Hold The MSG? MSG To Separate Billy Joel From The Knicks In Planned Spinoff

Another serial spinner is at it again. In 2010, James Dolan spun off Madison Square Garden from its Cablevision empire in order to better value its sports and entertainment related businesses. Five years later the regional sports businesses got their own turn to shine via the spin off of MSG Networks (MSGN). Three years later and the Madison Square Garden Company (MSG) is breaking up again. The company plans on splitting itself into two pieces with one being a ‘pure play sports company’ and the other a ‘live entertainment company’.

The pure-play sports company will include:

  • The New York Knicks professional NBA franchise and its development team, the Westchester Knicks;
  • The New York Rangers professional NHL franchise and its development team, the Hartford Wolf Pack;
  • The New York Liberty professional WNBA 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.

and the live entertainment company would include:

  • World-class 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;
  • Our bookings business, which fills MSG’s venues with a wide variety of the most exciting and unforgettable entertainment events.  This business would 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 MSG Sports segment;
  • Productions, which includes the Radio City Rockettes and the Christmas Spectacular, the nation’s number one live family holiday show;
  • 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 [this might have sold] and Tribeca Enterprises;
  • An approximately one-third economic interest in the pure-play sports company; and
  • Approximately $1 billion in cash on hand.
  • Development of the Sphere business

Both seem like fun companies to be a part of! Although there is cross ownership between the companies to start, the live entertainment entity is expected to use its one third interest in the sports team business to either raise additional capital or for an exchange offer. Dolan lovers need not fret either (there are probably a few out there) since both companies will continue to be controlled by the Dolan family through their ownership of Class B shares.

Mr. Dolan recently gave an interview with ESPN and actually touched on a few shareholder and spinoff related issues:

On spinning off the Knicks and Rangers into a company separate from his entertainment properties, fueling speculation Dolan might sell the teams: “The teams are very valuable assets, and they get more valuable every year. I think that will continue to go on. But as a business, you’re not killing anybody with your growth. It’s single-digit growth. There’s really not any way to get it to go beyond that. … But it’s still a good asset. It’s better than putting your money in the bank...I can tell you that nobody in my family wants to sell the Knicks and Rangers.

This is actually a good point. Sports teams and sports rights are popular investments and many believe in the long term value. That said, it’s still a long term play with only occasional major catalysts such as team sales setting record prices or new TV deals that tend to really move the needle. Speaking of sales, would the Dolan family possibly sell the teams, particularly the Knicks, and bring joy to their fans?

On the belief among some high-ranking league executives that he has fielded offers upward of $5 billion for the Knicks: “No one has come through with a bona fide offer. You hear numbers all the time. … I think people have sent feelers out, but never any that were pursued. Yeah, [the feelers are] around that number [$5 billion], but those things, it’s like a stock price. It’s only important if you’re going to buy or sell.”

That last quote certainly sent shockwaves in the market, especially considering that Forbes estimates the team’s value to be about $3.6b. MSG’s entire market cap is approximately $6b so if the Knicks could really fetch $5b then there just be some more upside here. Of course, elsewhere in that same interview Mr. Dolan notes that while he is open to a sale as the CEO of a public company, he does not believe the family shareholders are interested in giving up the Knicks or the Rangers. The buzz from that article even led to a press release from the company which simply stated, ‘as we have previously stated, there are no plans to sell the Knicks.” Oh well.

Money does have a way of changing things though and historically the family – particularly Jim – has been willing to make bold business moves. For example, when we began this site about nine years ago, Mr. Dolan was the was CEO of Cablevision. He soon executed two spinoffs (AMC and MSG) and then sold the cable company for the massive price of ~$18b to Altice (now ATUS). Now he is orchestrating another breakup in a further attempt to deliver shareholder value. At the very least, as Dealbook notes, ‘The Dolans Are Better at Spinoffs Than Sports Coaching’.

The transaction is expected to be completed in the first half of the year, which is probably right about the time the Knicks and Rangers will be packing their bags after missing the playoffs another time.

Disclosure: Author holds no position in any stock mentioned, but has endured much suffering under Mr. Dolan as a lifelong Knicks and Rangers fan.