Portfolio managers haven't benched the National Basketball Association yet.
Indeed, despite the partially canceled season, institutional investors are hanging onto their shares of companies that own NBA teams. They contend NBA franchises should continue to be a valued asset, even with the loss of ticket and concession revenues from the lockout.
The five public companies that own NBA teams are:
* Boston Celtics LP, which offers publicly traded stocks and bonds, and is the only pure play on the NBA;
* Ascent Entertainment Group Inc., which owns the Denver Nuggets;
* Ackerley Group Inc., which owns the Seattle Supersonics;
* Cablevision Systems Corp., which is majority owner of the company that owns the New York Knicks, as well as regional networks that broadcast NBA games; and
* Time Warner Inc., which owns the Atlanta Hawks, as well as cable networks TNT and TBS, broadcasters of NBA games nationally.
"I don't think it's a major negative to their stocks, unless the (entire) season is canceled," said Ron Leong, portfolio manager and director of research for Husic Capital Management, San Francisco. Husic owned 60,000 shares of Ackerley and 420,000 shares of Cablevision Systems as of June 30, according to CDA Investment Technologies Inc., Rockville, Md.
Only Boston Celtics is likely to be significantly hit by the stoppage.
"Not only is (Boston Celtics) a pure play, but it's a leveraged play," said Bill Nygren, partner with Harris Associates LP, Chicago, and portfolio manager of the Oakmark Select fund. Harris owns about 2 million shares of Ascent and 3.6 million shares of Cablevision, he said.
HUGE DEBT EXPOSURE
A change in Boston Celtics' capital structure earlier this year, spurred by the loss of favorable tax status, led the company to issue a huge amount of debt. As a result, debt stands at about three times equity, Mr. Nygren estimated.
At some point, the loss of revenue from the NBA lockout will affect Boston Celtics' ability to pay interest on its huge debt exposure, Mr. Nygren said.
And the Celtics don't have significant sources of revenue other than basketball.
"Every game you give up one-fortieth of gross profit," said Peter A. Russ, chief investment officer for Laidlaw Global Securities, New York.
Laidlaw doesn't invest in Boston Celtics, but Mr. Russ continues to follow it on the possibility that Celtics executives will eventually turn the company around.
He's not holding his breath.
"What's . . . frightening, even with (Rick) Pitino coaching, it's not a championship-caliber team yet," Mr. Russ said.
At some point, "the Celtics will have a hard time filling the stadium," he said.
The Celtics earned $2.17 per unit for the year ended June 30, with the effect of the lockout on earnings uncertain.
Celtics stock recovered late last week, as some progress was made in negotiations, following depressed prices during the lockout. Units were trading at about $10', up from a 52-week low of $7.
The dip was most likely because of the game stoppage, Mr. Russ said.
FEW INSTITUTIONS 'PLAY'
But institutions apparently have sidestepped the Celtics unit's price volatility. The most recent federal filings show just four institutions, all banks, owning 0.1% of Celtics stock, as of June 30. They are: American National Bank & Trust, Chicago; Barclays Global Investors, San Francisco, which owned the company as a component of the Wilshire 5000 Index; Fleet Financial Group Inc., Providence, R.I.; and Old National Trust, Evansville, Ind.
As far as the Celtics' debt goes, three Loomis Sayles mutual funds owned about $26,000 worth, as of Sept. 30, according to Morningstar Inc., Chicago. Loomis executives couldn't be reached.
The other public owners of NBA teams are better prepared to weather the lockout.
Ackerley, a billboard company, derives only about 20% of revenues from the Supersonics, according to an estimate by Mr. Leong of Husic.
For now, the stoppage could be a positive for teams paying more in salaries than they are receiving from ticket and concession sales.
Ackerley's most recent annual report says the Sonics posted a negative operating cash flow of $7.05 million in 1997.
Matthew Kaufler, portfolio manager for Clover Capital Management Inc., Pittsford, N.Y., said "it wouldn't be devastating," and it could be a positive, for Ascent Entertainment if the season were canceled.
WON'T GET MUCH WORSE
"The Nuggets have been a struggling franchise the last few years," and with no salaries to pay, short-term operating losses would be reduced, he said.
Even with a complete loss of the season, the most they could lose, on a profit and loss basis, would be about $5 million, he said.
"It's kind of tough for it to get worse," he said.
Clover owns 1.5 million shares of Ascent and wasn't planning any buying or selling of the stock, Mr. Kaufler said.
Ascent's 1997 annual report notes that company executives expect the Nuggets to post another loss in 1998, but it doesn't provide a breakout.
Regardless of whether the season is salvaged, Mr. Kaufler hopes Ascent will decide to sell the Nuggets, which would be of more value to a different kind of entertainment company.
"It's sort of a waiting game here," Mr. Kaufler said.
Ascent in general was viewed as an undervalued collection of assets with potential for a higher market valuation, but under an eventual change in structure.
Mr. Nygren of Harris said Ascent's assets are valued by the market at about $7 a share, but properly valued they're worth about $14.
In addition, Ascent has well-connected directors on its board, raising the likelihood that synergistic restructurings are in the offing, he said.
So even though about 30% of Ascent's assets are tied to the Nuggets and its other sports property, the Colorado Avalanche, he is bullish on Ascent's prospects.
"No matter what happens to the NBA season this year, it's not going to change my opinion," Mr. Nygren said.
LITTLE EFFECT ON 2
Meanwhile, both Cablevision and Time Warner derive so little of their revenue from their NBA team ownership, that even if the NBA shut down completely and for good, their valuations would hardly be affected, investors said.
"We like very much what (Cablevision executives) are doing," said Charles P. McQuaid, co-manager of Wanger Asset Management LP's Acorn Fund in Chicago.
A permanent shutdown of the NBA, with nothing to replace it -- an unlikely scenario -- would trim only about 2% to 3% from Cablevision's business, he said. A temporary stoppage would barely register, he said. (The Knicks' other two owners are Fox Entertainment, which News Corp. will be offering to the public this year, and Liberty Media, an affiliate of Tele Communications Inc).
Acorn owns about 900,000 shares of Cablevision.
The same holds true, but more so, for media and entertainment behemoth Time Warner.
But because the NBA had never before missed games from labor issues, it's an open question as to what the long-term effects might be.
Mr. Nygren pointed to the successful rebound major league baseball experienced following its season-ending stoppage in 1994.
"I don't think you ever saw franchise values step down," he said.
The lockout could be beneficial to teams, Mr. McQuaid said, if a salary structure that makes more financial sense results.
"Keep in mind, the biggest issue with sports is players' salaries. A number of teams aren't making much money.
"If they come out of it with a better economic model, in the long run it will be a positive," he said.
There are broader trends at work as well, some argue. Consumers have many entertainment choices, yet any proven entertainment content, such as the NBA, is going to command a high value, said Husic's Mr. Leong.
"Owners of content are really in the driver's seat," he said.
But without an eventual return of NBA basketball, the value of their franchises will erode.
"The longer the (stoppage) is, it gets progressively more negative," Mr. Leong said.
Furthermore, Mr. Russ of Laidlaw argued that NBA fans are relatively more fickle.
"The fan base is less loyal than it is to either football or baseball," he said.
