The Knicks' recent success has translated to sold out games and increased TV ratings for the MSG network. Ratings and ticket sales then produce a ripple effect for ad revenue, concessions, and merchandise sales. Furthermore, winning basketball games leads to playoff berths, which give MSG an additional $3 million to $4 million revenue per game according to Credit Suisse analyst Michael Senno.

While MSG stock is on the rise in large part due to the Knicks' winning streak, it could also fall equally fast if the team were to return to its disappointing past. One recent event may directly trigger a Knicks decline, along with its correlating negative impact to MSG stock; the NBA's new Collective Bargaining Agreement (CBA). The CBA was agreed upon by NBA owners and the players' union with the goal of creating league-wide parity and shifting power away from large market teams, like New York, to small market teams like the Sacramento Kings or the Minnesota T-wolves.

The most concerning provision of the new CBA to the Knicks' hopes of continued financial and team success is a more punitive luxury tax, as well as a repeat offender penalty for those teams who exceed the tax threshold four out of five seasons. For the record, the Knicks have paid the luxury tax every season since its inception in 2000. However, for the 2012-13 season, teams were only required to pay $1 for every $1 above the luxury tax threshold. This season, the luxury tax threshold was $70.31 million. With a team salary of $81.4 million, the Knicks paid slightly more than $11 million, a justifiable price given the financial benefits of winning and potentially making the playoffs.

Unfortunately for the Knicks, the tax for next season is gradually more punitive for each $5 million increment over the luxury tax threshold. If the team maintains its $81.4 million payroll for the 2013-14 season, they will pay an approximate luxury tax of $19.75 million. The repeater offender luxury tax will kick in for the 2014-15 season, which taxes teams like the Knicks at an increasingly higher rate. Assuming the team's payroll stays flat for 2014-15, they will pay an approximate luxury tax of $31.25 million, pushing player expenditures over $110 million. This tax alone would equal the annual salaries of the Knicks' second and third highest earners. According to Forbes, the team brings in $243 million per year, meaning this luxury tax could single-handedly decrease revenue by close to 13 percent. This figure does not even include the potential negative impact to ticket sales, concessions, and merchandise if the team begins to lose.

The Knicks face extremely difficult personnel decisions for the 2014-15 season with Early Termination options for Carmelo Anthony and Amare Stoudemire available to management. Stoudemire has been a disappointment the last two seasons and would be the one most likely to leave, but will the team have enough money to sign a legitimate number two scorer behind Anthony if Stoudemire were to leave? Future star Iman Shumpert is also a free agent after the 2014-15 season and will demand a hefty raise. NBA Sixth Man of the Year and the team's second leading scorer J.R. Smith could leave the Knicks this summer without a long-term deal. Meanwhile, the Knicks still need to bring in top-level talent to compete with the Miami Heat and Indiana Pacers for a shot at the NBA Finals. On top of all these internal concerns, the NBA will distribute luxury tax collections as part of its revenue sharing program to boost the ability of small market teams to sign elite talent. Essentially, while the rest of the league gets stronger and more competitive, the Knicks will be attempting to fight the effects of an aging and increasingly expensive roster.

This presents long-term risk to MSG stock as there is certainly a correlation between the stock's performance and Knicks' wins. If management decides the luxury tax is too punitive, they could allow talented players to walk via free agency and replace with cheaper and inferior talent. They could choose to rebuild through the draft, which will undoubtedly result in growing pains and lackluster seasons. Certainly the Knicks have noticed that the most profitable team in the league, the Chicago Bulls, has yet to pay the luxury tax, while the Knicks have spent nearly $200 million over the past nine seasons with less success in the wins-losses column. The example set by the Bulls could lead Knicks' management to take a gamble with a cheaper roster, which presents significant risk to MSG stockholders.

There certainly is a chance that MSG is willing to pay the luxury tax considering the Knicks' place atop the Forbes' Most Valuable NBA Franchises list. MSG management has yet to be deterred by the less punitive luxury tax over the past decade. Perhaps the Knicks optimize the roster by dropping Stoudemire and replacing him with a legitimate superstar to pair with Carmelo Anthony, all while remaining at or below the current payroll baseline. Nonetheless, the NBA's new Collective Bargaining Agreement poses substantial short and long-term risk to the New York Knicks winning percentage, and MSG's stock performance as a result.

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Is this correct? I've never read anything about any ETOs for either player. Melo is supposed to have a player option for his last year and everything I've read says Amare's contract is completely guaranteed with no option years.

VCoug wrote:

The Knicks face extremely difficult personnel decisions for the 2014-15 season with Early Termination options for Carmelo Anthony and Amare Stoudemire available to management.

Is this correct? I've never read anything about any ETOs for either player. Melo is supposed to have a player option for his last year and everything I've read says Amare's contract is completely guaranteed with no option years.

He is wrong about that..Melo has the option...

VCoug wrote:

The Knicks face extremely difficult personnel decisions for the 2014-15 season with Early Termination options for Carmelo Anthony and Amare Stoudemire available to management.

Is this correct? I've never read anything about any ETOs for either player. Melo is supposed to have a player option for his last year and everything I've read says Amare's contract is completely guaranteed with no option years.

I was wondering the same thing. I believe that they had a typo and meant to suggest the ETO being available after the 2013-2014 season when both players have options on the deal. Either way, neither provision will affect us, so no need to worry.

franco12 wrote:I'm sorry, but the small market teams wouldn't be able to survive without big market teams- how many knick, laker, celtic & bulls fans fill arenas of small market teams when those team visit.

And San Antonio never needed any cap advantages to help their small market out - they have smart management.

Agreed. To be honest, the whole system is counterproductive to the league's bottomline. No matter how you cut it, big markets drive revenues. There obviously is a necessity to create parity but that initiative should be limited to draft picks and proper trade regulations; not limitations on spending.