The Undervalued Future of the Madison Square Garden Company
The Madison Square Garden Company (MSG), comprised of MSG Entertainment and MSG Sports, will be splitting in two. The split is expected to be completed by the end of 2019.
MSG Entertainment owns and runs venues across the country and also produces shows. They have an extensive portfolio that includes Madison Square Garden, Radio City Music Hall, the Beacon Theater, and the Forum in Los Angeles. MSG Entertainment also hosts numerous shows in these venues, including ones by Jerry Seinfeld and Billy Joel, among many others.
MSG Sports is the owner of two of the most recognizable brands in all of the professional sports, the New York Knicks and the New York Rangers. The Knicks played in the NBA and are valued at $4 billion while the Rangers play in the NHL and are valued at $1.55 billion.
Some of the combined assets of MSG Entertainment and MSG Sports totals approximately $7.5 billion. The Knicks and Rangers are worth $5.6 billion combined, while the air rights that the MSG company owns are valued at $550 million, and MSG Entertainment’s celebrity nightlife group, Tao, is valued at $181 million. MSG also had $1.2 billion in cash on hand at the end of 2018. However, the $7.5 billion valuation excludes the value of other assets owned by the company. Those include other sports teams, arenas, and entertainment assets such as MSG Sphere locations in Las Vegas and London, as well as the e-sports teams owned by MSG sports.
With a share price of about $300, the market cap is currently $7.12 billion. However, since the assets mentioned above only total $7.5 billion, that means that the other arenas and sports teams owned by the company totals less than $400 million. Thus, these two groups are severely undervalued. MSG’s earning per share (as of March 2019) is $1.48, representing a $289.47% year-to-year increase. Revenue has increased by 12.53% to $517.19 million year-over-year.
MSG Company will spin off MSG Sports in a tax-free transaction, giving MSG shareholders two-thirds of the business. The remaining third will be retained as capital by MSG Entertainment. The CEO of MSG, James Dolan, will retain majority-voting control of the two companies.
Since the market is undervaluing the accumulation of all of MSG’s assets, a split into two companies could potentially unlock significant shareholder value.
Written by Gib Versfeld, Edited by Matt Durborow & Alexander Fleiss