MSG Approves Plan to Spin-Off Sports Businesses In Their Entirety

JohnWallStreet

The New York Post reported on Sunday (11.3) that Silver Lake Partners was “angling to buy a big stake in both [the New York Knicks and the New York Rangers] before they’re spun off [MSG] into [their own] publicly traded company.” The Silicon Valley based private equity firm is already MSG’s largest shareholder (+/- 10%) outside of executive chairman James Dolan. 

But that won't be possible now (they'll have to acquire additional shares on the open market like everyone else), after The Madison Square Garden Company approved of a plan on Thursday to separate their sports assets - in their entirety - from the balance of their portfolio in Q1 '20 (a previous proposal had MSG retaining a 1/3 stake in the entertainment assets). Existing MSG shareholders will retain their “current economic interests” in both companies. 

The news comes just one day after activist investor Clifton Robbins, CEO of Blue Harbor Group (company has 4% stake in MSG), urged Dolan to sell a piece of the sports teams prior to the spin-off as a method of unlocking shareholder value (perhaps as much as +43%). Robbins maintains MSG's sports properties alone are worth $7.2 billion, 10% higher than the company’s entire current market cap ($6.68 billion).

Howie Long-Short: Sorry to disappoint, Knicks fans, but the proposed spinoff will leave Mr. Dolan in charge of the New York winter sports teams. As Marc Ganis (founder of the sports consultancy, Sportscorp.) emphatically stated, “[Dolan] has expressed very directly, on many occasions, to many parties, that he is not going to give up majority control [of either team]. There is absolutely no reason to believe he intends to do so now.” One hedge fund manager told the Post that the decision not to do a private deal with Silver Lake was positive news for the remainder of MSG shareholders in the event that Dolan does decide to unload the teams in the near future.

Wondering why MSG altered plans to keep a 1/3 stake in the entertainment assets? The 11.3 Post article suggested that the reason MSG was willing to sell a portion of their holdings in the pro sports teams in the first place was to fund the development of the ‘sphere’ projects (the one in Las Vegas is running +/- $500M over a $1.2 billion budget). But with the London venue delayed until '23 at the earliest, there is no need for a capital infusion. 

LightShed Partners pegs the value of the two New York sports teams at $4.7 billion. Ganis says that figure is “rich, but not offensively rich (like Robbins' estimate).” While some might suspect the Knicks alone would command bids upwards of $5 billion (Forbes valued them at $4 billion and the Rangers at $1.5 billion),“you have to see what is not going with the teams. How many years are the broadcast rights tied up for? What are the arena rent terms?” If the terms are favorable to MSG, it eliminates much of the upside in the clubs - hence the depressed price. 

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