We’ve certainly heard a lot of chatter about the NFT craze in recent months, as new non-fungible tokens for artwork and collectibles have set crazy auction prices and created fortunes out of almost nothing… so I thought I’d take a look at the latest teaser pitch we’ve seen to pitch the NFT idea.
The ad is from Enrique Abeyta, teasing a few ideas as “NFT Royalty” companies in ads for his Empire Elite Growth newsletter ($2,000, renews at $3,000, no refunds)… he says he’ll talk about NFTs in general, including some of the early trading he has done in NFTs, but the main bait he dangles for subscribers is the special report about those three “NFL Royalty” companies.
Here’s the basic promise, from the order form:
“Even without the crypto story…
“I’d still recommend these three stocks with potential for 300% to 500% upside.
“But when you add in the frenzy happening for NFTs right now…
“These ‘NFT Royalty’ companies could do that even faster than expected.
“Because these three companies have everything NFT sellers want: premium, name-brand content.
“Each of these companies will benefit from NFTs as they cut massive, multimillion-dollar and even billion-dollar deals to license their content to create NFTs.”
What the heck are those NFTs? I’ll keep it super simple — they are just digital codes that prove the ownership of an item. “Non-fungible” just means that they’re unique items, they’re not currencies or commodities and they have a specific individual identity even if the actual item (like a digital image or video clip) also has many otherwise identical copies. It’s like your title records for your house, or the provenance of a painting that consists of records of purchases and sales over time to track who rightfully owns it… it’s just that in this case, NFTs are mostly seen as collectibles, so the NFT is really like a serial number that identifies your particular unique collectible, even if it was issued in a series with 1,000 copies and they’re all functionally identical except for that NFT “serial number” on the blockchain.
It’s not so different from buying a trading card, or a signed and numbered print of a painting, or an autographed photo of your favorite athlete. You don’t own the image or the copyright, you just own your one unique digital copy, and the records of every transaction of that unique digital copy are kept kept on the blockchain, so it’s at least theoretically simpler to prove their authenticity. Most of the blockchain projects which register the ownership of unique NFTs are built on the ethereum platform, so Abeyta also does “give away” a free idea, which is to buy ethereum, which is still the second most-popular cryptocurrency.
But really he’s talking about the money those NFT creators can earn. So, without further ado, shall we jump to the clues?
“So the first recommendation is an iconic U.S. company located in New York.
“It stands to get paid from one of the biggest NFT licensing deals in the world right now.
“But it also just launched its own pilot NFT program.
“It made 5 limited-edition pieces of NFT memorabilia to commemorate one of its greatest moments as a company.
“It was a huge hit with customers.
“Now, it effectively has the chance to ‘double dip’ with NFTs, since it’s creating its own as well as enjoying the benefits of a licensing deal.”
The best likely match the Thinkolator feeds us for this one is Madison Square Garden Sports (MSGS), which owns the New York Knicks (NBA) and New York Rangers (NHL) as well as some other smaller teams (minor leagues, eSports), and was split off not that long ago when the properties and the teams were separated (so if you want to own the actual Madison Square Garden arena, Radio City Music Hall, and the Forum in Inglewood, among other sports and entertainment facilities, you buy Madison Square Garden Entertainment (MSGE)).
How do we match those clues? Well, the Knicks are part of the NBA, so they’re a beneficiary of the licensing deals for those popular TopShot NFT videos which have helped to create the first real value in sports NFTs… and the NBA has generally been ahead of the curve on monetizing digital media, so a trickle of that share flows through to each team.
And the Knicks had a breakout season last year, with a big run that got them to the playoffs and brought some optimism back to the franchise for the first time in almost a decade, since the Linsanity years and their last playoff appearance in 2013… and capitalized on that with a series of NFT releases for five of the iconic moments of their surprise season. They all sold out immediately, no surprise, and I imagine they’re probably being traded on one of the many NFT trading platforms… whether that’s really historic or not, I guess time will tell — it’s a signal of how sad the Knicks have been of late that one exciting team with some big comebacks and a surprise playoff appearance might earn the descriptor “historic,” despite losing in the first round of the playoffs, but, well, everything’s bigger in New York. (I loved watching Patrick Ewing as a kid, I was rooting for for Mark Messier when he brought the Stanley Cup to the Rangers in 1994, so the mediocrity of both teams in recent years has been sad to see — though as a longtime fan of the Detroit Lions, I am primed to stand up and cheer for the mediocre).
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The various companies spun out of Madison Square Garden and the Dolan Family’s Cablevision empire have been favored by value investing folks for years now as “hidden value” companies, given the massive values carried by both Manhattan real estate, particularly with the air rights and renovations to the Garden, and by prime big-city sports teams in this era of mega-billionaires, where every American business titan who doesn’t own an NBA or NFL team is laughed at by their billionaire buddies when they land at Davos (you bought an NHL team? Oh, that’s so cute — what a fun little project! I gave my kids a MLS team last year, everyone has to start somewhere).
It’s hard to argue with the valuation for MSGS, since the enterprise value (market cap plus net debt) for the company is probably lower than the purchase price would be if you tried to buy the New York Knicks today, and the Knicks are valuable even after a decade of disappointment, so who knows what might happen if they create a real championship contender… and you kind of get the NY Rangers (and Hartford Wolfpack, and Westchester Knicks) for free.
But, of course, just because the pundits of the world believe that the Knicks are the third most valuable sports franchise in the world, behind the Cowboys and the Yankees, doesn’t mean that they’ll ever realize that value for their shareholders. If everyone knows you’re not selling, and the asset is unique and irreplaceable, then valuing it is an art. Or a guess. And high-profile professional sports teams, despite the massive revenue they get from TV deals, are often not profitable, most of the well-known organizations are run with a goal of winning, not of making money each year.
So… sure, the Knicks and Rangers would probably be worth a total of well over $5 billion if they were sold to the highest bidder… and it’s not that hard to imagine it could be twice that much. You can justify the asset value, given the crazy prices paid for lesser teams over the past decade and the rising TV rights revenue… but they’re not likely to be consistently profitable or have positive cash flow, let alone reward shareholders by buying back shares or paying dividends.
Maybe the NFT world boosts the value of professional sports teams ever higher, that wouldn’t be shocking, but I would assume that the impact will probably not be huge in the near term. If you love sports, MSGS would be my first choice among the few available opportunities to own a piece of a major league team… but that’s not saying much, it’s a short list to choose from. If you’d rather own the Atlanta Braves (more on them in a moment), or Manchester United (MANU) with the return of Ronaldo, well, buy the team you like — it might grow in value, with or without NFTs, and all the big teams are almost certain to have a better revenue year next year than th