MSG - The Madison Square Garden Company

[peridotcapital]

For those invested in the MSG universe, are you also in Liberty Braves?  It seems to trade at a large discount to Forbes valuation plus real estate assets.  If one is preferred over the other are there any particular reasons?  Thanks for your thoughts.

 

Getting the Braves assets for sub-$1B looks like an absolute steal. It might take 2-3 years for this to get back to where it was, but it's very rare to be able to buy a pro sports team at such a big discount.  Doesn't take anything away from MSGS -- I happen to like both quite a bit -- but the Braves might even be cheaper at this exact point in time.

[jgyetzer]

Thanks.  Those responses both make sense to me.  I also wondered if BATRA was further discounted because baseball is currently missing a season whereas the NBA has a bit of time before it would potentially miss an entire season.  To me, both also look like cheap assets.

[Spekulatius]

Thanks.  Those responses both make sense to me.  I also wondered if BATRA was further discounted because baseball is currently missing a season whereas the NBA has a bit of time before it would potentially miss an entire season.  To me, both also look like cheap assets.

 

I think one issue with BATRA is that in addition to owning a sports team, it is also a real estate developer.

[Castanza]

Thanks.  Those responses both make sense to me.  I also wondered if BATRA was further discounted because baseball is currently missing a season whereas the NBA has a bit of time before it would potentially miss an entire season.  To me, both also look like cheap assets.

 

I think one issue with BATRA is that in addition to owning a sports team, it is also a real estate developer.

 

Is there any connection to minor league teams? There was a mention of the MLB axing multiple teams.

 

https://www.baseballamerica.com/stories/sources-milb-ready-to-agree-to-significant-reduction-in-teams/

 

[Gregmal]

Thanks.  Those responses both make sense to me.  I also wondered if BATRA was further discounted because baseball is currently missing a season whereas the NBA has a bit of time before it would potentially miss an entire season.  To me, both also look like cheap assets.

 

I think one issue with BATRA is that in addition to owning a sports team, it is also a real estate developer.

 

Is there any connection to minor league teams? There was a mention of the MLB axing multiple teams.

 

https://www.baseballamerica.com/stories/sources-milb-ready-to-agree-to-significant-reduction-in-teams/

 

I wouldnt classify any of them as material. You're typically seeing these things go for between $5-$20M per.

[spartan]

Finally found some positive comments about Dolan.

 

Mind you, this article was written 13 years ago and mainly talks about his flaws. (Page 5 of https://web.archive.org/web/20070502202339/http://sportsillustrated.cnn.com/2007/writers/the_bonus/02/06/price.knicks0212/index.html)

 

--

 

"You couldn't ask for a better owner," says former Edmonton Oilers and Rangers great Mark Messier. "He'll do anything in his power to create an environment that's exactly what a player's looking for: state-of-the-art facilities, willingness to spend money to try to win, the way the team is treated. There's not a better place to play in the league, period. He's taken a bad rap. Jim would do anything for a championship ring with the Knicks or Rangers and has proven he will. Almost to a fault."

 

Wayne Gretzky, who played for the Rangers from 1996 to '99 and is now the Phoenix Coyotes' part owner and coach, calls his experience with Dolan "tremendous. He would call players in if they had family issues, or their wives were pregnant or somebody was sick, and he would personally get involved. That's someone who genuinely cares."

 

In 2005 Dolan took a particular interest in Vin Baker, the four-time All-Star whose career was derailed by alcohol abuse. He met with Baker five times during the one season Baker played for the Knicks, sharing his own struggle, acting less like a boss than "like a person in recovery, like a sponsor," Baker says. In the summer of '04 Dolan stunned Baker by showing up at his golf tournament in Hartford. "I had no idea he was coming," Baker says. "I gave him a great big hug. He was just checking on me."

[Spekulatius]

Pretty good presentation from Boyar value on MSGE and MSGS. They also touch upon AMCX and MSGN.

 

I do agree they MSGN as a stand-alone makes no sense and that it might be recombined with MSGS. One concern I have with  MSGS is they sport team appreciation might hit a valuation limit, due to the cable suffering which in the end pays the bills. I looked at MSGS pro forma revenues and they haven’t really grown at all for the last few years. This is also apparently just looking at MSGN performance where the cable fee economics reside.

[Gamecock-YT]

Until Dolan is gone this thing is a value trap. Sorry, the dude has no incentive to sell and uses it like his personal play-thing. If you really want a sports team go with the Braves, there you know if they get a high enough bid they will sell it.

[Gregmal]

The perception of a Dolan discount has been a great gift to current MSG entity shareholders. If you look at the long term performance of all the companies, there is no basis for the narrative. If you follow the headlines about some of the stupid or childish shit he does, then it makes sense. He doesnt have any attachment to the sports teams, and if someone makes a good enough offer, he will likely sell. If he can sell his fathers empire, Cablevision, no reason to assume anything else is off limits. If there is one thing he'll never sell IMO it is the Garden.

