Realizing Intrinsic Value: The NBA Playoffs Edition

Posted by on May 1st, 2014

This is one of my favorite times of the year…the days are longer, the weather is getting warmer, and of course, the NBA playoffs are in full swing.  And if you thought I could only write one blog relating professional basketball to investor relations — you were wrong.

In IR, our biggest responsibility is being able to understand and communicate the intrinsic value of our clients’ businesses to the investment community. There is really a method to this madness. What I mean is; there are several indicators that we know investors are looking for, as they indicate a story’s value potential.

The same is true when evaluating a team as a potential contender for the NBA championship. There are a few fundamental aspects of a team that give them that “secret sauce,” which is essential in order for them to be considered contenders.  There are a few similarities here, let me explain.

Recurring Revenue — The Superstar

When evaluating a Company as a potential investment idea, one of the most attractive characteristics is the businesses’ ability to generate and maintain recurring revenue. Investors always look for Companies that are able to minimize fluctuations /declines in their income statements; it reflects their ability to fight attrition, and a strong customer base can provide organic growth opportunities. This is why many people say that the best business to be in is subscription. I don’t want to use the word safety net, but proven recurring revenue definitely instills investor confidence.

In the same vein, there are few teams that have won the NBA championship without the help of a Superstar caliber player. These individuals provide dependable, unstoppable production, game-in and game-out — especially during the post-season. I mean it costs a lot to employ one of these guys, but hey, even the Detroit Pistons were surprised when they won in 2004.

The Differentiator — Defense

One of the first questions we ask any new IR or PR client here at KCSA is: “What differentiates your business from the rest of the market? What’s your competitive advantage?” This seems obvious, but it really is essential when trying to communicate intrinsic value to an investor.

The same applies to the NBA, but in a league filled with the most talented 375 guys on Earth, the competitive advantage for a championship contender almost always is team defense. Again, I know the cliché “defense wins championships” seems reiterated here, but I think it’s a fair assessment. Every team in the NBA can score in volumes, but the biggest differentiator for success is their ability to prevent scoring.


From an investor’s standpoint, experienced and seasoned industry experts at the helm of a company can be a very attractive and almost invaluable asset, for obvious reasons. Knowing that individuals “who’ve done it before” are in the driver’s seat is a definite value add, and for an investor, assures them an accessible and transparent management team.

Whether it is the coaching staff, the roster, or even the front office — experience matters in the NBA, just the same as it does for a public Company. These organizations strive to hire people who they know have “done it before” and who they believe, if in the right circumstances, are capable of doing it again.

Going forward, I hope this strategic approach bears fruit for my favorite team, the New York Knicks.