mean that Jeremy Lin was solely responsible for adding $659 million of value to MSG shareholders. After all, correlation does not imply causation. This is a point that Jonah Keri is careful to make in his article as well. However, the figures do make one wonder.
Take a look at the stock price chart above again. What I also found of interest was the substantial increase in trading volume for shares of MSG during the second and third weeks of February, precisely the time when the Jeremy Lin phenomenon was captivating the national media. During those two weeks, MSG traded more than 1.0 million shares per day a few different times, compared to a three-month average volume of 242,790 shares, according to Yahoo! Finance. Not surprisingly, this period coincides with a sharp rise in the MSG shares.
Again, correlation does not imply causation, but let’s take a look at the other side of the Jeremy Lin saga, which is the announcement that the New York Knicks would not match the contract offer presented by the Houston Rockets. The following chart shows the performance of MSG shares versus the S&P 500 index for the period from July 2 through July 19. This period captures the news that Jeremy Lin was exploring other contract opportunities and rumors that the Knicks were not likely to counter other offers.
Since July 2, shares of MSG are down 8.92% compared to an increase of 0.81%. Thus, MSG has underperformed the market by 9.73% since July 2. MSG shareholders have seen the value of their shares decline by a combined $281.8 million compared to the market index in less than three weeks. (Data: 74.66m shares * -9.73% return * $38.79 price on July 2 = $281.8 million)
Maybe we cannot directly link the $659 million value creation to Jeremy Lin’s sudden rise to fame or the nearly $282 million of value destruction solely to his departure, but it certainly does give Knicks fans a reason to pause and wonder if perhaps he would have been worth $25.1 million over three years after all. The financial markets seem to think that that he was perhaps worth more.