Declining Local Fees Will Dampen Performance But Enable Cautious Recovery

Key Takeaways

• Heavy reliance on Knicks and Rangers increases earnings volatility, especially if team performance or fan engagement declines amid shifting media landscape and rising costs.
  
• Challenges in adapting to digital consumption and constrained local media revenue growth may limit high-margin income and long-term franchise value appreciation.
  
• Heavy reliance on two teams, declining media rights revenue, rising costs, and evolving media consumption habits threaten earnings stability and long-term revenue growth.

Catalysts

Operates as a professional sports company in the United States.

• While the NBA's new national media deals with streaming giants such as Disney, NBCUniversal, and Amazon are set to increase the league's overall media rights revenue and thus MSGS's share, the company faces a substantial headwind from sharply reduced local media rights fees and elimination of escalators for both the Knicks and Rangers until at least the end of the 2028–29 season. This transition may limit the pace of top-line revenue growth relative to peers that are able to capitalize more fully on direct-to-consumer platforms.
  
• Despite strong international and corporate partnerships-exemplified by new deals with Abu Dhabi's Experience Abu Dhabi and Lenovo-the company's heavy dependence on just two teams exposes it to volatility; any sustained underperformance in the Knicks or Rangers, or a decline in fan engagement, could significantly impact sponsorship, ticketing, and merchandise revenue, leading to lumpier long-term earnings growth.
  
• Although MSGS benefits from the rising demand for live sports as entertainment and the convergence of sports with adjacent experiences at renovated venues, digital transformation in fan engagement and content delivery remains a challenge-in particular, cord-cutting and the erosion of traditional broadcast audiences threaten the ability to grow high-margin media rights income in the future.
  
• While premium pricing power for tickets and suites is reinforced by record playoff gate revenues and continued strong fan interest, escalating player salaries, luxury taxes, and higher arena-related expenses could compress net operating margins, especially if revenue gains fail to keep pace with cost inflation.
  
• Even though recent minority stakes in major sports franchises have fetched record valuations, a tougher regulatory environment around media rights, labor disputes, or changes in the economic climate-such as stagnant middle-class incomes-could constrain MSGS's ability to maintain growth across sponsorship, ticketing, and hospitality revenue streams, ultimately weighing on long-term franchise value appreciation.

Madison Square Garden Sports Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Madison Square Garden Sports compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Madison Square Garden Sports's revenue will decrease by 0.6% annually over the next 3 years.
• The bearish analysts are not forecasting that Madison Square Garden Sports will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Madison Square Garden Sports's profit margin will increase from -2.2% to the average US Entertainment industry of 9.3% in 3 years.
• If Madison Square Garden Sports's profit margin were to converge on the industry average, you could expect earnings to reach $98.7 million (and earnings per share of $4.11) by about August 2028, up from $-22.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 70.9x on those 2028 earnings, up from -211.3x today. This future PE is greater than the current PE for the US Entertainment industry at 31.6x.
• Analysts expect the number of shares outstanding to grow by 0.27% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.82%, as per the Simply Wall St company report.

Madison Square Garden Sports Future Earnings Per Share Growth

Risks

• The recent amendments to local media rights agreements with MSG Networks include significant reductions in annual rights fees, especially a 28 percent drop for the Knicks and 18 percent for the Rangers, as well as the elimination of annual escalators and a shortening of contract terms, which poses a risk of declining recurring media rights revenue over time.
  
• There is heavy dependence on just two major teams, the Knicks and Rangers, making MSG Sports highly exposed to performance fluctuations, lower playoff participation, or declining fan engagement, all of which can sharply impact ticket sales, sponsorship, and overall earnings volatility.
  
• Elevated cost structures driven by escalating team personnel costs, luxury taxes, and other operating expenses, including rising NBA and NHL salary caps, threaten to compress net margins even if top-line revenues remain stable.
  
• The evolving media landscape and accelerating shift from cable TV to streaming are reshaping the regional sports network business; reductions in local rights fees and dependence on uncertain new national deals could weaken future bargaining power and threaten both top-line revenue and earnings sustainability.
  
• Changing consumer preferences among younger audiences, along with intensifying competition from alternative entertainment options, could limit the company's ability to sustain premium ticket demand and merchandise revenue growth, ultimately pressuring long-term top-line revenues.

Valuation

• The assumed bearish price target for Madison Square Garden Sports is $220.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Madison Square Garden Sports's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $314.0, and the most bearish reporting a price target of just $220.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $1.1 billion, earnings will come to $98.7 million, and it would be trading on a PE ratio of 70.9x, assuming you use a discount rate of 9.8%.
  
• Given the current share price of $197.61, the bearish analyst price target of $220.0 is 10.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.