Basketball fans around the globe are feeling foul these days. The National
Basketball Association canceled the first two weeks of the regular season, and
by the looks of the divide between the two negotiating parties, more
cancellations appear to be a certainty. The NBA's lockout has already been in
effect for four months. Now, the split between the owners and the players
seemingly threatens the entire 2011-12 season. I don't presume to be qualified
to pass judgment on which side of the bargaining table has the stronger
argument. I do know, however, that the biggest bone of contention is the revenue
split of so-called basketball-related income, or BRI. The owners want a higher
percentage of BRI, and while the players say they are willing to reduce their
share of BRI, an agreement on percentages is still very far away. What I do feel
qualified to do is warn investors about the stocks that stand to suffer the most
from a protracted NBA lockout, and/or a complete cancellation of the upcoming
season. Here are four stocks to pass on due to the NBA lockout. The Madison
Square Garden Co. Shares of The Madison Square Garden Co. (NASDAQ: MSG ) were
downgraded to neutral by Bank of America Merrill Lynch in August, as analysts
from the firm cited the lost income caused by the NBA work stoppage. "Despite
our continued belief in MSG's robust long-term story … we think the shares
will be unlikely to outperform over the near-term with $90 million of adjusted
operating cash flow at risk from a full-season NBA lockout," the analysts
wrote in a note. The firm lowered its price target for MSG shares to $28. During
the past three months, MSG shares have dropped 8%, and there could be more
downside to come if the NBA season is terminated. Nike Athletic footwear and
apparel giant Nike (NYSE: NKE ) is one of the world's most popular brands. The
company also controls about 90% of the $2.4 billion basketball footwear market.
The loss of this high-profile NBA spokesman almost certainly will put a crimp in
the company's bottom line. Although Nike has plenty of other revenue streams
to keep the bulk of their massive income rolling in, and though it gets massive
exposure from a variety of both professional and collegiate sports to help fuel
that income, the loss of brand exposure via the NBA is impossible to replace.
Walt Disney Co. Media giant Walt Disney Co. (NYSE: DIS ) is another company with
massive revenue streams that can shield it from a loss of NBA-generated revenue.
However, the revenue from sports broadcasting is quite substantial. Disney owns
ESPN and ABC, and it receives about 55% of its revenues from sports television.
After the football season is over, basketball assumes the top draw for sports
viewership. But without a NBA season, Disney is going to see a revenue drop,
perhaps enough to put pressure on earnings per share going forward and by
extension, the price of DIS shares. Footlocker Athletic footwear retailer
Footlocker, Inc. (NYSE: FL ) features the latest in basketball shoes, and with
an absence of an NBA season, the company is liable to feel the pinch in its
sales. Footlocker's traditional customer base is the young male athlete who
loyally buys his hero's favorite brand. That all-important brand recognition
will be less than robust with no NBA season. As of this writing, Jim Woods did
not own a position in any of the aforementioned stocks.
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