[LC]

I don't think he'd ever sell the knicks. They're a toy & status symbol (same with the garden). Cablevision is simply a business.

 

In fact I'd say there's a greater chance the Garden sells, if somehow another huge venue gets build in manhattan. That is a higher probability event (IMHO) vs. adding another NBA team.

[Spekulatius]

I don't think he'd ever sell the knicks. They're a toy & status symbol (same with the garden). Cablevision is simply a business.

 

In fact I'd say there's a greater chance the Garden sells, if somehow another huge venue gets build in manhattan. That is a higher probability event (IMHO) vs. adding another NBA team.

Boyar thinks that Dolan would rather sell the sports teams than MSGE. He doesn’t really actively manage the teams much, but is an aspiring artists, so it seems to be that the LV sphere Is his project (and it’s a terrible idea, imo).

 

I own some MSGS and  upon thinking about this from various angles , the thesis hinges upon Sports team becoming more expensive and I am not sure how strong of a thesis this is. I think the economic value of sports may be maxed out and we are seeing the problem with the cable bundle which looks like it is pricing itself out of the Market.

 

As far as the Braves are concerned, I think baseball is in a secular decline (horrible aging demographics, no international viewership), so I think it is a way less interesting asset than the Knicks or the Rangers. I do acknowledge the discount to fair value, but I think the key isn’t buy the assets rather than the cheapest ones.

[D33pV4lue]

I don't think he'd ever sell the knicks. They're a toy & status symbol (same with the garden). Cablevision is simply a business.

 

In fact I'd say there's a greater chance the Garden sells, if somehow another huge venue gets build in manhattan. That is a higher probability event (IMHO) vs. adding another NBA team.

Boyar thinks that Dolan would rather sell the sports teams than MSGE. He doesn’t really actively manage the teams much, but is an aspiring artists, so it seems to be that the LV sphere Is his project (and it’s a terrible idea, imo).

 

 

I'm sorry but I could not disagree more. Dolan is hands-off with the rangers, which is why they are a half-decent team that is able to attract talent and compete. The Knicks on the other hand are a complete disaster and have Dolan's fingerprint ALL over it. Banning Charles Oakley, Phil Jackson drama, trading for Melo when you could have gotten him in Free Agency, Spike Lee drama, and MANY MANY MORE. There are numerous reports from ex front office workers who say while Dolan maintains the stance that he is hands-off he is very much in control of the team. Last year NBA Free Agency had some of the biggest names and NOT one of them even considered coming to the Knicks. That says alot.

[Gregmal]

I dont really want to like the E piece of MSG, but a $400M EV is pure insanity. The air rights alone are possibly worth more than that. The London land is possibly $100M itself. Both irrelevant inputs to the whole thing but significant at current valuation.

[Foreign Tuffett]

I don't think he'd ever sell the knicks. They're a toy & status symbol (same with the garden). Cablevision is simply a business.

 

In fact I'd say there's a greater chance the Garden sells, if somehow another huge venue gets build in manhattan. That is a higher probability event (IMHO) vs. adding another NBA team.

Boyar thinks that Dolan would rather sell the sports teams than MSGE. He doesn’t really actively manage the teams much, but is an aspiring artists, so it seems to be that the LV sphere Is his project (and it’s a terrible idea, imo).

 

 

I'm sorry but I could not disagree more. Dolan is hands-off with the rangers, which is why they are a half-decent team that is able to attract talent and compete. The Knicks on the other hand are a complete disaster and have Dolan's fingerprint ALL over it. Banning Charles Oakley, Phil Jackson drama, trading for Melo when you could have gotten him in Free Agency, Spike Lee drama, and MANY MANY MORE. There are numerous reports from ex front office workers who say while Dolan maintains the stance that he is hands-off he is very much in control of the team. Last year NBA Free Agency had some of the biggest names and NOT one of them even considered coming to the Knicks. That says alot.

 

The title of the long Bloomberg piece that came out last year ("Is the Knicks’ James Dolan the Worst Owner in Professional Sports?") really says it all.

 

https://www.bloomberg.com/news/features/2019-07-26/is-the-knicks-james-dolan-the-worst-owner-in-professional-sports

[wabuffo]

the thesis hinges upon Sports team becoming more expensive and I am not sure how strong of a thesis this is

 

There are two things that drive the value of a sports franchise (particularly one whose franchise covers the greater New York area).

 

1) Scarcity value - these franchises rarely come onto the market.  When they do, it may be the only opportunity to buy one for a generation.  This is especially true for a NYC team because of the value of local broadcast rights in the US's largest TV market for live sports (in addition to league broadcast money).

