Madison Square Garden Splits Off Sports and Entertainment Divisions, Wall Street Yawns
The Madison Square Garden Co. completed its spin-off of its sports and entertainment divisions from its television network on Thursday, creating a standalone, publicly traded company from its storied sports franchises and entertainment values .
While the company believed the separation would benefit shareholders, the post-spin-off companies have about the same value as their predecessor. The stocks traded at about $72 per share, about the same as before the spinoff and "way off the 52-week high," Albert Fried & Co. analyst Rich Tullo told the New York Post.
The The Madison Square Garden Company, as the spin-off is named, includes prominent venues and professional sports teams such as the New York Knicks and New York Rangers. The prior company changed its name to MSG Networks and includes the MSG television network and the broadcast rights to the Knicks, Rangers and other sports teams. The two divisions had revenue of $1.07 billion and a net loss of $40.7 million in the year ended June 30. MSG Sports had revenue of $656.7 million, while MSG Entertainment had revenue of $414.2 million.
Companies often spin off divisions to unlock unseen value. When a company feels investors don't appreciate a particular business, and in turn place too little value on the conglomerate, it may sell the business in an attempt to provide greater value to shareholders. This was the case when online travel company Expedia sold off its fast-growing TripAdvisor division in 2011. Expedia itself was spun off from a far more complex IAC/InterActiveCorp in 2005.
The Madison Square Garden Company's most sizable assets include the Madison Square Garden in Manhattan, the second-highest grossing entertainment venue its size in the country, according to Billboard's 2014 rankings. The adjacent Theater at Madison Square Garden holds roughly 5,600 people. MSG leases two other large venues in Manhattan, the 6,000-capacity Radio City Music Hall and the 2,800-capacity Beacon Theatre. The company owns the Forum, the former home of the Los Angeles Lakers, and the Chicago Theatre, and holds a booking agreement with the Wang Theatre in Chicago.
MSG also owns 50 percent of Azoff-MSG, a joint venture with music industry veteran Irving Azoff that focuses on music management, performance rights, comedy and marketing. The IPO filing shows MSG's investment as of June 30, 2014 was only $193,717. The value of MSG's investment was $118,717 on June 30. The rest of the value comes from a $100,000 revolving credit facility MSG provides the joint venture, of which Azoff-MSG had outstanding loans of $75,000.
This particular spinoff would make sense if the venues or sports teams involved had been undervalued. However, according to a report some people believe the Madison Square Garden venue is worth at least twice that of analysts' estimates. The company could have thought its sports teams are worth more than the stock price reflected... though its sports teams may have also been undervalued, especially since the New York Knicks will start benefiting from the $24 billion television deal for the NBA that starts next year.
Being a standalone company could help MSG Networks use its sports broadcasting to fight against the cord-cutting trend that's upsetting the cable industry. In this scenario, it's no surprise the Dolan family, which owns a controlling interest in MSG Networks and the spin-off company, agreed last month to sell Cablevision to French company Altice for $9.8 billion. Viewers will still pay top dollar for live sporting events.