In a previous post titled Binary Options and The Super Bowl I did a study to see if the big game had any effect on advertisers stock prices. The latest sensation to hit the sports world comes in the form of a previously little know 6’3″ asian american point guard from Harvard named Jeremy Lin. The story actually transends sports and is actually a great human interest story. It’s about the marriage between an unknown underdog athlete and a world famous proffessional sports team on the brink of disaster. It would be great to see if a sports story of this magnitude has any effect on the financial world.

Lets begin with the team. The New York Knicks are one of the premier franchises in all of sports. Despite not being a particularly successful team, as they have only won 2 NBA championships in their 65 year history,.  they have been routine playoff contenders- until recently. Throughout the 80’s and 90’s tickets at Madison Square Garden for Knick games were sold out every night.  Coupled with their die hard fans’ intense enthusiasm for the team and the buzz of the celebrity filled front rows of the arena each game at the garden was crammed with tremendous excitement. Their playoff battles with Michael Jordan’s Bulls and Reggie Miller’s Pacers were epic. Nothing compared to the juice in the garden those years.

Players aged. Their top player Patrick Ewing was traded. The team started losing. The Knicks were not just any team. In New York, with a history of success, they could not afford to be a losing team. So they added one high priced free agent after another until they were way over the salary cap, prohibiting them from signing any more players. Unfortunately the team never jelled. They were a high priced, losing team with rapidly waning fan interest. Suddenly the arena wasn’t sold out. The celebrities stopped coming. The juice was gone.

Finally they decided to break down the team. They got rid of all high priced players and stopped signing aging, overated stars. Their mission was to get under the salary cap at all cost so they could sign new young all star talent. By the summer of 2010,  after a decade of losing they finally were under the salary cap. They signed and traded for two young all star players in their prime. They started winning again. They made the playoffs and the buzz was back in the garden. In the summer of 2011 they signed a third player. Experts thought the team was ready to make a serious championship run.

After two months the team was in disarray. With an 8-15 record, star players Carmelo Anthony, Amare Stoudemire and newly aquired Tyson Chandler were unable to gel. Incredibly, after years of breaking down the team to get under the salary cap to sign these star players, it was the same old high priced, losing team with rapidly losing fan interest.

Now the player. Jeremy Lin always had a high level of ability, he just doesn’t possess the obvious physical skills that scouts looks for when evaluating talent. Unable to gain an athletic scholorship of his choice he chose to go to Harvard. His college career was impressive, but Ivy league players almost never get drafted by NBA teams. He showed promise in summer league games and signed a contract with Golden State as an undrafted player. Although popular with the Asian community of San Francisco he sat at the end of the bench for most of the season. Before the 2011 season he was cut by the Warriors and signed by the Houston Rockets only to be waived by them as well before the season started.

The Knicks needed help at point guard because of injuries and poor play. They signed Lin on December 27, but again he rarely played. By February 10 his contract was set to be guaranteed, so the Knicks had plans to cut him and sign a different player. About to be cut by a third team in less than a year, sleeping on his brother’s couch at night, Lin was at a low point. As we recall; however, the Knicks were in even worse shape. On February 4 in a game against the lowly New Jersey Nets the Knicks were struggling again and were about to lose their 10th game out of their last 11. At halftime Carmelo Anthony suggested to coach Mike D’antoni (who was on the verge of being fired) to give Lin more minutes. He ended up with 25 points and 7 assists as the Knicks came back and won the game. Lin started the next game and again scored over 20 points as the Knicks won again. The team won their next 5 games with Lin starting. He outplayed superstar Kobe Bryant and scored 38 points in a win against the Lakers and won a game with a last second 3 pointer against Toronto. He scored more points in his first 5 career game starts than any player since the NBA-ABA merger. The garden was rocking again with energy reminiscent of it’s former glory. This young, unheralded Asian American kid from California saved one of the most celebrated sports franchises.

The question begs to be asked. Does a story like this have any effect on the financial world? Usually it would have little or no effect, but this situation is somewhat unique. The Knicks are one of the only professional sports teams to be part of a publicly held corporation. The Knicks are owned by The Madison Square Garden Company (MSG). MSG owns the garden, MSG sports network, the Knicks, the Rangers of hockey, and some other entertainment assets. On February 3rd at the close of trading MSG shares were at $29.32. After 6 days of “Linsanity” the stock closed at $33.18 for a 13% move. There is a caveat to this. It’s not simply a matter of investors buying the stock because the Knicks are now winning and have this new marketable star. MSG had been  in negotiations with Time Warner  asking for higher subcription fees to broadcast their channel on the TW cable system. This sudden explosion of interest in the Knicks resulting in a 65% increase in their ratings can only have helped their negotiations with Time Warner and the new deal which was signed earlier this week can only have helped improve the bottom line of the company. So far it appears that in this one instance a dramatic sports story can effect a company’s stock price. As we see though, it was a combination of events which seemed to cause the stock spike. Ultimately, even MSG co. will be priced according to it’s bottom line financial information.

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