NEW YORK (TheStreet) -- To make a hash of the baseball movie Field of Dreams: "if you renovate it, they will come." That's certainly true of Madison Square Garden (MSG), which invested almost $1 billion to remodel its New York City arena.
"The World's Most Famous Arena" re-opened on Oct. 25. The payoff has been increased attendance -- typically capacity crowds -- at National Basketball Association and National Hockey League games for the New York Knicks and Rangers. The company continues to see record revenue and profits and an increase in its share price. But something that may happen 10 years from now should be on investors' radar.
After MSG spent about $980 million on a three-year renovation project, the city of New York appears ready to push the iconic arena out of its current location.
MSG owns the arena, but not the land underneath it. That is owned by the city of New York. This year the company was given a 10-year lease limit on its current location, where it has hosted sporting and entertainment events since 1968.
The New York City Council voted 47-1 in favor of the 10-year lease. The given reason for the short term was the need to update Penn Station, the busiest passenger train station in the U.S., located directly below the Garden. The city says it needs the arena to move to allow renovations to the high-traffic rail line and to improve transit access.The planning commission had recommended a 15-year lease extension. MSG wants to operate there in perpetuity. Instead, the Garden will have to go through the same lease-approval process or vacate the space in 10 years. So there's a big chance that MSG will be forced to find a new home in 10 years. After the costly renovations and more than 2.6 million man hours of labor, the company is unhappy about that possibility.
Obviously, moving to a new location may hurt the stock price. A new arena would cost billions of dollars and could tarnish a somewhat strong balance sheet. The company -- which has media, sports and entertainment segments -- reported earnings and revenue for its fiscal first quarter ended on Sept. 30 that topped estimates. That came on top of a strong fiscal year.
In their current seasons, despite their mediocre records, the Knicks and Rangers are averaging capacity crowds. Yet MSG remains the oldest arena in the NHL and second oldest in the NBA. MSG as a company owns four large brands and several smaller brands. The keys are the Knicks, Rangers, the namesake arena and the MSG television network that airs most of the teams' games. Both storied franchises rank among the most valuable in sports. Forbes magazine lists the Rangers listed as the second-most valuable NHL team with a value of $850 million. The Knicks rank as the most valuable NBA franchise with a value of $1.1 billion. Those valuations include the value of the shared arena. The company has a market cap of $4.27 billion. At $55 a share, MSG's stock is richly valued, trading at 2.8 times this year's expected revenue and 30 times earnings. Shares have gone up 21% in 2013 and could be poised for a pullback in 2014. Since MSG was spun off from media company Cablevision (CVC) in 2010, its shares have almost tripled. The company continues to see record revenue and earnings thanks to its huge sports and media segments. Entertainment could get a boost from a full year of arena events and the re-opening of the historic Forum in Los Angeles, now also owned by MSG.
Investors, however, should always be looking down the road, and I believe the Garden's possible move should keep investors out of the arena. At the time of publication, the author had no position in any of the stocks mentioned. Follow @chriskatje This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV