Madison Square Garden (MSG) is trading at new all-time highs after announcing the board of directors has authorized management to explore a possible spin-off that would create a separately-traded public company comprised of its sports businesses, including the New York Knicks and New York Rangers professional sports franchises.
The proposed separation of the sports and entertainment businesses would enable shareholders to more clearly evaluate each company's assets and future potential, while allowing both companies to pursue their own distinct business strategy and capital allocation policy.
If the Company proceeds with the spin-off, it would be structured as a tax-free transaction to all MSG shareholders. Upon completion of the contemplated separation, record holders of MSG common stock would receive a pro-rata distribution, expected to be equivalent, in aggregate, to an approximately two-thirds economic interest in the pure-play sports company. The remaining common stock, expected to be equivalent to an approximately one-third economic interest in the sports company, would be retained by the live entertainment company. These shares are expected to be used to raise capital and/or exchange for the common stock of the entertainment company. James L. Dolan is expected to be the Executive Chairman and Chief Executive Officer of both companies.
The pure-play sports company is expected to include:
- The New York Knicks professional NBA sports franchise and its development team, the Westchester Knicks;
- The New York Rangers professional NHL sports franchise and its development team, the Hartford Wolf Pack;
- The New York Liberty professional WNBA sports franchise, for which the Company is exploring a sale; Knicks Gaming, the official NBA 2K esports franchise of the New York Knicks, and a majority interest in Counter Logic Gaming, a leading North American esports organization; and
- A professional sports team Training Center in Greenburgh, NY.
The live entertainment company is expected to include:
- A diverse collection of iconic venues: New York's Madison Square Garden, The Hulu Theater at Madison Square Garden, Radio City Music Hall and Beacon Theatre; the Forum in Inglewood, CA; The Chicago Theatre; and the Wang Theatre in Boston;
- MSG Bookings, an established industry leader, which effectively fills MSG's venues with a wide variety of the most exciting and unforgettable entertainment events. This business is expected to also include the Company's bookings of live sporting events such as college basketball and professional boxing, the results of which are currently reported as part of the Company's Sports segment. In fiscal 2017, the entertainment and sports bookings businesses attracted more than 800 events, which drew nearly 4 million people to MSG's venues;
- MSG Productions -- which includes the Radio City Rockettes and the Christmas Spectacular, the nation's number one live family holiday show with over 1 million tickets sold this past holiday season;
- Majority interests in TAO Group, a world-class hospitality group, and Boston Calling Events, producer of New England's preeminent Boston Calling Music Festival;
- Strategic entertainment joint ventures -- Azoff-MSG Entertainment and Tribeca Enterprises;
- An approximately one-third economic interest in the pure-play sports company; and
- Approximately $1 billion in cash on hand.
The live entertainment company will also continue to move forward with plans to create state-of-the-art venues -- called MSG Sphere. The goal is to open the first MSG Sphere in Las Vegas by the end of calendar 2020, followed by a second MSG Sphere in London approximately one year later.
Madison Square Garden was already up 26% year-to-date after rising 23% in 2017. The company is attempting to unlock more value on the idea that the sum-of-the-parts are worth more than the company's current valuation.
Madison Square Garden was successfully spun off from MSG Networks (MSGN) in 2015.
The New York Knicks are the NBA's most valuable franchise at ~$3.6 bilion, according to Forbes. That was up 9% compared to last year. Despite a lack of parity in the league, popularity of the NBA is on the rise globally.
MSG now has a market value of ~$7 billion but the enterprise value is just under $6 billion when you back out ~$1.1 billion in cash. The EV/EBITDA multiple north of 30x looks expensive but MSG is more of an asset play that garners scarcity value.