3 Solid Reasons Why the New York Knicks Are a $5 Billion Team

From a financial and sport-oriented viewpoint, the New York Knicks’ fortunes seem like an unlikely paradox. Up until the 2020 season, this professional basketball team had seven straight losing seasons, a nearly half-century-long NBA title drought, 11 coaching changes, and only one playoff series win in 10 years. Yet, Forbes recently estimated the New York Knicks’ value at $5.8 billion, making it the most valuable NBA franchise for the sixth year in a row.

The Forbes 2021 estimate put the Knicks slightly ahead of the Golden State Warriors’ $5.6 billion valuation and the Los Angeles Lakers’$5.5 billion estimate. Just as a reminder, the Lakers have had six NBA title wins since 2000 and have had a roster that includes mega-stars like Kobe Bryant, Shaquille O’Neal, and LeBron James. Also, with three NBA Championships during the Stephen Curry era, the Golden State Warriors have had great success on the court in the last decade or so.

Performance on the court doesn’t amount to much in valuing sports teams, and the financial bottom line is only part of the equation. It’s more like a mixture of economics, psychology, and art. To understand how the low-performing Knicks can consistently rate as the most valuable NBA team, we must look at all the key factors and apply them to this franchise.

The Valuation

A valuation is the same process a home appraiser uses. Nevertheless, it is no more than an educated guess. Valuators assess NBA teams’ worth according to their current market value. For example, Forbes estimates the Knicks franchise could sell for $5.8 billion in the present marketplace.

So, the evaluator uses the NBA team’s location, assets, revenues, revenue potential, and net profits to determine what a reasonable buyer would presently pay for the franchise. But, in the professional sports market, reason can play a secondary role to the intangibles.

The Intangibles

Another critical factor in determining an NBA team’s value is its intangibles. For example, Forbes valued the LA Clippers at $575 million in 2014, yet ex-Microsoft CEO Steve Ballmer bought the team for $2 billion that same year. In the conventional business world, a business purchase this far over book value is almost unheard of. Yet, it happens often in the sports world.

No one can anticipate what’s going on in a buyer’s head, but this intangible can affect a team’s value within minutes. For example, after the LA Clippers’ sale to Ballmer, the average NBA team more than tripled in value within four years. Also, the fact that there are only 30 NBA franchises can affect the intangibles.

Exactly Why the Knicks Are Worth So Much

When you dissect the tangible and intangible components from the Knicks’ franchise, it becomes apparent why the team’s worth outweighs even the mighty LA Lakers. So let’s examine each valuation factor according to category.

1. Location: If you want to understand how important location is to the Knicks’ worth, consider that the $2.4 billion value of the New York market is more than the total valuation of 19 other NBA teams. So, with 44 percent of the Knicks’ valuation stemming from its location in New York City, the overriding advantage the Knicks have is simply being in one of the wealthiest markets in the world. This factor alone would have billionaires salivating for the opportunity to own the franchise, but it’s doubtful that Knicks owner James Dolan would ever consider selling such a prized possession.

Just as important, the Knicks’ home is in Madison Square Garden (MSG), which is the Disneyland of sports venues. Plus, the recent $1 billion renovations to MSG are paying off with more prominent sponsors, mega merchandising, and suite memberships. Presently net valued at $4.07 billion, Madison Square Garden is a significant entertainment venue itself, making the Knicks’ on-court failures and gate revenues less relevant to the Knicks’ net worth.

1. Net Revenue: While the Knicks are currently eighth among NBA teams in ticket sales, the box office barely carries weight compared to the two primary sources of revenue for NBA teams: national and local broadcasting deals.

The league presently operates under a nine-year, $24 billion contract. But the NBA is about to sign a new $75 billion broadcasting contract set to start in 2025. This new contract will cause a quantum increase in the league’s salary cap. For example, in 2017, Steph Curry signed a blockbuster $200 million contract. By 2025, a $200 million contract amount will be the norm, and $300 million will be the new ceiling.

While national fixed revenues raise the salary cap, local fixed revenues help cover the players’ salaries. Local TV markets are the primary source of local fixed revenue for NBA teams. For example, despite their dismal play, the Knicks generate over $100 million in local media revenues per year. In contrast, the Memphis Grizzlies, a regular playoff team, make about one-tenth that much with $9.4 million a year. So, fixed national and local revenue make win-loss records financially inconsequential for large NBA franchises.

1. Assets: The NY Knicks franchise is part of a portfolio of sports teams owned by the Madison Square Garden Sports Corp. As a result, describing the ownership structure can get complicated. But, since James Dolan is head of MSG Sports Corp, it’s safe to say he is the owner.

Dolan and the MSG Sports Corp own all rights to the team, MSG, the golden real estate it sits on, and long-term local TV contracts. The fact that the Knicks franchise owns most of its ecosystem positively impacts its valuation.

The Final Tally

The New York Knicks’ financial profile clearly explains how one of the worst teams in the league can be the most financially valuable. Yet, it is a ying-yang state that the Knicks’ owners, front office, players, and fans hope will change for the better.