 

2) The tax benefits it provides to a rich owner with large amounts of taxable income.  Almost all of the purchase price becomes tax deductible over a fifteen year period.  The deal can be structured so as to pass through the tax deductions directly to the owner in order to offset his/her personal taxes.  That's why a Steve Ballmer paid so much for the LA Clippers.  He can deduct his 1/15th of his purchase price every year against his personal income tax and reduce his taxable income from his ownership of Microsoft stock.  At top marginal tax rates, the net present value of that tax deduction gets built into the purchase price to some degree such that the real, after-tax cash acquisition price to the buyer is lower than the reported price.

 

If/when the NY Knicks go on sale, there will be no shortage of buyers willing to pay top dollar.

 

wabuffo

[Castanza]

the thesis hinges upon Sports team becoming more expensive and I am not sure how strong of a thesis this is

 

There are two things that drive the value of a sports franchise (particularly one whose franchise covers the greater New York area).

 

1) Scarcity value - these franchises rarely come onto the market.  When they do, it may be the only opportunity to buy one for a generation.  This is especially true for a NYC team because of the value of local broadcast rights in the US's largest TV market for live sports (in addition to league broadcast money).

 

2) The tax benefits it provides to a rich owner with large amounts of taxable income.  Almost all of the purchase price becomes tax deductible over a fifteen year period.  The deal can be structured so as to pass through the tax deductions directly to the owner in order to offset his/her personal taxes.  That's why a Steve Ballmer paid so much for the LA Clippers.  He can deduct his 1/15th of his purchase price every year against his personal income tax and reduce his taxable income from his ownership of Microsoft stock.  At top marginal tax rates, the net present value of that tax deduction gets built into the purchase price to some degree such that the real, after-tax cash acquisition price is lower than the reported price.

 

If/when the NY Knicks go on sale, there will be no shortage of buyers willing to pay top dollar.

 

wabuffo

 

I think this analysis makes a lot of sense. The quality of the team has almost nothing to do with the franchise itself. This is especially true for iconic teams. The Yankees haven't won a World Series since 2009 (prior to that it was 2000). Yet at the same time their estimated franchise value has climbed from 1.7B in 2011 -> 5B in 2020 https://www.forbes.com/teams/new-york-yankees/#75a21dbe4e6e

 

 

[Gregmal]

Art doesnt have a cash flow, and the owners are often cunts. Sports teams are the same type of asset. If they traded based on their ability to make money, they wouldn't be worth very much.

[KJP]

Art doesnt have a cash flow . . . .

 

Do you talk that way in person to people you don't know well? If no, why talk that way here?

[Gregmal]

Art doesnt have a cash flow . . . .

 

Do you talk that way in person to people you don't know well? If no, why talk that way here?

 

I do. I am a little tone deaf sometimes. Actually most of the time.

[Foreign Tuffett]

How much annual rent are the Knicks and Rangers paying?

[Spekulatius]

How much annual rent are the Knicks and Rangers paying?

 

I think the answer is found here :

https://www.sec.gov/Archives/edgar/data/1636519/000119312520117288/d836296dex991.htm

 

Increase in operating lease expense (2019):  $67.96M

 

[Gregmal]

"  (n) The Garden is used by both the Registrant and MSG Entertainment in their respective operations. The Arena License Agreements require the Knicks and the Rangers to pay a license fee to MSG Entertainment in exchange for the right to use The Garden. The term of each Arena License Agreement is 35 years and each Arena License Agreement requires the applicable team to pay MSG Entertainment base rent subject to an annual 3% escalator. The Registrant will recognize lease expense on a straight-line basis over the 35-year term based upon the value of total future payments under the Arena License Agreements."

 

Using that I get to about $73M run rate for current fiscal year. I'd imagine there are step ups as will, should either team ever play playoff games in the Garden again. Even with a return to normal, thats questionable for the Knickerbockers.

[Gregmal]

https://www.espn.com/nba/story/_/id/29511700/glen-taylor-exploring-wolves-sale-kevin-garnett-interested

 

One of the least valuable teams in the NBA going up for sale. Pre Covid Forbes sticker $1.375B. Lets see what happens, but waiting for another Covid narrative to get blown out of the water....sports teams are less valuable? Dont think so.

[txvalue]

Sales like the Royals and Marlins have pretty well shown the bottom of the market for teams.  If the T-Wolves can get 1.2B plus w/o moving the team, which is the rumored starting point for discussions it will be yet another data point corroborating that.

[Foreign Tuffett]

Sales like the Royals and Marlins have pretty well shown the bottom of the market for teams.  If the T-Wolves can get 1.2B plus w/o moving the team, which is the rumored starting point for discussions it will be yet another data point corroborating that.

 

Why aren't you making a distinction between NBA and MLB teams?