Chapter 5: The Financials

The Knicks will benefit the same from Jeremy Lin merchandise whether he plays in New York or not. Debby Wong/US Presswire

Followers of the Jeremy Lin sweepstakes know it wasn't just the $25.1 million, three-year offer sheet from the Houston Rockets that had the New York Knicks in turmoil. It was also the luxury tax bill that would have come, particularly in the third year of the contract, when he'd be due $14.8 million.

Without Lin, the Knicks were projected to pay less than $10 million in luxury taxes three years down the road. With him, the figure would have been more like $28.2 million or perhaps even higher, according to analysis by ESPN's Larry Coon.

As potential ways to afford such a tax bill, many observers have pointed to the Knicks' revenues, including those from ticket sales, the team's relationship with the Asian American community, the stock price of the team's parent company and the marketing opportunities surrounding Linsanity.

But a careful consideration shows the effects of those opportunities might have been overstated.

Now that Lin is leaving the Knicks and joining the Rockets, we will have an opportunity to see just how it affects the two franchises. But those who follow the financial side of the Knicks and Madison Square Garden don't see Lin's departure having the kind of impact that many expect.

Ed Horne, chief operating officer of Madison Avenue Sports and Entertainment and a former NHL marketing executive, said the Knicks won't feel much of a sting when it comes to marketing and sponsorship opportunities.

"In the long term, from a business perspective, I don't think [losing Lin] has a real material impact. The licensing business is joint, so it doesn't have a real impact," Horne said, referring to the fact that all merchandise revenue in the NBA is shared. "New York is one of the biggest Asian markets in the country, perhaps the biggest, so the appeal of the Knicks as a franchise is undeniable [regardless of Lin]. Companies are going to attach themselves to the Knicks."

In fact, Asian companies already align with quite a few NBA teams thanks to the league's burgeoning popularity in China, and most of those teams do not have Asian players on their rosters. For example, Chinese beer brand Tsingtao entered a multiyear deal with the Miami Heat last season. The Heat also have had a deal with South Korean tire manufacturer Kumho Tire, a company that also partnered with the Los Angeles Lakers. South Korea-based Kia Motors Corp. has a sponsorship agreement with the NBA and also with nearly half the teams in the league.

Ronn Torossian, CEO of 5WPR, a public relations firm in New York, said even for fans, the effect of losing Lin would be short term. He said that leading voices in the often-critical New York media seem to think Lin would be overpaid under the proposed deal.

"If the Knicks were to take it and give him that kind of money," said Torossian, "it would be about 10 seconds before he has two bad games and people are saying, 'They overpaid.' Yes, [losing him is] going to be a short-term impact, but I don't think this does long-term damage to New York."

Many people have been watching the stock price of Knicks owner MSG, a publicly-traded company that has seen share price fluctuations aligned with Linsanity.

After Lin burst on the scene, MSG saw its stock rise 7 percent from Feb. 7 to Feb. 16 -- a $170 million bump to the company's market cap. But equating the two directly would provide only a narrow view of the price action, said David Bank, an RBC Capital Markets analyst who covers MSG.

"The reason the stock moved [in February] was that there was an affiliate fee negotiation going on between MSG and Time Warner," said Bank. "That was devastating for MSG at the time, to not be showing Linsanity on air. However, because Linsanity hit at that moment, Time Warner had to go back and say, 'OK, we'll give you what you want.'"

On Monday, following reports that the Knicks might not match the Rockets' offer sheet, MSG's stock dropped 64 cents to $36. Overall, the stock price has dropped several percentage points in the wake of the Lin news. Analysts said the total value of MSG's tradable shares -- its market cap -- has decreased by approximately $50 million, or more, depending on the price at a given moment.

So there went the money the Knicks could have used to pay the luxury tax bill, right? Not so much. Fluctuations in MSG's stock price are not new.

Bank said the MSG stock price decrease probably was in response to the news that Lin might be heading to Houston, but that it would likely be only a short-term reaction.

"He had a nice impact while he was here," said Bank, "but I don't think his exit would stain or have near the amount of impact it would have had in February. It's like how big cap media stocks trade around the success or failure of a single movie. It drives trading short-term, but then the headlines fade."