Much has been made already about the New York Knicks decision — reportedly at this point — not to sign Jeremy Lin. But another way to look at the move is that the Knicks’ owner, Madison Square Garden Inc. MSG +0.08%, has already lost more money in market capitalization than the cost of Lin’s contract.
The 64-cent drop in MSG stock equates to a market capitalization loss of about $49 million.
Estimating the cost to MSG of matching the Jeremy Lin contract offer from the Houston Rockets is a bit trickier. The roughly $25 million over three years that the Knicks would owe the Harvard graduate is almost irrelevant, because the Knicks will be paying the NBA’s full salary cap, and then some, with or without Lin. The only real direct cost comes from the luxury-cap implications.
This piece by Business Insider does a pretty good job of laying out different scenarios for 2014, when the Lin contract could be considered, to use Carmelo Anthony’s terminology, “ridiculous.” The one this author feels would have been most likely is not actually presented — getting rid of Marcus Camby and Raymond Felton, and keeping Iman Shumpert — but the approximate difference in luxury tax between keeping Lin or not is somewhere in the order of $35 million to $40 million.
And that’s assuming no business impact at all from the revenue side. (Even if a Lin-inspired boycott by Knicks fans is short-lived, it does seem there will be at least some negative revenue element from not bringing back the popular player.) And when you factor in the time value of money — e.g., money now is worth more than money later — the Lin non-signing is even more a negative for MSG stockholders.