The Knicks’ victory points to the value of scarcity

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For much of the past three decades, James Dolan has been at the centre of one of the longest-running sagas in American sports as owner of the New York Knicks.

The basketball team cycled through coaches, executives and failed rebuilding plans. Fans complained. The team underperformed. The franchise became a case study in how even one of the world’s premier sports brands could be held back by poor ownership.

Yet throughout the Knicks’ recent playoff run — culminating in last Saturday’s NBA title-clinching victory in San Antonio — Madison Square Garden became the hottest ticket in America. Courtside seats filled with Timothée Chalamet, Kylie Jenner, Spike Lee, Larry David and Sydney Sweeney. Financiers including Jamie DImon, Larry Fink and David Solomon rubbed shoulders with the likes of media executive David Zaslav. Some tickets changed hands for nearly $180,000.

The frenzy has been reflected in the stock market. Shares in Dolan’s company Madison Square Garden Sports, which owns both the Knicks and the New York Rangers, have climbed roughly 43 per cent this year, comfortably ahead of the S&P 500’s 10 per cent gain.

The celebrations marked not only a sporting triumph but also a vindication of one of the oldest ideas in finance: scarcity has a value, with the Knicks, the dominant sports team in the largest US city playing in an arena with just 20,000 seats, being the best example.

For years, investors pointed to the Knicks as a mismanaged asset. Yet throughout decades of frustration, the franchise’s value continued to rise. The Knicks alone are believed to be worth about $10bn, according to Sportico. The same story has played out across professional sports.

“There’s been an explosion of wealth. In the US, the number of teams in the major sports leagues has barely changed over the past couple of decades, but the number of billionaires has multiplied. It’s a simple supply-and-demand story,” Gregg Lemkau, chief executive of BDT & MSD Partners, told me recently.

At the same time, sport has become something more than a billionaire’s hobby. Institutional investors, sovereign wealth funds and family offices have piled into the sector, attracted by growing media rights revenues and improving liquidity.

“The value of live sports has exploded,” Lemkau said. “With streaming, people can watch what they want, when they want, and it’s become much harder to get people to watch advertising. Live sports is the exception because people still feel they need to watch it in real time.”

Media rights in sports have surged, team finances have improved and franchises have evolved into a recognised asset class. But the success of American sports and the scarcity factor have meant it has become an expensive one in the US.

Investors searching for opportunity are increasingly looking at Europe where there are hundreds of football clubs, many with rich histories and passionate fan bases but inconsistent ownership, ageing infrastructure and untapped commercial potential.

Sunderland illustrates the appeal. When Kyril Louis-Dreyfus acquired control of the football club in 2021, it was stuck in England’s third tier. Today it is back in the Premier League and worth many multiples of its purchase price. Similar stories have attracted investors ranging from private equity firms to sovereign wealth funds and billionaire families.

“You’ve got two types of money coming into European football,” Gerry Cardinale, founder of RedBird Capital and owner of AC Milan, told me. “On one side, there are professionals — people with real pedigree in sports investing — and newer players from the sovereign states that have become very sophisticated in the space. On the other, you’ve got newer money that’s been attracted to the space because they’ve effectively been priced out of US sports.”

Cardinale pointed to the valuation gap between the two markets: “In Europe, football clubs have traded recently at 3.5 to 5.5 times revenues, which is a significant discount to revenue multiples in the US, led by the NFL at 10 to 12 times and the NBA at 12 to 13 times on average.”

“So people look at European football and say: this is a chance to buy into a global entertainment and economic opportunity at a discount.”

For decades, owning a sports team was considered the ultimate trophy asset. Today it sits somewhere between entertainment, infrastructure and private equity. The Knicks championship is evidence of the potential for investors. The title the team finally won on Saturday confirmed a lesson for investors: when an asset is sufficiently scarce, time is often on your side.

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